<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from
____ to ____
Commission File Number 0-20421
TELE-COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
State of Delaware 84-1260157
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Tele-Communications, Inc. Series A TCI Group Common Stock,
par value $1.00 per share
Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share
Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series A TCI Ventures Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
Stock, par value $.01 per share
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
--------
The aggregate market value of the voting stock held by nonaffiliates of
Tele-Communications, Inc., computed by reference to the last sales price of such
stock, as of the close of trading on January 30, 1998, was approximately
$21,264,000,000.
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of treasury shares and shares held by subsidiaries), as of January
30, 1998, was:
Tele-Communications, Inc. Series A TCI Group common stock -
480,386,628 shares,
Tele-Communications, Inc. Series B TCI Group common stock -
38,882,055 shares,
Tele-Communications, Inc. Series A Liberty Media Group common stock
- 325,033,596 shares, Tele-Communications, Inc. Series B Liberty
Media Group common stock - 31,681,124 shares,.
Tele-Communications, Inc. Series A TCI Ventures Group common stock -
390,013,394 shares, and Tele-Communications, Inc. Series B TCI
Ventures Group common stock - 32,100,604 shares.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's definitive Proxy Statement to be used in
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connection with the 1998 Annual Meeting of Stockholders are incorporated
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by reference in Part III of this Form 10-K.
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TELE-COMMUNICATIONS, INC.
1997 ANNUAL REPORT ON FORM 10-K
Table of Contents
<TABLE>
<CAPTION>
Page
PART I ----
<S> <C> <C>
Item 1. Business ......................................................................... I-1
Item 2. Properties ....................................................................... I-89
Item 3. Legal Proceedings ................................................................ I-90
Item 4. Submission of Matters to a Vote of Security Holders .............................. I-100
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ..................................................... II-1
Item 6. Selected Financial Data .......................................................... II-4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................. II-9
Item 8. Financial Statements and Supplementary Data ...................................... II-70
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .......................................... II-70
PART III
Item 10. Directors and Executive Officers of the Registrant ............................... III-1
Item 11. Executive Compensation ........................................................... III-1
Item 12. Security Ownership of Certain Beneficial Owners
and Management .................................................................. III-1
Item 13. Certain Relationships and Related Transactions ................................... III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ............................................................. IV-1
Appendix A. Glossary of Defined Terms ...................................................... A-1
</TABLE>
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PART I.
Item 1. Business.
(a) General Development of Business
Tele-Communications, Inc. ("TCI" or the "Company"), through its
subsidiaries and affiliates, is principally engaged in the construction,
acquisition, ownership, and operation of cable television systems and the
provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. The Company also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. The Company is a Delaware corporation and was
incorporated in 1994. TCI Communications, Inc. ("TCIC"), a subsidiary of TCI,
and its predecessors have been engaged in the cable television business since
the early 1950's.
On August 3, 1995, TCI issued Tele-Communications, Inc. Series A
Liberty Media Group Common Stock, par value $1.00 per share ("Liberty Group
Series A Stock") and Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, par value $1.00 per share ("Liberty Group Series B Stock," and
together with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of TCI's
assets which produce and distribute programming services ("Liberty Media
Group"). For additional information concerning the Liberty Media Group, see
"Narrative Description of Business - Liberty Media Group."
On August 28, 1997, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue the Tele-Communications, Inc. Series A
TCI Ventures Group Common Stock, par value $1.00 per share (the "TCI Ventures
Group Series A Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series B
Stock," and together with TCI Ventures Group Series A Stock, the "TCI Ventures
Group Stock"). The TCI Ventures Group Stock is intended to reflect the separate
performance of "TCI Ventures Group," which is comprised of TCI's principal
international assets and businesses and substantially all of TCI's non-cable and
non-programming assets. For additional information concerning the TCI Ventures
Group, see "Narrative Description of Business - TCI Ventures Group."
Effective February 6, 1998, the Company issued stock dividends to
holders of Liberty Group Stock (the "1998 Liberty Stock Dividend") and TCI
Ventures Group Stock (the "Ventures Stock Dividend"). The 1998 Liberty Stock
Dividend consisted of one share of Liberty Group Stock for every two shares of
Liberty Group Stock owned. The Ventures Stock Dividend consisted of one share of
TCI Venture Group Stock for every one share of TCI Ventures Group Stock owned.
The 1998 Liberty Stock Dividend and the Ventures Stock Dividend have been
treated as stock splits, and accordingly, all share and per share amounts have
been retroactively restated to reflect the 1998 Liberty Stock Dividend and the
Ventures Stock Dividend.
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In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock for up to 188,661,300 shares of Tele-Communications, Inc. Series
A TCI Group Common Stock, par value $1.00 per share (the "TCI Group Series A
Stock") and up to 16,266,400 shares of Tele-Communications, Inc. Series B TCI
Group Common Stock, par value $1.00 per share (the "TCI Group Series B Stock,"
and together with the TCI Group Series A Stock, the "TCI Group Stock"),
respectively. The exchange ratio for the Exchange Offers was two shares (as
adjusted) of the applicable series of TCI Ventures Group Stock for each share of
the corresponding series of TCI Group Stock properly tendered, up to the
indicated maximum numbers. Upon the September 10, 1997 consummation of the
Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and 16,266,400
shares of TCI Group Series B Stock were exchanged for 377,322,600 shares of TCI
Ventures Group Series A Stock and 32,532,800 shares of TCI Ventures Group Series
B Stock (the "TCI Ventures Exchange").
The TCI Group Stock is intended to reflect the separate performance of
TCI and its subsidiaries and assets not attributed to Liberty Media Group or TCI
Ventures Group. Such subsidiaries and assets are referred to as "TCI Group" and
are comprised primarily of TCI's domestic cable and communications business. For
additional information concerning the TCI Group, see "Narrative Description of
Business - TCI Group."
The TCI Group Series A Stock, TCI Ventures Group Series A Stock and the
Liberty Group Series A Stock are sometimes collectively referred to herein as
the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
Series B Stock and Liberty Group Series B Stock are sometimes collectively
referred to herein as the "Series B Stock."
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and TCI
Ventures Group for the purpose of preparing their respective combined financial
statements, the change in the capital structure of TCI resulting from the
redesignation of TCI Group Stock and issuance of Liberty Group Stock and TCI
Ventures Group Stock 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, Liberty Group Stock and TCI Ventures
Group Stock are common stockholders of TCI and are subject to risks associated
with an investment in TCI and all of its businesses, assets and liabilities. The
redesignation of TCI Group Stock and issuance of Liberty Group Stock and TCI
Ventures Group Stock did not affect the rights of creditors of TCI.
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 Series A 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.
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On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI. Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares in an account at the Investment Bankers. If the market value of
the Option Shares exceeds the Investment Bankers' cost, Option Shares with a
fair value equal to the difference between the market value and cost will be
segregated from the other Option Shares. If the market value of the Option
Shares is less than the Investment Bankers' cost, the Company, at its option,
will settle such difference with shares of TCI Group Series A Stock or TCI
Ventures Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, the Company is required to pay the Investment
Bankers a quarterly fee equal to the London Interbank Offered Rate ("LIBOR")
plus 1% on the Sale Price, as adjusted for payments made by the Company pursuant
to any quarterly settlement with the Investment Bankers. During the fourth
quarter of 1997, the Company repurchased 4,000,000 shares of TCI Group Series A
Stock from one of the Investment Bankers for an aggregate cash purchase price of
$66 million. Additionally, as a result of the Exchange Offers and certain open
market transactions, the Investment Bankers disposed of 4,210,308 shares of TCI
Group Series A Stock and acquired 23,407,118 shares (as adjusted for the
Ventures Stock Dividend) of TCI Ventures Group Series A Stock during the last
half of 1997 such that the Option Shares were comprised of 16,402,082 shares of
TCI Group Series A Stock and 23,407,118 shares (as adjusted for the Ventures
Stock Dividend) of TCI Ventures Series A Stock at December 31, 1997. At December
31, 1997, the market value of the Option Shares exceeded the Investment Bankers'
cost by $325 million. In connection with the Exchange and Sale, Dr. Malone
agreed to forgo the exercise of certain option rights (the "Malone Right"), and
in consideration, TCI granted to Dr. Malone the right to acquire 30,545,864
shares of TCI Group Series B Stock. On January 5, 1998, the Company announced
that a settlement (the "Magness Settlement") had been reached in the litigation
brought against it and other parties in connection with the administration of
the Magness Estate.
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock and
11,666,506 shares (as adjusted for the Ventures Stock Dividend) of TCI Ventures
Group Series A Stock were returned to TCI as authorized but unissued shares. TCI
then issued to the Magness Estate 10,017,145 shares of TCI Group Series B Stock
and 12,034,298 shares (as adjusted for the Ventures Stock Dividend) of TCI
Ventures Group Series B Stock.
I-3
<PAGE> 6
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. John C.
Malone, TCI's Chairman and Chief Executive Officer, and Dr. Malone's wife
(together with Dr. Malone, the "Malones"), under which the Malones granted to
TCI the right to acquire the Malones' high-voting shares (the "High-Voting
Shares"), currently consisting of an aggregate of approximately 60 million
shares (as adjusted for stock dividends) of Series B Stock, upon Dr. Malone's
death or upon a contemplated sale of the High-Voting Shares (other than a
minimal amount) to third persons. In either such event, TCI has the right to
acquire the shares at a maximum price equal to the then relevant market price of
shares of "low-voting" Series A Stock plus a ten percent premium. The Malones
also agreed that if TCI were ever to be sold to another entity, then the maximum
premium that the Malones would receive on their High-Voting Shares would be no
greater than a ten percent premium over the price paid for the relevant shares
of Series A Stock. TCI paid $150 million to the Malones for agreeing to the
terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into by
the Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's aggregate
of approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement. Additionally, on February 9, 1998, the Magness
Family entered into a shareholders' agreement (the "Shareholders' Agreement")
with the Malones and TCI under which (i) the Magness Family and the Malones
agree to consult with each other in connection with matters to be brought to the
vote of TCI's shareholders, subject to the proviso that if they cannot mutually
agree on how to vote the shares, Dr. Malone has an irrevocable proxy to vote the
High-Voting Shares owned by the Magness Family, (ii) the Magness Family may
designate a nominee for TCI's Board of Directors and Dr. Malone has agreed to
vote his High Voting Shares for such nominee and (iii) certain "tag along
rights" have been created in favor of the Magness Family and certain "drag along
rights" have been created in favor of the Malones. In addition, the Malone Right
granted by TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B
Stock has been reduced to an option to acquire 14,511,570 shares of TCI Group
Series B Stock. Pursuant to the terms of the Shareholders' Agreement, the
Magness Family has the right to participate in the reduced Malone Right on a
proportionate basis with respect to 12,406,238 shares of the 14,511,570 shares
subject to the Malone Right.
In April 1997, At Home Corporation ("@Home") issued 240,000 shares of
convertible preferred stock resulting in cash proceeds of $48 million, less
issuance costs. On July 11, 1997, @Home completed its initial public offering
(the "@Home IPO"), in which 10,350,000 shares of @Home common stock were sold
for cash proceeds of approximately $100 million. As a result of the @Home IPO,
TCI's economic interest in @Home, which is attributed to TCI Ventures Group,
decreased from 43% to 39%, which economic interest represents an approximate 72%
voting interest. In October 1997, @Home entered into an exclusive distribution
arrangement with Cablevision Systems Corporation ("CSC") as described below and
issued to CSC warrants to purchase an aggregate of 10,946,936 shares of @Home's
Series A Common Stock at an exercise price of $.50 per share. Of these warrants,
warrants to purchase 10,231,298 of such shares are immediately exercisable,
subject to the receipt of all necessary governmental consents or approvals, and
the balance will become exercisable as and to the extent certain Connecticut
cable television systems are transferred from TCI and it controlled affiliates
to CSC, CSC's parent or their controlled affiliates.
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On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
("DMX") Following such merger (the "DMX Merger"), the Company owned 89.6% of the
common equity and 98.7% of the voting power of TCI Music. In connection with
such merger, the Company assumed a contingent obligation to purchase 14,896,648
shares (6,812,393 of which are owned by subsidiaries of the Company) of TCI
Music common stock at a price of $8.00 per share. Such obligation may be
settled, at the Company's option, with shares of TCI Group Series A Stock or
with cash. In December 1997, TCI Music issued convertible preferred stock and
common stock in connection with two acquisitions. After giving effect to such
issuances and assuming the conversion of the TCI Music convertible preferred
stock, TCI, at December 31, 1997, owned TCI Music securities representing 81.1%
of TCI Music's common stock and 97.5% of the voting power attributable to such
TCI Music common stock.
Effective July 31, 1997, a wholly-owned subsidiary of TCI merged with
and into Kearns-Tribune Corporation ("Kearns-Tribune"). The merger was valued at
$808 million. TCI exchanged 47.2 million shares of TCI Group Series A Stock for
shares of Kearns-Tribune which held 17.9 million shares of TCI Group Stock and
10.1 million shares of Liberty Group Stock. Liberty Media Group purchased from
TCI Group the 10.1 million shares of Liberty Group Stock that were acquired in
such transaction for $168 million in cash.
On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of
Liberty Media Group, which held non-voting class C common stock of International
Family Entertainment, Inc. ("IFE") ("IFE Class C Stock") and $23 million of IFE
6% convertible secured notes due 2004, convertible into IFE Class C Stock, ("IFE
Convertible Notes"), contributed its IFE Class C Stock and IFE Convertible Notes
to Fox Kids Worldwide, Inc. ("FKW") in exchange for a new series of 30 year
non-convertible 9% preferred stock of FKW with a stated value of $345 million.
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. On October 10, 1996, Time Warner, Inc. ("Time
Warner") and TBS consummated a merger (the "TBS/Time Warner Merger") whereby TBS
shareholders, including the Company, received Time Warner common shares.
In connection with the TBS/Time Warner Merger, Liberty Media Group 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 Satellite Systems, Inc. ("Southern"), a wholly-owned
subsidiary of Liberty Media Group which together with its wholly-owned
subsidiaries, distributed the TBS SuperStation ("WTBS") signal in the United
States and Canada, 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. Subsequent to the TBS/Time Warner Merger, Liberty Media
Group and Time Warner revised the structure of the Contract Option. On June 24,
1997, under the new agreement, Liberty Media Group granted Time Warner an
option, expiring October 10, 2002, to acquire the business of Southern and
certain of its subsidiaries, (together with Southern, the "Southern Business"),
through a purchase of assets (the "Southern Option"). Liberty Media Group
received 6.4 million shares of a separate series of Time Warner Common Stock
with limited voting rights designated as Series LMCN-V Common Stock (the "TW
Exchange Stock") valued at $306 million in consideration for such grant. In
September 1997, Time Warner exercised the option. Pursuant to the Southern
Option, effective January 1, 1998, Time Warner purchased the Southern Business
for $213.3 million, which was paid in cash together with the assumption of
certain liabilities on January 2, 1998.
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On March 4, 1998, the Company contributed to CSC certain of its cable
television systems serving approximately 830,000 basic customers in exchange for
approximately 12.2 million newly issued CSC Class A shares. Such shares
represent an approximate 33% equity interest in CSC's total outstanding shares
and an approximate 9% voting interest in CSC in all matters except for the
election of directors, in which case the Company has an approximate 47% voting
interest in the election of one-fourth of CSC's directors. CSC also assumed
approximately $669 million of TCI's debt. The Company has also entered into
letters of intent with CSC which provide for the Company to acquire a cable
system in Michigan and an additional 3% of CSC's Class A shares and for CSC to
(i) acquire cable systems serving approximately 250,000 basic customers in
Connecticut and (ii) assume $110 million of the Company's debt. The ability of
the Company to sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with CSC.
Including the above-described CSC transactions and another transaction
that closed in February 1998, the Company, as of February 28, 1998, has since
January 1, 1997 contributed, or signed agreements or letters of intent to
contribute within the next twelve months, certain cable television systems (the
"Contributed Cable Systems") serving approximately 3.8 million basic customers
to joint ventures in which the Company will retain non-controlling ownership
interests (the "Contribution Transactions"). Following the completion of the
Contribution Transactions, the Company will no longer consolidate the
Contributed Cable Systems. Accordingly, it is anticipated that the completion of
the Contribution Transactions, as currently contemplated, will result in
aggregate estimated reductions (based on 1997 amounts) to the Company's debt,
annual revenue and annual operating income before depreciation, amortization and
stock compensation of approximately $4.6 billion, $1.7 billion, and $783
million, respectively. No assurance can be given that any of the pending
Contribution Transactions will be consummated.
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under the captions "Business" and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations," are forward-looking. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, among others: general economic
and business conditions and industry trends; the regulatory and competitive
environment of the industries in which the Company, and the entities in which
the Company has interests, operate; uncertainties inherent in new business
strategies, new product launches and development plans; rapid technological
changes; the acquisition, development and/or financing of telecommunications
networks and services; the development and provision of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the FCC, and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Company's products and services, and the products and services of the entities
in which the Company has interests, and the overall market acceptance of such
products and services; and other factors. These forward-looking statements (and
such risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based.
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A glossary of selected defined terms used in Item 1 through Item 7 of
this Report is included herein as Appendix A.
(b) Financial Information about Industry Segments
The Company has significant operations principally in two industry
segments: cable and communications services and programming services. The
Company's domestic cable and communications businesses and assets are included
in TCI Group, and the Company's domestic programming businesses and assets are
included in Liberty Media Group. The Company's principal international
businesses and assets and the Company's remaining non-cable and non-programming
domestic businesses and assets are included in TCI Ventures Group. No individual
business or asset within TCI Ventures Group constitutes a reportable segment of
the Company as contemplated by Statement of Financial Accounting Standard No.
131, Disclosures about Segments of an Enterprise and Related Information.
Financial information related to the Company's industry segments can be found in
note 17 to the Company's consolidated financial statements found in Part II of
this report.
(c) Narrative Description of Business
TCI GROUP
Domestic Cable and Communications
General. Cable television systems receive video, audio and data signals
transmitted by nearby television and radio broadcast stations, terrestrial
microwave relay services and communications satellites. Such signals are then
amplified and distributed by coaxial cable and optical fiber to the premises of
customers who pay a fee for the service. In many cases, cable television systems
also originate and distribute local programming.
Cable operators have traditionally used coaxial cable for transmission
of television signals to customers. Optical fiber is a technologically advanced
transmission medium capable of carrying cable television signals via light waves
generated by a laser. Optical fiber, when used as an alternative to coaxial
cable, can improve system reliability and provide for additional capacity which
should enable the provision of incremental revenue-producing services. During
1992, TCI Group began upgrading and installing optical fiber in its cable
systems.
At December 31, 1997, approximately 59% of TCI Group's cable television
systems had bandwidth capacities ranging from 450 megahertz to 750 megahertz.
The Company's cable television systems generally carry up to 78 analog channels.
Compressed digital video technology converts on average as many as twelve analog
signals (now used to transmit video and voice) into a digital format and
compresses such signals (which is accomplished primarily by eliminating the
redundancies in television imagery) into the space normally occupied by one
analog signal. The digitally compressed signal is uplinked to a satellite, which
retransmits the signal to a customer's satellite dish or to a cable system's
headend to be distributed, via optical fiber and coaxial cable, to the
customer's home. At the home, a set-top video terminal converts the digital
signal into analog channels that can be viewed on a normal television set.
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TCI Group began offering digital cable television service to selected
markets in 1997. In February 1998, TCI Group initiated broader marketing efforts
that are intended to result in an increase in the number of digital cable
television customers. Such marketing efforts will encompass multi-media, product
enhancements, sales promotions and sales incentives. As of March 17, 1998,
digital video services were available to approximately 9.8 million of TCI
Group's customers. Such amount excludes approximately 860,000 basic customers
who had obtained access to digital cable television from certain cable
television systems prior to the contribution of such cable systems to CSC and
another joint venture during the first quarter of 1998.
Effective as of December 16, 1997, National Digital Television Center,
Inc., ("NDTC") a subsidiary of TCI and a member of the TCI Ventures Group, on
behalf of TCIC and other cable operators that may be designated from time to
time by NDTC ("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation (formerly
NextLevel Systems, Inc., "GI") to purchase advanced digital set-top devices. The
hardware and software incorporated into these devices will be designed and
manufactured to be compatible and interoperable with the OpenCable(TM)
architecture specifications adopted by CableLabs, the cable television
industry's research and development consortium, in November 1997. NDTC has
agreed that Approved Purchasers will purchase, in the aggregate, a minimum of
6.5 million set-top devices over the next three years at an average price of
$318 per basic set-top device (including a required royalty payment). GI agreed
to provide NDTC and its Approved Purchasers the most favorable prices, terms and
conditions made available by GI to any customer purchasing advanced digital
set-top devices. In connection with NDTC's purchase commitment, GI agreed to
grant warrants to purchase its common stock proportional to the number of
devices ordered by each organization, which as of the effective date of the
Digital Terminal Purchase Agreement, represented at least a 10% equity interest
in GI (on a fully diluted basis). It is anticipated that the value associated
with such equity interest would be attributed to TCI Group upon purchase and
deployment of digital set-top devices.
Service Charges. TCI Group offers a limited "basic service"
("Basic-TV") (primarily comprised of local broadcast signals and public,
educational and governmental ("PEG") access channels) and an "expanded tier"
(primarily comprised of specialized programming services, in such areas as
health, family entertainment, religion, news, weather, public affairs,
education, shopping, sports and music). The monthly fee for basic service
generally ranges from $9.00 to $12.00, and the monthly service fee for the
expanded tier generally ranges from $13.00 to $19.00. TCI Group offers "premium
services" (referred to in the cable television industry as "Pay-TV" and
"pay-per-view") to its customers. Such services consist principally of feature
films, as well as live and taped sports events, concerts and other programming.
TCI Group offers Pay-TV services for a monthly fee generally ranging from $9.00
to $15.00 per service, except for certain movie or sports services (such as
various RSNs and certain Pay-TV channels) offered at $1.00 to $8.00 per month,
pay-per-view movies offered separately at $3.00 to $4.00 per movie and certain
pay-per-view events offered separately at $6.00 to $50.00 per event. Charges are
usually discounted when multiple Pay-TV services are ordered. In most markets,
customers may also elect to subscribe to digital video services comprised of up
to 36 video and 10 audio channels featuring additional specialized programming
and premium services at an average incremental monthly charge of $10.
As further enhancements to their cable services, customers may
generally rent converters or converters with remote control devices for a
monthly charge ranging from $.89 to $4.00 each, as well as purchase a channel
guide for a monthly charge ranging from $1.50 to $2.00. Also a nonrecurring
installation charge (which is limited by rules of the Federal Communications
Commission ("FCC") which regulate hourly service charges for each individual
cable system) ranging from $20.00 to $39.00 is usually charged.
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Monthly fees for Basic-TV and Pay-TV services to commercial customers
vary widely depending on the nature and type of service. Except under the terms
of certain contracts to provide service to commercial accounts, customers are
free to discontinue service at any time without penalty.
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") and the Telecommunications Act of 1996 (the "1996 Telecom
Act"), together with the 1992 Cable Act (the "Cable Acts"), established rules
under which TCI Group's basic service and expanded tier service rates and
equipment and installation charges are regulated if a complaint is filed or if
the appropriate franchise authority is certified. For additional information see
Regulation and Legislation below.
Customer Data. TCI Group operates its cable television systems either
through its operating divisions or through certain other subsidiaries of TCI
attributed to TCI Group. Domestic Basic-TV cable customers served by TCI Group
are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
Basic-TV customers at December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Managed through TCI Group's operating
divisions 14.2 13.4 11.9 10.7 9.8
Other non-managed subsidiaries of TCI
attributed to TCI Group 0.2 0.5 0.6 0.5 0.5
------- ------- ------- ------- -------
14.4 13.9 12.5 11.2 10.3
======= ======= ======= ======= =======
</TABLE>
TCI Group operates cable television systems throughout the United
States.
Local Franchises. Cable television systems generally are constructed
and operated under the authority of nonexclusive permits or "franchises" granted
by local and/or state governmental authorities. Federal law, including the Cable
Communications Policy Act of 1984 (the "1984 Cable Act") and the 1992 Cable Act,
limits the power of the franchising authorities to impose certain conditions
upon cable television operators as a condition of the granting or renewal of a
franchise.
Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories of
programming offered to customers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. TCI Group's
franchises also typically provide for periodic payments of fees, not to exceed
5% of revenue, to the governmental authority granting the franchise.
Additionally, many franchises require payments to the franchising authority for
the funding of PEG access channels. Franchises usually require the consent of
the franchising authority prior to a transfer of the franchise or a transfer or
change in ownership or operating control of the franchisee.
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.
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In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable federal, state and local law. The 1984 Cable Act,
as supplemented by the renewal provisions of the 1992 Cable Act, establishes an
orderly process for franchise renewal which protects cable operators against
unfair denials of renewals when the operator's past performance and proposal for
future performance meet the standards established by the 1984 Cable Act. TCI
Group believes that its cable television systems generally have been operated in
a manner which satisfies such standards and allows for the renewal of such
franchises; however, there can be no assurance that the franchises for such
systems will be successfully renewed as they expire.
Most of TCI Group's present franchises had initial terms of
approximately 10 to 15 years. The duration of TCI Group's outstanding franchises
presently varies from a period of months to an indefinite period of time.
Approximately 1,200 of TCI Group's franchises expire within the next five years.
This represents approximately twenty-five percent of the franchises held by TCI
Group and involves approximately 4.8 million basic customers.
Competition. Cable television competes for customers in local markets
with other providers of entertainment, news and information. The competitors in
these markets include broadcast television and radio, newspapers, magazines and
other printed material, motion picture theatres, video cassettes and other
sources of information and entertainment including directly competitive cable
television operations and internet service providers. The Cable Acts are
designed to increase competition in the cable television industry. See
Regulation and Legislation below.
There are alternative methods of distributing the same or similar video
programming offered by cable television systems. Further, these technologies
have been encouraged by the United States Congress ("Congress") and the FCC to
offer services in direct competition with existing cable systems.
DBS. During 1997, TCI Group continued to experience 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. Primestar Partners, L.P.
("Primestar") distributes a multi-channel programming service via a medium power
communications satellite to HSDs of approximately 27 inches to 36 inches in
diameter. Prior to the spin-off of TCI Group's interests in its digital
satellite businesses, TCI Group provided this satellite delivered service.
DirecTv, Inc., United States Satellite Broadcasting Corporation and EchoStar
Communications Corp. ("EchoStar"), transmit from high power satellites and
generally use smaller dishes to receive their signals. 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 6.2 million at the end of 1997, and TCI Group expects that
competition from DBS will continue to increase.
DBS has advantages as an alternative means of distributing video
signals to the home. Among the advantages are that the capital investment
(although initially high) for the satellite and uplinking segment of a DBS
system is fixed and does not increase with the number of customers receiving
satellite transmissions; that DBS is not currently subject to local regulation
of service and prices or required to pay franchise fees; and that the capital
costs for the ground segment of a DBS system (the reception equipment) are
directly related to, and limited by, the number of service customers.
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The primary disadvantage of DBS is its inability to provide local
broadcast television stations to customers in their local market. However,
EchoStar and other potential DBS providers have announced their intention to
retransmit local broadcast television stations back into a customer's local
market. Both Congress and the U.S. Copyright Office are currently reviewing
proposals to allow such transmission and it is possible that in the near future,
DBS systems will be retransmitting local television broadcast signals back into
local television markets. Additional DBS disadvantages presently include a
limited ability to tailor the programming package to the interests of different
geographic markets; signal reception being subject to line-of-sight angles; and
technology which requires a customer to rent or own one set-top box (which is
significantly more expensive than a cable converter) for each television on
which they want to view DBS programming.
Although the effect of competition from these DBS services cannot be
specifically predicted, it is clear there has been significant growth in DBS
customers and TCI Group assumes that such DBS competition will be substantial in
the near future as developments in technology continue to increase satellite
transmitter power and decrease the cost and size of equipment needed to receive
these transmissions and enable DBS to overcome the aforementioned disadvantages.
Furthermore, the extensive national advertising of DBS programming packages,
including certain sports packages not currently available on cable television
systems, will likely continue the growth in DBS customers.
Telephone Company Entry. The 1996 Telecom Act eliminated the statutory
and regulatory restrictions that prevented local telephone companies from
competing with cable operators for the provision of video services by any means.
See Regulation and Legislation below. The 1996 Telecom Act allows local
telephone companies, including the regional bell operating companies ("RBOCs"),
to compete with cable television operators both inside and outside their
telephone service areas. TCI Group expects that it will face substantial
competition from telephone companies for the provision of video services,
whether it is through wireless cable, or through upgraded telephone networks.
TCI Group assumes that all major telephone companies have already entered or may
enter the business of providing video services. TCI Group is aware that
telephone companies have already built, or are in the process of building,
competing cable system facilities in a number of TCI Group's franchise areas.
Most major telephone companies have greater financial resources than TCI Group,
and the 1992 Cable Act ensures that telephone company providers of video
services will have access to acquiring all of the significant cable television
programming services. The specific manner in which telephone company provision
of video services will be regulated is described under Regulation and
Legislation below.
Although long distance telephone companies are not prohibited from
providing video services, they have historically not been providers of such
services in competition with cable systems. However, such companies may prove to
be a source of competition in the future. The long distance companies are
expected to expand into local markets with local telephone and other offerings
(including video services) in competition with the RBOCs.
Utility Company Entry. The 1996 Telecom Act eliminates certain federal
restrictions on utility holding companies and thus frees all utility companies
to provide cable television services. TCI Group expects this could result in
another source of significant competition in the delivery of video services. As
an example, in the Washington, D.C. metropolitan market, the local power utility
has entered into a partnership with an experienced cable television and open
video system company and is proposing to provide video and telecommunications
services throughout the Washington, D.C. metropolitan market.
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MMDS/LMDS. Another alternative method of distribution is multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by customers with special antennas. MMDS
systems are less capital intensive, are not required to obtain local franchises
or pay franchise fees, and are subject to fewer regulatory requirements than
cable television systems. The 1992 Cable Act also ensures that MMDS operators
have the opportunity to acquire all significant cable television programming
services. Although there are relatively few MMDS systems in the United States
currently in operation, virtually all markets have been licensed or tentatively
licensed. The FCC has taken a series of actions intended to facilitate the
development of wireless cable systems as an alternative means of distributing
video programming, including reallocating the use of certain frequencies to
these services and expanding the permissible use of certain channels reserved
for educational purposes. The FCC's actions enable a single entity to develop an
MMDS system with a potential of up to 35 analog channels, and thus compete more
effectively with cable television. Developments in digital compression
technology will significantly increase the number of channels that can be made
available from MMDS. Finally, an emerging technology, local multipoint
distribution services ("LMDS"), could also pose a significant threat to the
cable television industry, if and when it becomes established. LMDS, sometimes
referred to as cellular television, could have the capability of delivering more
than 100 channels of video programming to a customer's home. The potential
impact of LMDS is difficult to assess due to the recent development of the
technology and the absence of any current fully-operational LMDS systems.
Cable System Overbuilds. During 1997, there has been a significant
increase in the number of cities that have constructed their own cable
television systems in a manner similar to city-provided utility services. These
systems typically will compete directly with the existing cable operator without
the burdens of franchise fees or other local regulation. Although the total
number of municipal overbuild cable systems remains relatively small, 1997 would
indicate an increasing trend in cities authorizing such direct municipal
competition with cable operators. Within the cable television industry, cable
operators may compete with other cable operators or others seeking franchises
for competing cable television systems at any time during the terms of existing
franchises or upon expiration of such franchises in expectation that the
existing franchise will not be renewed. The 1992 Cable Act promotes the granting
of competitive franchises.
Private Cable. TCI Group also competes with Master Antenna Television
("MATV") systems and Satellite MATV ("SMATV") systems, which provide
multi-channel program services directly to hotel, motel, apartment, condominium
and similar multi-unit complexes within a cable television system's franchise
area, generally free of any regulation by state and local governmental
authorities. Further, the FCC in 1997, adopted new rules that restrict the
ability of cable operators to maintain ownership of cable wiring inside
multi-unit buildings, thereby making it less expensive for SMATV competitors to
reach those customers. See Regulation and Legislation below.
In addition to competition for customers, the cable television industry
competes with broadcast television, radio, the print media and other sources of
information and entertainment for advertising revenue. As the cable television
industry has developed additional programming, its advertising revenue has
increased. Cable operators sell advertising spots primarily to local and
regional advertisers.
TCI Group has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. 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.
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Regulation and Legislation. The operation of cable television systems
is extensively regulated by the FCC, some state governments and most local
governments. On February 8, 1996, the President signed into law the 1996 Telecom
Act. This new law alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to implement numerous
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable television
regulation and may do so again. Future legislative and regulatory changes could
adversely affect TCI Group's operations. This section briefly summarizes key
laws and regulations currently affecting the growth and operation of TCI Group's
cable systems.
Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
regulation on the cable television industry. All cable systems are subject to
rate regulation of their basic and upper tier programming services, as well as
their provision of customer equipment used to receive basic tier services,
unless they face "effective competition" in their local franchise area. Under
the 1992 Cable Act, the incumbent cable operator can demonstrate effective
competition by showing either low penetration (less than 30% of the occupied
households in the franchise area subscribe to basic service), or the presence
(measured collectively as 50% availability, 15% customer penetration) of other
multichannel video programming distributors ("MVPDs"). The 1996 Telecom Act
expands the existing definition of effective competition to create a special
test for a competing MVPD (other than a DBS distributor) affiliated with a local
exchange carrier ("LEC"). There is no penetration minimum for a LEC affiliate to
qualify as an effective competitor, but it must offer comparable programming
services in the franchise area.
Although the FCC establishes all cable rate rules, local government
units (commonly referred to as local franchising authorities or "LFAs") are
primarily responsible for administering the regulation of the lowest level of
cable -- the basic service tier ("BST"), which typically contains local
broadcast stations and public, educational and government access channels.
Before an LFA begins BST rate regulation, it must certify to the FCC that it
will follow applicable federal rules, and many LFAs have voluntarily declined to
exercise this authority. LFAs also have primary responsibility for regulating
cable equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services, and priced no higher than the operator's actual cost, plus
an 11.25% rate of return.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two complaints from local customers within 90
days of a CPST rate increase and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only whether the
incremental increase is justified and will not reduce the previously established
CPST rate.
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Under the FCC's rate regulations, TCI Group was required to reduce its
BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price structure that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment regulations
to allow for annual rate increases and to minimize previous problems associated
with delays in implementing rate increases. Operators also have the opportunity
of bypassing this "benchmark" structure in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. However, the
FCC significantly limited the inclusion in the rate base of acquisition costs in
excess of the historical cost of tangible assets. As a result, TCI Group pursued
cost of service justifications in only a few cases. Premium cable services
offered on a per channel or per program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. However, certain members of
Congress and FCC officials have called for the delay of this regulatory sunset
and further have urged more rigorous rate regulation (including limits on
programming cost pass-throughs to cable customers) until a greater degree of
competition to incumbent cable operators has developed. On February 25, 1998,
legislation was introduced in the Congress which if enacted would repeal the
statutory "sunset" and extend FCC regulation of CPST rates beyond March 31,
1999. The 1996 Telecom Act also relaxes existing uniform rate requirements by
specifying that uniform rate requirements do not apply where the operator faces
effective competition, and by exempting bulk discounts to multiple dwelling
units ("MDUs"), although complaints about predatory pricing in MDUs still may be
made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Telecom Act clarifies that traditional cable franchise fees
may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The 1996 Telecom Act prohibits
LFAs from requiring cable operators to provide telecommunications service or
facilities as a condition of a franchise grant, renewal or transfer, except that
LFAs can seek "institutional networks" as part of such franchise negotiations.
The favorable pole attachment rates afforded cable operators under federal law
can be increased by utility companies owning the poles during a five year
phase-in period beginning in 2001, if the cable operator provides
telecommunications service, as well as cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act intended to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order, and that decision is now pending before the Supreme
Court. However, the underlying statutory obligation of local telephone companies
to interconnect with competitors remains in place. For more information, see
"TCI Ventures Group - Domestic Telephony - Domestic Wireless Telephony and
Domestic Wireline Telephony," below.
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Telephone Company Entry Into Cable Television. The 1996 Telecom Act
allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable company cross-ownership ban and the FCC's
video dialtone regulations. This will allow LECs, including the RBOCs, to
compete with cable operators both inside and outside their telephone service
areas. Because of their resources, LECs could be formidable competitors to
traditional cable operators, and certain LECs have begun offering cable service.
Under the 1996 Telecom Act, a LEC providing video programming to
customers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). LECs providing
service through an OVS can proceed without a traditional cable franchise,
although an OVS operator will be subject to general rights-of-way management
regulations and can be required to pay franchise fees to the extent it provides
cable services. To be eligible for OVS status, the LEC itself cannot occupy more
than one-third of the system's activated channels when demand for channels
exceeds supply. Nor can it discriminate among programmers or establish
unreasonable rates, terms or conditions for service.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibitions remain on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures among cable
operators and LECs in the same market. The 1996 Telecom Act provides a few
limited exceptions to this buyout prohibition. The "rural exemption" permits
buyouts where the purchased system serves an area with fewer than 35,000
inhabitants outside an urban area, and the cable system plus any other system in
which the LEC has an interest do not represent 10% or more of the LEC's
telephone service area. The 1996 Telecom Act also provides the FCC with the
power to grant waivers of the buyout prohibition in cases where: (1) the cable
operator or LEC would be subject to undue economic distress; (2) the system or
facilities would not be economically viable; or (3) the anticompetitive effects
of the proposed transaction are clearly outweighed by the effect of the
transaction in meeting community needs. The LFA must approve any such waiver.
Electric Utility Entry Into Telecommunications/Cable Television. The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, information services, and
other services or products subject to the jurisdiction of the FCC,
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.
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Additional Ownership Restrictions. Pursuant to the 1992 Cable Act, the
FCC adopted regulations establishing a 30% limit on the number of homes
nationwide that a cable operator may reach through cable systems in which it
holds an attributable interest with an increase to 35% if the additional cable
systems are minority controlled. The FCC stayed the effectiveness of its
ownership limits pending the appeal of a September 16, 1993 decision by the
United States District Court for the District of Columbia which, among other
things, found unconstitutional the provision of the 1992 Cable Act requiring the
FCC to establish such ownership limits. If the ownership limits are determined
on appeal to be constitutional, they may affect TCI Group's ability to acquire
attributable interests in additional cable systems. The FCC is currently
conducting a reconsideration of its national customer limit rules, and it is
possible the FCC will revise both the national customer reach percentage
limitation and/or the manner in which it attributes ownership to a cable
operator. Either of these revisions, which are expected to be completed in 1998,
could adversely affect various joint ventures, partnerships and equity ownership
arrangements announced by TCI Group in 1997 in TCI Group's effort to reduce the
number of cable systems over which it has control and management responsibility.
The FCC also adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest (using the same attribution standards as were adopted for its limits on
the number of homes nationwide that a cable operator may reach through its cable
systems) to 40% of the activated channels on each of the cable operator's
systems. The rules provide for the use of two additional channels or a 45%
limit, whichever is greater, provided that the additional channels carry
minority controlled programming services. The regulations also grandfather
existing carriage arrangements which exceed the channel limits, but require new
channel capacity to be devoted to unaffiliated programming services until the
system achieves compliance with the regulations. These channel occupancy limits
apply only up to 75 activated channels on the cable system, and the rules do not
apply to local or regional programming services.
The 1996 Telecom Act eliminates statutory restrictions on
broadcast/cable cross-ownership (including broadcast network/cable
restrictions), but leaves in place existing FCC regulations prohibiting local
cross-ownership between television stations and cable systems. The 1996 Telecom
Act also eliminates the three year holding period required under the 1992 Cable
Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place
existing restrictions on cable cross-ownership with SMATV and MMDS facilities,
but lifts those restrictions where the cable operator is subject to effective
competition. In January 1995, however, the FCC adopted regulations which permit
cable operators to own and operate SMATV systems within their franchise area,
provided that such operation is consistent with local cable franchise
requirements.
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Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect must carry, and more popular
stations typically elect retransmission consent. Must carry requests can dilute
the appeal of a cable system's programming offerings, and retransmission consent
demands may require substantial payments or other concessions (e.g. a
requirement that the cable system also carry the local broadcaster's affiliated
cable programming service). Either option has a potentially adverse effect on
TCI Group's business. The burden associated with must-carry obligations could
dramatically increase if television broadcast stations proceed with planned
conversions to digital transmissions and if the FCC determines that cable
systems must carry all analog and digital signals transmitted by the television
stations. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for certain
commercial satellite-delivered independent "superstations" such as WGN). For
more information see "Liberty Media Group - Regulation - Programming Companies"
and "Regulation of Carriage of Broadcast Stations," below.
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for PEG access programming. Federal law
also requires a cable system with 36 or more channels to designate a portion of
its activated channel capacity (either 10% or 15%) for commercial leased access
by unaffiliated third parties. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of this
designated channel capacity, but use of commercial leased access channels has
been relatively limited. In February of 1997, the FCC released revised rules
which mandated a modest rate reduction which has made commercial leased access a
more attractive option for third party programmers, particularly for part-time
leased access carriage. Further, a group of commercial leased access users has
challenged the FCC's February 1997 Order as failing to reduce commercial leased
access rates by an appropriate amount. If this pending court challenge is
successful, the FCC will be forced to undertake a further rulemaking which could
result in significantly reduced commercial leased access rates thereby
encouraging a much more significant increase in the use of commercial leased
access channels.
"Anti-Buy Through" Provisions. Federal law requires each cable system
to permit customers to purchase premium or pay-per-view video programming
offered by the operator on a per-channel or a per-program basis without the
necessity of subscribing to any tier of service (other than the basic service
tier) unless the system's lack of addressable converter boxes or other
technological limitations does not permit it to do so. The statutory exemption
for cable systems that do not have the technological capability to comply
expires in October 2002, but the FCC may extend that period if deemed necessary.
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes satellite video programmers affiliated with cable
operators from favoring cable operators over competing multichannel video
programming distributors (such as DBS and MMDS distributors). This provision
limits the ability of vertically integrated satellite cable programmers to offer
exclusive programming arrangements to TCI Group. Recently, both Congress and the
FCC have considered proposals that would expand the program access rights of
cable's competitors, including the possibility of subjecting video programmers
who are not affiliated with cable operators to all program access requirements.
For more information see "Liberty Media Group - Regulation of Program
Licensing," below.
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Inside Wiring. In a 1997 Order, the FCC established rules that require
an incumbent cable operator upon expiration or termination of an MDU service
contract to sell, abandon, or remove "home run" wiring that was installed by the
cable operator in a MDU building. These inside wiring rules will assist building
owners in their attempts to replace existing cable operators with new video
programming providers who are willing to pay the building owner a higher fee.
Additionally, the FCC has proposed abrogating all exclusive MDU contracts held
by cable operators, but at the same time allowing competitors to cable to enter
into exclusive MDU service contracts.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. FCC requirements
imposed in 1997 for Emergency Alert Systems and for hearing-impaired Closed
Captioning on programming will result in new and potentially significant costs
for TCI Group. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
The FCC is currently considering whether cable customers should be
permitted to purchase cable converters from third party vendors. If the FCC
concludes that third party sale of converters is required, and does not make
appropriate allowances for signal piracy concerns, it may become more difficult
for cable operators to combat theft of service.
Internet Service Regulation. TCI Group began offering high-speed
internet service to customers in 1997. At this time, there is no significant
federal or local regulation of cable system delivery of internet services.
However, as the cable industry's delivery of internet services develops, it is
possible that greater federal and/or local regulation could be imposed. For a
more detailed discussion, see "TCI Ventures Group - Internet Services -
Government Regulation," below.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenue to a federal copyright royalty pool (such percentage varies depending on
the size of the system and the number of distant broadcast television signals
carried), cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The possible modification or
elimination of this compulsory copyright license is subject to continuing review
and could adversely affect TCI Group's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to
Broadcast Music, Inc. and is negotiating a similar arrangement with the American
Society of Composers, Authors and Publishers. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations. For
more information, see discussion under "Liberty Media Group - Copyright
Regulations," below.
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<PAGE> 21
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The 1996 Telecom Act clarified that the need
for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with material
provisions. Non-compliance by the cable operator with franchise provisions may
also result in monetary penalties.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenue, cannot dictate the particular technology used by the
system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees and funding for PEG channels as a condition of renewal.
Similarly, if a franchise authority's consent is required for the purchase or
sale of a cable system or franchise, such authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
consent. Historically, franchises have been renewed for cable operators that
have provided satisfactory services and have complied with the terms of their
franchises.
Proposed Changes in Regulation. The regulation of cable television
systems at the federal, state and local levels is subject to the political
process and has been in constant flux over the past decade. Material changes in
the law and regulatory requirements must be anticipated and there can be no
assurance that TCI Group's business will not be affected adversely by future
legislation, new regulation or deregulation.
LIBERTY MEDIA GROUP
PROGRAMMING SERVICES
Liberty Media Group, through Liberty Media Corporation, its
subsidiaries and affiliates, is an investor in and manager of entities engaged
in the production, acquisition and distribution through all available formats
and media, including cable television systems, broadcast television stations, by
C-Band satellite delivery systems ("C-Band") and by DBS to HSDs, on-line and
interactive services, home video and traditional retail outlets, of branded
entertainment and informational programming and software, including multimedia
products, delivered in both analog and digital form. The various entertainment
and information programming and programming-related businesses in which Liberty
Media Group has interests fall into five categories: movie services; general
entertainment and information services; sports programming services;
broadcasting and satellite; and electronic retailing, which includes direct
marketing, advertising sales relating to programming services, infomercials and
transaction processing.
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The following table sets forth Liberty Media Group's attributed
programming interests which are held directly and indirectly through
partnerships, joint ventures, common stock investments and instruments
convertible or exchangeable into common stock. Ownership percentages in the
table are approximate, calculated as of March 13, 1998 and, where applicable (or
except as otherwise noted), assume conversion to common stock by the Company
and, to the extent known by the Company, other holders. In some cases, Liberty
Media Group's interest may be subject to buy/sell procedures, repurchase rights
or, under certain circumstances, dilution.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LIBERTY
MEDIA
SUBSCRIBERS AT SUBSCRIBERS AT GROUP
12/31/97 12/31/96 ATTRIBUTED
ENTITY (000'S) (000'S) YEAR LAUNCHED INTEREST
- ------------------------------------------------------------------------------------------------------------------------
MOVIE SERVICES
<S> <C> <C> <C> <C>
Encore Media Group 100%
Encore 10,429 10,154 1991
MOVIEplex 9,889 1,120 1995
Love Stories 1,307 1,681 1994
Westerns 3,226 3,261 1994
Mystery 2,634 2,708 1994
Action 1,304 1,664 1994
True Stories 1,303 1,660 1994
WAM! America's Kidz Network 1,330 1,661 1994
STARZ! 6,654 4,925 1994
STARZ!2 2,796 537 1996
BET Movies/STARZ!3 70 N/A 1997 81%
Request TV 43,214(1) 39,639(1) 1985 50%(2)
Viewer's Choice 70,463 44,889(1) 1985 10%
ENTERTAINMENT AND INFORMATION SERVICES
Bay TV 1,414 1,390 1994 49%
BET Holdings, Inc. (NYSE-BTV) 22%(3)
BET Cable Network 52,000 47,000 1980
BET Action Pay-Per-View 10,000(1) 9,000(1) 1990
BET on Jazz 4,000 2,200 1996
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SUBSCRIBERS AT SUBSCRIBERS AT LIBERTY MEDIA
12/31/97 12/31/96 YEAR GROUP ATTRIBUTED
ENTITY (000'S) (000'S) LAUNCHED INTEREST
- ------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT AND INFORMATION SERVICES (CONTINUED)
<S> <C> <C> <C> <C>
Court TV 31,043 26,453 1991 33%(2)
Discovery Communications, Inc. 49%
Discovery Channel 72,645 70,556 1985
The Learning Channel 61,720 53,992 1980
The Travel Channel 18,000 N/A 1987
Animal Planet 31,400 14,900 1996
Discovery Science (4) (4) 1996
Discovery Civilization (4) (4) 1996
Discovery Travel & Living (4) (4) 1996
Discovery Kids (4) (4) 1996
Discovery Asia 11,639 4,452 1994
Discovery India 9,000 4,625 1996
Discovery Japan 219 N/A 1996
Discovery Europe 16,339 13,018 1989
Discovery Germany 89 not available 1996
Discovery Italy/Africa 343 not available 1996
Discovery Latin America 8,331 6,251 1996
Discovery Kids-Latin America 4,317 1,200 1996
Discovery Turkey 600 N/A 1997
The Travel Channel Latin 5,200 N/A 1995
America
Discovery Channel Online Online N/A 1995
Your Choice TV (5)
E! Entertainment Television 45,898 41,872 1990 10%
FiT TV 8,064 7,800 1993 10%
Health TV 20 N/A 1997 100%
Kaleidoscope 7,784 11,208 1995 12%
Recovery Net Online N/A 1997 50%
International Channel 6,916 7,355 1990 90%
MacNeil/Lehrer Productions N/A N/A N/A 67%
Odyssey 30,100 26,800 1998 49%
TCI Music, Inc. 78%
DMX 2,401(6) 1,845(6) 1991
The BOX 41,488 23,660 1985
THE BOX SET 3 N/A 1997
SonicNet Online N/A 1997
Addicted to Noise Online N/A 1997
Streamland Online N/A 1997
Time Warner Inc. (NYSE-TWX) 10%
Time Warner/Turner Programming
Services(7)
</TABLE>
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<PAGE> 24
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LIBERTY
MEDIA
SUBSCRIBERS AT SUBSCRIBERS AT GROUP
12/31/97 12/31/96 ATTRIBUTED
ENTITY (000'S) (000'S) YEAR LAUNCHED INTEREST
- ------------------------------------------------------------------------------------------------------------------------
SPORTS SERVICES
<S> <C> <C> <C> <C>
REGIONAL SPORTS NETWORKS(2)
Fox Sports Arizona 904 744 1996 50%
Fox Sports Bay Area 2,726 2,700 1990 35%
Fox Sports Chicago 2,952 2,707 1984 35%
Fox Sports Cincinnati 2,171 1,864 1989 20%
Fox Sports Detroit 2,150 N/A 1984 50%
Fox Sports Intermountain West 616 617 1990 50%
Fox Sports Midwest 1,336 1,222 1989 50%
Fox Sports New England 2,580 1,512 1984 20%
Fox Sports New York 3,622 3,069 1982 18%
Fox Sports Northwest 2,161 2,416 1988 50%
Fox Sports Ohio 1,913 1,497 1989 20%
Fox Sports Pittsburgh 1,959 1,698 1985 50%
Fox Sports Rocky Mountain 1,883 1,690 1988 50%
Fox Sports South 5,768 5,228 1990 44%
Fox Sports Southwest 4,827 4,751 1983 50%
Fox Sports West 3,979 3,956 1985 50%
Fox Sports West 2 2,040 N/A 1997 50%
Home Team Sports 3,900 3,835 1984 17%
MSG Network 6,600 5,502 1969 18%
SportsChannel Florida 2,688 1,731 1993 6%
Sunshine Network 3,753 3,706 1988 27%(2)
NATIONAL SPORTS NETWORKS
Fox Sports Americas (US) 1,841 1,682 1993 25%
Fox Sports Direct 5,194 3,731 1989 50%
Fox Sports Net 52,164 25,588 1996 25%
Fox Sports World 1,113 N/A 1997 50%
FX 31,740 28,673 1994 50%
INTERNATIONAL SPORTS PROGRAMMING
Fox Sports Americas 6,157 2,120 1995 25%
(Latin America)
STAR TV(7) 220,000(8) 220,000(8) 3.75%
Torneos y Competencias, SA N/A N/A 17.5%
J- Sports N/A N/A 1998 34%
OTHER
Madison Square Garden Arena 18%
Radio City Music Hall 18%
</TABLE>
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<PAGE> 25
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LIBERTY
MEDIA
SUBSCRIBERS AT SUBSCRIBERS AT GROUP
12/31/97 12/31/96 ATTRIBUTED
ENTITY (000'S) (000'S) YEAR LAUNCHED INTEREST
- ------------------------------------------------------------------------------------------------------------------------
SATELLITE
<S> <C> <C> <C> <C>
Superstar/Netlink 892 981 N/A 40%(9)(10)
Netlink International 3,425(11) 3,491(11) N/A 100%(10)
United Video Satellite Group, Inc.
(Nasdaq: UVSGA)
Prevue Guide 47,500 44,100 1988 17%(10)
Sneak Prevue 35,400 34,200 1991
ELECTRONIC RETAILING
USA Networks, Inc. (Nasdaq: USAI) (12)
[Formerly HSN, Inc. (HSNI)]
HSN 71,796(13) 70,694(13) 1985
America's Store 10,256(13) 11,116(13) 1986
HSN-Germany 12,700 7,000 1996 6%
Shop Channel (Japan) 1,500 300 1996 6%
SKTV, Inc. 28,300(14) 28,300(14) 1986
SF Broadcasting 1,800(15) 1,800(15)
ISN Online Online 1995
SciFi Channel 46,670 37,358 1992
USA Network 72,356 70,690 1980
QVC Inc. 43%
QVC Network 61,774 57,347 1986
Q2 N/A 13,111 1994
QVC-The Shopping
Channel (UK) 6,433 5,700 1993
QVC-Germany 9,401 6,486 1996
iQVC Online 1995
OTHER
Fox Kids Worldwide, Inc. (16)
</TABLE>
- ---------------
(1) Number of subscribers to whom service is available.
(2) The interests of Liberty Media Group in these entities are presently or
will become subject to buy-sell procedures under which one owner may
initiate the procedure by giving notice setting forth a value for the
entity and the other owner(s) may then elect either to buy the interest
of the initiating owner or to sell their interests to the initiating
owner at a price equal to the value specified by the initiating owner
multiplied by the ownership percentage of the selling partner.
(3) Liberty Media Group's interest would increase to approximately 35%
upon consummation of the merger described below in "Entertainment and
Information Services."
I-23
<PAGE> 26
(4) Digital Services.
(5) Liberty Media Group owns a 24.5% direct and 25.14% indirect interest in
Your Choice TV ("YCTV"). TCI Ventures Group owns a 24.5% direct
interest in YCTV.
(6) Includes residential and commercial addressable cable and DBS
subscribers.
(7) Includes CNN, Cartoon Network, Headline News, TNT, Turner Classic
Movies, TBS Superstation, CNNfn, CNN/SI, CNN International, TNT Latin
America, Cartoon Network Latin America, TNT & Cartoon Network Europe,
TNT and Cartoon Network Asia, HBO, Cinemax, Comedy Central, HBO Ole,
HBO Asia, TVKO and WB Television Network. Following consummation of the
TBS/Time Warner Merger on October 10, 1996, Liberty Media Group is no
longer reporting subscriber numbers for these programming services.
(8) STAR TV is a satellite-delivered television platform. Programming
services on STAR TV's platform include STAR Sports, STAR Plus, Phoenix
Chinese Channel, STAR Movies and ZEE TV, among others. STAR TV reaches
approximately 220 million people in Asia, India and the Middle East.
(9) United Video Satellite Group ("UVSG"), an entity controlled by the TCI
Ventures Group, owns an additional 40% interest.
(10) Liberty Media Group has agreed to sell its interest in
Superstar/Netlink and Netlink International to UVSG for approximately
6,375,000 shares of UVSG Class A Common Stock. If consummated, this
transaction would increase Liberty Media Group's ownership interest in
UVSG to approximately 29%.
(11) Aggregate number of units. Netlink International uplinks 6 broadcast
stations. One customer may subscribe to more than one station. Each
station constitutes a "unit".
(12) In February, 1998, following consummation of the Universal Transaction
(described in HSN, Inc., below), HSNI changed its name to USA Networks,
Inc. As this name change occurred in 1998, this entity will be referred
to as "HSNI" throughout this document. Liberty Media Group owns direct
and indirect interests in various HSNI and Home Shopping Network, Inc.
securities which may be converted or exchanged for HSNI common stock.
Liberty Media Group has also agreed to acquire for an aggregate
purchase price of $300 million additional HSNI securities which may be
exchanged for HSNI common stock. Assuming the conversion or exchange of
such securities, the conversion or exchange of certain securities owned
by (or agreed to be acquired by) Universal Studios, Inc. ("Universal")
and certain of its affiliates for HSNI common stock and the full
exercise of Liberty Media Group's and Universal's preemptive rights in
connection with such acquisitions, conversions and exchanges, Liberty
Media Group would own approximately 20% of HSNI. Liberty Media Group
currently owns approximately 18.6% of HSNI.
(13) Includes broadcast households and cable subscribers.
(14) Number of television households in areas of SKTV, Inc.'s owned and
operated broadcast stations.
(15) Number of television households in areas of SF Broadcasting's owned and
operated broadcast stations.
(16) $345 million stated value of Fox Kids Worldwide, Inc. 30 year
non-convertible 9% Preferred Stock.
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<PAGE> 27
Movie Services. Encore Media Group LLC ("Encore Media Group") produces
and distributes a variety of movie services. Its principal services are "Encore"
and "STARZ!". Encore, launched in 1991, primarily airs hit movies from the
1960s, 1970s and 1980s. As of December 31, 1997, the service was being offered
by cable operators and other distribution technologies to approximately 39
million households, of which approximately 10.4 million subscribed to Encore.
The service is generally offered as a single premium service or in conjunction
with other premium services. In either case, the subscription price paid by the
subscriber for Encore is generally lower than the prices charged for other
premium movie services. During 1994, Encore Media Group launched six thematic
multiplex services: "Love Stories," "Westerns," "Mystery" "Action," "True
Stories," and "WAM! America's Kidz Network." As of December 31, 1997, the
thematic multiplex services were distributed, primarily by DBS services such as
DIRECTV and Primestar, as well as by cable operators and other distribution
technologies, to approximately 8.5 million households. As of December 31, 1997,
these generated subscriptions to approximately 11.1 million units (one household
may subscribe to as many as six multiplex services, which would constitute six
"units"). "MOVIEplex," a cable service which offers theme-by-day movies, was
launched by Encore Media Group in 1995. As of December 31, 1997, MOVIEplex was
being offered by cable operators and other distribution technologies to
approximately 13.5 million households, of which approximately 9.9 million
subscribed to MOVIEplex
"STARZ!" is a first-run premium movie programming service. As of
December 31, 1997, STARZ! was offered by cable operators and other multi-channel
video distribution technologies to approximately 36 million households, of which
approximately 6.7 million elected to receive STARZ!.
Cable operators and other distributors pay Encore Media Group a per
subscriber fee for its services. Encore Media Group obtains rights to air movies
on its service by entering into film licensing agreements to provide product for
its Encore service, and studio output agreements to obtain first run movies for
its STARZ! service. The majority of Encore Media Group's library agreements
extend beyond 2002 and several extend beyond 2005. The majority of the first run
output agreements extend through 2003, and the license fees are contingent upon
future production, sales and certain other criteria. In addition to first run
movies, some library product is also shown on STARZ!
As of December 31, 1997, Encore Media Group's distribution was
approximately 38 million total aggregate units (Encore, thematic multiplex
services, MOVIEplex and STARZ!). As of December 31, 1997, approximately 14.4
million (36.2%) of the subscribers electing to receive Encore Media Group's
services were customers of cable systems which purchase such services pursuant
to an affiliation agreement with Satellite Services, Inc. ("SSI"), a
wholly-owned subsidiary of TCIC. SSI purchases programming services from
programming suppliers and then makes such services available to TCI's
subsidiaries and affiliates. Customers served by cable television systems
eligible to purchase programming services through SSI ("SSI Subscribers")
represented approximately 23.3% of U.S. households which received cable or
satellite delivered programming at December 31, 1997 (based on estimates by Paul
Kagan Associates, Inc. of cable, C-Band, DBS and MMDS subscribers). To the
extent that the ratio of SSI Subscribers to overall subscribers for any
programming service in which the Liberty Media Group has an interest
significantly exceeds 23.3%, such information is provided below.
In September 1996 Encore Media Group and BET Holdings, Inc. ("BET")
formed BET Movies/STARZ!3, a premium movie service dedicated to the development
and exhibition of Black oriented feature length films.
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<PAGE> 28
In July 1997, Liberty Media Group, TCI and the 10% minority holder of
Encore Media Corporation ("EMC") entered into a series of transactions pursuant
to which the businesses of Encore and STARZ! were contributed to Encore Media
Group. In connection with these transactions the 10% minority interest was
exchanged for Liberty Group Stock. Upon consummation of the transactions,
Liberty Media Group owned 80% of Encore Media Group and TCI Group owned 20%.
Liberty Media Group received its 80% ownership interest in Encore Media Group in
exchange for the contribution of its interests in QE+, Ltd. ("QE+") and EMC, the
issuance of a $307 million note payable due on or before December 29, 1997 (the
"EMG Promissory Note") to TCI Group, the cancellation and forgiveness of amounts
due for Content Fees and the termination of an option to increase its ownership
interest in QE+. TCI Group received the remaining 20% interest in Encore Media
Group and the aforementioned consideration from Liberty Media Group in exchange
for TCI Group's ownership interest in QE+ and certain special capital
contributions made by TCI Group to QE+. In addition, TCI Group has entered into
a 25 year affiliation agreement with Encore Media Group (the "EMG Affiliation
Agreement") pursuant to which TCI Group will pay monthly fixed amounts in
exchange for unlimited access to substantially all of the existing Encore and
STARZ! services. Upon consummation of the aforementioned transactions, the
operations of STARZ! are included in the combined financial results of Liberty
Media Group.
Effective December 31, 1997, Liberty Media Group and TCI Group agreed
to amend the above transactions. Pursuant to the amendment, the above described
series of transactions were rescinded, retroactive to July 1, 1997.
Simultaneously, Liberty Media Group and TCI Group entered into a new agreement
whereby the EMG Affiliation Agreement was amended to permanently reduce the
monthly fixed amounts for the life of the contract. TCI Group's 20% ownership
interest in Encore Media Group was eliminated and the EMG Promissory Note was
reduced by $32 million.
Liberty Media Group also has interests in "Request TV" and "Viewer's
Choice" which provide pay-per-view movies and pay-per-view events to cable
operators. Both Request TV and Viewer's Choice act as intermediaries between
movie studios and event promoters, on the one hand, and cable operators, on the
other hand, providing scheduling for movies to be sold on a pay-per-view basis,
satellite distribution of such movies, marketing and promotion, and, in some
instances, billing and collection services. For providing these services, they
are paid a negotiated percentage of pay-per-view revenue generated by their
respective affiliated cable operators.
Entertainment and Information Services. "Bay TV" is a local news and
entertainment service located in the San Francisco Bay area. At December 31,
1997, approximately 83.4% of Bay TV's subscribers were SSI Subscribers.
BET primarily operates cable television programming services and
magazines targeted to the interests and concerns of African-Americans. "BET
Cable Network" provides a broad mix of programming which is produced in-house or
acquired from a variety of sources. The network's productions include hosted
music video programs, talk shows, sports, news and public affairs, children's
programs and comedy shows. Acquired programs include situation comedies, gospel
music programs and sports and entertainment specials. "BET on Jazz," launched in
January 1996, is an advertiser-supported basic cable network featuring jazz
concerts, music videos and interviews with jazz artists. In June 1996, BET on
Jazz began providing programming in the United Kingdom and South Africa. "BET
Action Pay-Per-View" is a pay-per-view service which distributes films produced
by major studios and independent film companies. BET also publishes Emerge
magazine, retails a line of skin care products and musical recordings, and has
ownership interests in BET Film Productions (a joint venture with Encore Media
Group) and BET Pictures which produce low-budget feature length motion pictures.
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<PAGE> 29
On September 11, 1997, Liberty Media Group and BET founder, Robert
Johnson ("Johnson") offered to acquire the publicly held shares of BET at a
price of $48 per share. On March 15, 1998, BET, Johnson and Liberty Media Group
entered into a merger agreement pursuant to which holders of BET shares (other
than Johnson and Liberty Media Group) will receive $63 per share of BET common
stock. If the transaction is consummated, Liberty Media Group will increase its
ownership interest in BET from approximately 22% to approximately 35%. It is
anticipated that the cash payment to BET stockholders will be made from
borrowings by BET, as the surviving corporation in the merger. Completion of the
transaction is subject to approval by the holders of a majority of the shares
not held by Liberty Media Group and Johnson, receipt of sufficient financing,
receipt of all necessary governmental and regulatory approvals and consents, and
the absence of litigation, including litigation challenging the proposed
transaction.
"Court TV" provides live and/or tape delayed coverage and analysis of
selected criminal and civil legal proceedings.
Discovery Communications, Inc. ("Discovery") operates four business
units. The first of these, Discovery Networks, U.S., consists of four
advertiser-supported basic cable networks: "Discovery Channel," "The Learning
Channel", "Animal Planet", and "The Travel Channel"; and four networks created
in 1996 for the digital platform: "Discovery Science," "Discovery Civilization,"
"Discovery Travel & Living" and "Discovery Kids." Discovery Channel provides
nature, science and technology, history, exploration and adventure programming
and is distributed to customers in virtually all U.S. pay television homes. The
Learning Channel provides a variety of educational and non-fiction programming.
Animal Planet, launched in June 1996, offers a range of animal programming,
including children's programs, game shows, comedies, dramas, feature films,
wildlife documentaries, how-to pet care shows, event reportage and series
featuring television's favorite animal heroes. At December 31, 1997, Animal
Planet was received by approximately 31.4 million subscribers, approximately
32.6% of which were SSI Subscribers. The Travel Channel, acquired by Discovery
in November of 1997, features travel programming that explores the people,
places and cultures of our world. The four digital networks are carried on
TCIC's digital cable service.
Discovery Networks International distributes various Discovery services
in Latin America, Europe, Asia and Africa. Discovery's international networks
serve more than 56 million customers in 145 countries outside the U.S. Discovery
Enterprises Worldwide includes "Discovery Channel Multimedia", "Discovery
Channel Online", "Discovery Channel Video" and "Discovery Channel Publishing."
The fourth Discovery business unit, Discovery Retail and Theme,
operates 16 Discovery Channel Stores, 113 stores of The Nature Company and three
Scientific Revolution stores in the U.S. Discovery also operates two locations
of The Nature Company in Canada and two locations in the UK. Discovery purchased
the assets of The Nature Company in June 1996. In addition to the stores, these
assets included distribution facilities and The Nature Company's catalog
business. The Nature Company is a specialty retail chain and mail order business
providing products designed to enhance appreciation of the natural world. In
October 1996, Discovery entered into an agreement with Sony to create in San
Francisco a Discovery Channel Destination flagship store which will feature a
combination of retailing and interactive, hands-on entertainment elements
related to the programming concepts of Discovery. A Discovery flagship store is
also scheduled to open in Washington D.C. in March of 1998.
Discovery also operates YCTV. YCTV is a development stage business
designed to take advantage of the promise of the digital television platform by
offering increased access to popular television programs. TCI Ventures Group
also owns 24.5% of YCTV.
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<PAGE> 30
In 1996, Discovery entered into a memorandum of understanding with the
British Broadcasting Corporation (the "BBC") to pursue the possibility of
jointly developing and launching non-fiction networks in international markets.
These networks would have access to the program libraries and strong brand
identities of each partner. The agreement also calls for a program development
relationship which would make Discovery the primary co-production partner of the
BBC in North America.
TCI Music delivers audio and video music services to residential and
commercial customers via cable television, DBS, the Internet and other methods.
Effective July 11, 1997, pursuant to an Agreement and Plan of Merger,
dated as of February 6, 1997, as amended (the "Merger Agreement"), by and among
TCI, TCI Music, TCI Merger Sub, a wholly-owned subsidiary of TCI Music ("Merger
Sub") and DMX, Merger Sub was merged with and into DMX, with DMX as the
surviving corporation. As a result of the DMX Merger, stockholders of DMX became
stockholders of TCI Music, and DMX became a wholly-owned subsidiary of TCI
Music.
In connection with the DMX Merger, TCI and TCI Music entered into a
"Contribution Agreement." Pursuant to the Contribution Agreement, effective as
of the closing of the DMX Merger: (i) TCI Music issued to TCI (as designee of
certain of its indirect subsidiaries), 62,500,000 shares of Series B Common
Stock, $.01 par value per share, of TCI Music ("TCI Music Series B Common
Stock") and a promissory note in the amount of $40 million (the "TCI Music
Note"), (ii) until December 31, 2006, certain subsidiaries of TCI transferred to
TCI Music the right to receive all revenue from sales of DMX music services to
their residential and commercial subscribers, net of an amount equal to 10% of
revenue from such sales to residential subscribers and net of the revenue
otherwise payable to DMX as license fees for DMX music services under
affiliation agreements currently in effect (the "Contributed Net DMX Revenue"),
(iii) TCI contributed to TCI Music certain commercial digital DMX tuners that
were not in service as of the effective date of the DMX Merger (the "Contributed
Tuners"), and (iv) TCI granted to each stockholder who became a stockholder of
TCI Music pursuant to the DMX Merger, one right (a "Right") with respect to each
whole share of Series A Common Stock, $.01 par value per share, of TCI Music
("TCI Music Series A Common Stock" and together with the TCI Music Series B
Common Stock, the "TCI Music Common Stock") acquired by such stockholder in the
DMX Merger pursuant to the terms of a Rights Agreement among TCI, TCI Music and
the rights agent (the "Rights Agreement"). The foregoing transactions are
collectively referred to herein as the "Contribution." Upon consummation of the
DMX Merger, each outstanding share of DMX Common Stock was converted into the
right to receive (i) one-quarter of a share of TCI Music Series A Common Stock,
(ii) one Right with respect to each whole share of TCI Music Series A Common
Stock and (iii) cash in lieu of the issuance of fractional shares of TCI Music
Series A Common Stock and Rights. Each Right entitles the holder to require TCI
to purchase from such holder one share of TCI Music Series A Common Stock for
$8.00 per share, subject to reduction by the aggregate amount per share of any
dividend and certain other distributions, if any, made by TCI Music to its
stockholders, and, payable at the election of TCI, in cash, a number of shares
of TCI Group Series A Stock, having an equivalent value, or a combination
thereof, if during the one-year period beginning on the effective date of the
DMX Merger, the price of TCI Music Series A Common Stock does not equal or
exceed $8.00 per share for a period of at least 20 consecutive trading days.
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<PAGE> 31
Subsequently, TCI Music and TCI entered into an Amended and Restated
Contribution Agreement (the "Amended Contribution Agreement") which provides,
among other things, for TCI to deliver, or cause certain of its subsidiaries to
deliver to TCI Music monthly payments commencing as of July 1, 1997(adjusted
annually for inflation) through June 30, 2017 (the "TCI Payments"). Pursuant to
the Amended Contribution Agreement, the TCI Payments will represent (i) revenue
of certain subsidiaries of TCI that is attributable to the distribution and sale
of the DMX service to cable subscribers who receive the DMX service via C-Band
satellite transmission (rather than digital compression technology) (net of an
amount equal to 10% of such revenue derived from residential customers and
license fees otherwise payable to DMX pursuant to an affiliation agreement) and
(ii) compensation to TCI Music and DMX for various other rights.
Effective with the DMX Merger, TCI beneficially owned approximately
45.7% of the outstanding shares of the TCI Music Series A Common Stock and 100%
of the outstanding shares of TCI Music Series B Common Stock, which represented
89.6% of the equity and 98.7% of the voting power of TCI Music. Simultaneously
with the DMX Merger, Liberty Media Group acquired the TCI Music Series B Common
Stock and 2.6 million shares of the TCI-owned TCI Music Series A Common Stock by
assuming certain of TCI's obligations under the Rights Agreement and issuing an
$80 million promissory note (the "Music Note") to TCI. The Music Note may be
reduced by the payment of cash or the issuance by TCI of shares of Liberty Media
Group Common Stock for the benefit of entities included within the TCI Group.
Additionally, Liberty Media Group may elect to pay $50 million of the Music Note
by delivery of a Stock Appreciation Rights Agreement that will give TCI Group
the right to receive 20% of the appreciation in value of Liberty Media Group's
investment in TCI Music, to be determined at July 11, 2002. Following the
above-described transaction, Liberty Media Group held TCI Music Common Stock,
which when combined with the TCI Music Common Stock received by Liberty Media
Group in the DMX Merger, represented 86.05% of the equity and 98.31% of the
voting power of TCI Music. Therefore, TCI Music is included in the combined
financial results of Liberty Media Group as of the date of the DMX Merger.
On December 16, 1997, pursuant to an Agreement and Plan of Merger dated
as of August 12, 1997, a wholly-owned subsidiary of TCI Music was merged with
and into The Box Worldwide, Inc. ("The Box Worldwide"), with The Box Worldwide
becoming the surviving corporation, (the "Box Merger") and each outstanding
share of common stock of The Box Worldwide was converted into the right to
receive .07 of a share of TCI Music Preferred Stock ("TCI Music Preferred").
Each share of TCI Music Preferred is convertible at any time into three shares
of TCI Music Series A Common Stock without an associated Right.
Contemporaneously with the Box Merger, TCI Music purchased all of the
outstanding shares of the preferred stock of The Box Worldwide from EMAP PLC, an
English public limited company, and effective as of the consummation of the Box
Merger, The Box Worldwide became a wholly-owned subsidiary of TCI Music.
Effective December 31, 1997, pursuant to an Agreement and Plan of
Merger dated as of December 8, 1997, Paradigm Music Entertainment Company
("Paradigm") became a wholly-owned subsidiary of TCI Music (the "Paradigm
Merger") and shareholders of Paradigm received 0.61 restricted shares of TCI
Music Series A Common Stock, without an associated Right, for each share of
Paradigm common stock held.
Giving effect to the Box Merger and the Paradigm Merger, Liberty Media
Group's equity interest in TCI Music is approximately 78% with voting power of
97%.
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<PAGE> 32
DMX is primarily engaged in programming, distributing and marketing a
premium digital music service, "Digital Music Express" (the "DMX Service"),
which provides continuous 24-hour per day, commercial-free, CD quality music
programming. The DMX Service is delivered, for a monthly per subscriber license
fee, by cable operators and DBS distributors to residential and commercial
subscribers. Both cable and DBS subscribers receive the DMX Service through a
specially designed tuner to their stereo systems.
The Box Worldwide distributes and markets an interactive music video
television programming service known as "THE BOX". Utilizing local file servers
installed in cable television systems, THE BOX has been upgraded to a digital
distribution system in its US markets. THE BOX allows viewers to call in and
request a video from a menu of up to 300 selections, with the cost billed
directly to the consumer's telephone. THE BOX is currently available throughout
the United States, and in certain countries in Europe, Latin America and the
Pacific Rim. In addition, a multiplex of four themed music channels called "THE
BOX SET" is available on TCI's Headend In The Sky offering.
Paradigm operates the music web sites "SonicNet" and "Addicted to
Noise", which receive in excess of 2.7 million page views per month and are
leaders in providing both breaking and in-depth music news and live concerts via
the Internet. Paradigm is also active in the distribution of new artists and
catalog releases of established artists through its independent record label
businesses, and in the creation of syndicated radio and on-line music
programming. Paradigm recently announced the launch of "Streamland", the
Internet's first site for full-length music videos on demand, developed in
conjunction with The Box Worldwide.
"E! Entertainment Television" is a 24-hour network devoted to the world
of celebrities and entertainment. The network's programming mix includes
entertainment news reports, original programs and exclusive live coverage of
major awards shows and celebrity events.
"International Channel" is a basic cable service providing
multi-lingual programming in the U.S. The International Channel is planning to
launch several single language pay services designed primarily to serve viewers
who use English as their second language. Approximately 26% of International
Channel's subscribers are SSI Subscribers.
"Odyssey" (f/k/a The Faith & Values Channel), a national basic cable
network, is managed by representatives of the National Interfaith Cable
Coalition, a group of 64 U.S. denominations and faith groups. The channel
provides its viewers with non-denominational religious and values-based
entertainment and informational programming. Approximately 25.3% of Odyssey's
subscribers are SSI Subscribers.
Time Warner is the world's leading media company, and has interests in
three principal areas of business: Entertainment, consisting primarily of
interests in recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News and
Information, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Telecommunications, consisting principally
of interests in cable television systems.
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<PAGE> 33
In connection with the TBS/Time Warner Merger, Time Warner, TBS, TCI
and Liberty Media Group entered into an Agreement Containing Consent Order with
the 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 Media Group agreed to exchange the shares of Time Warner common stock to
be received by it in connection with the TBS/Time Warner Merger for shares of TW
Exchange Stock. Holders of the TW Exchange Stock are entitled to one
one-hundredth (1/100th) of a vote for each share with respect to the election of
directors. Holders of the TW Exchange Stock have no 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 is convertible
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, Liberty Media Group received approximately 50.6 million
shares of the TW Exchange Stock in exchange for its TBS holdings.
In connection with the TBS/Time Warner Merger, Liberty Media Group and
Time Warner entered into, among other agreements, an agreement providing for the
grant to Time Warner of the Contract Option to enter into a contract with
Southern, a wholly-owned subsidiary of Liberty Media Group which distributes the
WTBS signal in the United States and Canada, 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. Subsequent to the TBS/Time Warner
merger, Liberty Media Group and Time Warner revised the structure of the
Contract Option. On June 24, 1997, under the new agreement, Liberty Media Group
granted Time Warner the Southern Option to acquire the Southern Business,
through a purchase of assets. Liberty Media Group received 6.4 million shares of
TW Exchange Stock in consideration for the grant. In September 1997, Time Warner
exercised the Southern Option. Pursuant to the Southern Option, effective
January 1, 1998, Time Warner purchased the Southern Business for $213 million,
which was paid in cash together with the assumption of certain liabilities on
January 2, 1998.
MacNeil/Lehrer Productions ("MLP") is the primary producer of the "News
Hour" on PBS and a producer of other high-quality documentary and public affairs
programming. Liberty Media Group is attempting to increase the level of
production at MLP by finding new markets for MLP documentary and public affairs
programming. These markets may include cable, as well as broadcast networks, on
line services and CD-ROM applications.
On August 1, 1997, Liberty Media Group sold its interest in IFE to FKW
in exchange for a new series of 30 year non-convertible 9% preferred stock of
FKW with stated value of $345 million.
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<PAGE> 34
Sports Programming Services. As of April 29, 1996, Liberty Media Group,
the News Corporation Limited ("News Corp.") and Tele-Communications
International, Inc. ("TINTA") formed two sports programming ventures. In the
United States, Liberty Media Group and News Corp. formed Fox/Liberty Networks
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.
Internationally, News Corp. and a limited liability company
("Liberty/TINTA") formed by 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, the United Kingdom, Japan
and New Zealand where prior arrangements presently preclude 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 Fox Sports Americas a
Spanish language sports service distributed in Latin America and in Hispanic
markets in the United States; an interest in Torneos y Competencias S.A.
("TYC"), 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 MMDS or cable television.
As of October, 1997, News Corp. exchanged its ownership interest in TYC
for Liberty/TINTA's interest in Premier Sports and All Star Sports. The exchange
of interests was executed at similar values.
On February 4, 1998, Liberty Media Group entered into an agreement with
Jupiter Programming Co. Ltd. (a 50/50 partnership between TINTA and Sumitomo
Corporation) to form J-Sports Co., Ltd. ("J-Sports"). J-Sports launched a 24
hour Japanese sports network on February 18, 1998. The core programming will be
Japanese soccer, baseball, sumo wrestling and other popular Japanese sporting
events.
Affiliated Regional Communications Ltd. ("ARC") is a partnership
through which interests in several of the regional sports networks are held. On
March 13, 1997, Fox Sports increased its economic interest in ARC from 87% to
100%, resulting in a proportionate increase in Liberty Media Group's attributed
economic interest in the sports networks owned through ARC.
On December 18, 1997, Fox Sports, a 50% owned affiliate of Liberty
Media Group, consummated a transaction (the "Rainbow Transaction") with Rainbow
Media Sports Holdings, Inc. ("Rainbow"), an indirect subsidiary of CSC, pursuant
to which Fox Sports acquired a 40% interest in Regional Programming Partners
("RPP"), which holds interests in eight regional sports networks ("RSNs") (the
"Rainbow RSNs"), the Madison Square Garden entertainment complex, Radio City
Productions LLC, the New York Rangers, a professional hockey team, and the New
York Knicks, a professional basketball team, RPP has a controlling interest in
seven of the eight Rainbow RSNs, two of which were partially owned by Fox Sports
prior to the Rainbow Transaction. Fox Sports contributed $850 million cash to
RPP in consideration for the 40% interest in RPP.
As part of the Rainbow Transaction, Fox Sports and Rainbow established
National Sports Partners (the "National Sports Partnership"), a 50%-50%
partnership, to operate Fox Sports Net ("FSN"). FSN provides its affiliated
RSNs, 24 hours per day, with national sports programming to supplement their
regional sports offerings. FSN features live and replay sporting events, as well
as other original sports programming, including a national sports news program,
"Fox Sports News."
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<PAGE> 35
Fox Sports and Rainbow also established a national advertising
representative firm, National Advertising Partners (the "National Advertising
Partnership"), a 50%-50% partnership, to sell advertising time during both the
regional affiliates' local programming and national network programming carried
by RSNs. Fox Sports manages both the National Sports Partnership and the
National Advertising Partnership. Through its affiliations with RSNs across the
United States, FSN is able to access three advertising markets at once: network,
national spot and local.
Regional Sports Networks. After giving effect to the consummation of
the Rainbow Transaction, Fox Sports owns interests in, or is affiliated with, 26
RSNs and its network programming covers each of the top 14 designated market
areas ("DMAs") and 22 of the top 25 DMAs in the United States. These RSNs have
rights to telecast live games of 69 professional sports teams in the National
Basketball Association ("NBA"), the National Hockey League ("NHL"), and Major
League Baseball ("MLB") (out of a total of 75 such teams in the United States)
and numerous collegiate sports teams to approximately 55 million households.
The following table lists the RSNs, such RSNs primary designated
marketing areas ("DMAs") and the major professional and collegiate sports teams
with which each RSN has programming rights agreements.
<TABLE>
<CAPTION>
RSN PRIMARY DMA TEAMS (LEAGUES)
- --- ----------- ---------------
<S> <C> <C>
Fox Sports Arizona Phoenix Arizona Diamondbacks (MLB)
Phoenix Coyotes (NHL)
Arizona State University
Fox Sports Bay Area San Francisco/ Golden State Warriors (NBA)
Oakland/San Jose; Oakland A's (MLB)
Sacramento/ San Francisco Giants (MLB)
Stockton/Modesto San Jose Sharks (NHL)
Stanford University
University of Cal-Berkeley
Fox Sports Chicago Chicago Chicago Bulls (NBA)
Chicago Blackhawks (NHL)
Chicago White Sox (MLB)
DePaul University
Fox Sports Detroit Cincinnati/Detroit Cincinnati Reds (MLB)
Detroit Red Wings (NHL)
Detroit Pistons (NBA)
Detroit Tigers (MLB)
Fox Sports Midwest St. Louis; Indiana Pacers (NBA)
Indianapolis St. Louis Cardinals (MLB)
St. Louis Blues (NHL)
Fox Sports New England Boston; Boston Celtics (NBA)
Providence;
Hartford
Fox Sports New York New York City New York Mets (MLB)
New Jersey Nets (NBA)
New York Islanders (NHL)
New Jersey Devils (NHL)
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
RSN PRIMARY DMA TEAMS (LEAGUES)
- --- ----------- ---------------
<S> <C> <C>
Fox Sports Northwest Seattle/Tacoma; Seattle Mariners (MLB)
Portland Seattle Supersonics (NBA)
Oregon State University
University of Oregon
Washington State University
University of Washington
Fox Sports Ohio Cleveland; Cleveland Indians (MLB)
Columbus Cleveland Cavaliers (NBA)
Fox Sports Pittsburgh Pittsburgh Pittsburgh Pirates (MLB)
Pittsburgh Penguins (NHL)
Pennsylvania State University
University of Pittsburgh
Fox Sports Rocky Mountain Denver; Denver Nuggets (NBA)
Kansas City Colorado Avalanche (NHL)
Salt Lake City Colorado Rockies (MLB)
Kansas City Royals (MLB)
Utah Jazz (NBA)
Fox Sports South Atlanta; Charlotte Atlanta Braves (MLB)
Atlanta Hawks (NBA)
Charlotte Hornets (NBA)
Carolina Hurricanes (NHL)
Fox Sports Southwest Dallas/ Dallas Mavericks (NBA)
Ft. Worth; Houston Astros (MLB)
Houston Houston Rockets (NBA)
San Antonio Dallas Stars (NHL)
Texas Rangers (MLB)
San Antonio Spurs (NBA)
Fox Sports West Los Angeles; Los Angeles Lakers (NBA)
San Diego Los Angeles Kings (NHL)
Anaheim Angels (MLB)
Fox Sports West 2 Los Angeles; Anaheim Mighty Ducks (NHL)
San Diego Los Angeles Dodgers (MLB)
Los Angeles Clippers (NBA)
University of Southern California
UCLA
Home Team Sports Washington D.C.; Baltimore Orioles (MLB)
Baltimore Washington Wizards (NBA)
Washington Capitals (NHL)
MSG Network New York City New York Yankees (MLB)
New York Knicks (NBA)
New York Rangers (NHL)
SportsChannel Florida Tampa/ Florida Marlins (MLB)
St. Petersburg/Sarasota Florida Panthers (NHL)
Miami/Ft. Lauderdale; Tampa Bay Devil Rays (MLB)
Orlando
Sunshine Network Tampa/ Orlando Magic (NBA)
St. Petersburg/ Tampa Bay Lightning (NHL)
Sarasota; Miami/ Miami Heat (NBA)
Ft. Lauderdale; Florida State University
Orlando University of Florida
</TABLE>
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National Sports Programming Services. FSN is a national service,
distributing to the RSN's network programming which complements regional sports
programs with a synchronized schedule of quality national programming, anchored
by Fox Sports News. Fox Sports News provides comprehensive coverage of all
sports news nationwide presenting a consistent brand image with high quality
on-air graphics. FSN also provides other sports programming events, including
nationally televised MLB games, NCAA college football and basketball, boxing,
PGA golf, classic sports, auto racing, tennis, and other outdoor programming
events. In addition to providing national programming, FSN also supplies
corporate, marketing and technical operations to the RSNs, helping to create one
cohesive network. After giving effect to the Rainbow Transaction, FSN has
distribution in each of the top 14 DMAs and 22 of the top 25 DMAs thereby
enabling the creation of greater advertising opportunities for national
advertisers.
FSN has entered into affiliation agreements with the RSNs and, in
certain regions where Fox Sports does not hold interests in RSNs, with
third-party owned RSNs. These agreements allow the RSNs to carry certain
programming and promotions in exchange for a per subscriber fee or other
arrangement. Also, pursuant to separate and representation agreements, the
National Advertising Partnership is permitted to sell advertising time for the
RSN during a portion of the RSN's regional sports programming. The affiliation
agreements also permit the National Advertising Partnership to market and sell
advertising time during the national portions of the RSN's programming schedule.
"FX" is a general entertainment channel that features the syndicated
series of NYPD Blue, X-Files, Picket Fences along with a number of other
high-quality series. In addition, FX has cable sports programming with coverage
of MLB, college football and basketball, World League of American Football and
the World Cup of Hockey. Approximately 38.2% of the subscribers to FX are SSI
Subscribers.
Rights Agreements. The RSNs typically enter into rights contracts with
one or more professional sports teams in their regions and acquire rights to
collegiate sporting events through arrangements with regional conferences,
individual schools and programming syndicators. The duration of the rights
agreements with the professional teams ranges from one to fourteen years. The
rights contracts for collegiate sporting events typically range from two to five
years. The Fox Sports' strategy has been to avoid having multiple rights in any
given region expire in the same year, thereby reducing the risk that a
competitor could secure all relevant rights in that region. Pursuant to the
professional sports rights agreements, the RSNs usually acquire the exclusive
right to distribute via cable and other forms of pay television, in their
respective regions, a specified number of games that are not subject to national
cable or broadcast contracts. In some cases, the contract requires the network
to exhibit a minimum number of games and permits exhibition of additional games,
up to a fixed maximum number. The arrangements with respect to collegiate sports
usually provide exclusive regional cable distribution rights (other than via
free over-the-air broadcast television) to a specified number of events. Both
professional and collegiate rights granted under such agreements are generally
subordinate to rights granted under league or conference national broadcast and
national cable contracts. The fee arrangements for the rights granted to the
RSNs under the professional and collegiate sports agreements also vary from
contract to contract. In most cases, the contract provides for a charge per game
or event, or a fixed aggregate fee, subject to limited increases over the term
of the contract, with a minimum annual exhibition requirement. In certain cases
an RSN has also acquired broadcast rights to professional teams or collegiate
events and has sub-licensed such rights to a local broadcaster. Certain factors
such as player strikes, bankruptcy of leagues or individual teams, or team
relocations may have an adverse effect on the revenue of the RSNs.
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<PAGE> 38
The value of the exhibition rights granted under sports rights
contracts, and in some cases the financial commitments incurred thereunder, are
subject to certain contingencies that are not within the control of the RSNs,
such as the relocation of a professional team to a different region, changes in
the schools participating in a particular collegiate conference, the terms of
applicable national broadcast or cable contracts, and the rules and regulations
of the applicable professional or collegiate league, conference or association.
The RSNs derive revenue from two principal sources: (1) fees paid by
multichannel video programming distributors pursuant to affiliation agreements
entered into with the RSNs and (2) the sale of advertising time to local,
regional and national advertisers plus infomercials. Each cable operator or
other distributor is typically charged a monthly fee per subscriber in its
systems receiving the programming service, which fees vary depending on whether
the service is offered as a basic, expanded basic or Pay-TV service and the
proximity of the cable system to the venue of the major sporting events
distributed by the network. The affiliation agreements generally provide for
limited increases during their term in the fees charged by the networks.
In addition to owning interests in and operating the RSNs, Fox Sports
also provides various services to affiliated and non-affiliated networks. Fox
Sports, through Fox Sports Direct, acts as a marketing agent to C-Band HSD
owners and distributors to C-Band HSD owners for certain of the Sports Networks
with which it is affiliated, and as a packager for DBS distributors. In
addition, Fox Sports provides support services, such as master control and
satellite uplinking services, and certain program scheduling, post-production
and editing services, to certain of its affiliated networks.
Advertising. FSN and the RSNs derive significant revenues from selling
a fixed supply of advertising inventory, comprised of advertising time slots
("units") shown during national and regional programming. The inventory is
divided among national network, national spot and local advertising. Regional
professional sports events such as basketball, hockey, and baseball, as well as
other local sports programming, currently carry both national spot and local
advertising. Upon consummation of the Rainbow Transaction, Fox Sports commenced
sales of national network advertising during local team programming. Network
programming such as Fox Sports News, nationally televised MLB games and PGA golf
carries national network, national spot and local advertising. Following
consummation of the Rainbow Transaction, Fox Sport's RSNs and other FSN
affiliates have approximately 55 million subscribers.
Local advertising is sold at the RSN level, and national network and
national spot units are sold at the national level by the National Advertising
Partnership. The National Advertising Partnership centralizes control over
pricing and allocation of demand across the national network, national spot and
local advertising categories of inventory.
As the RSNs are regional in nature, to the extent that TCI is the
predominant cable provider in a specific region, the percentage of SSI
subscribers to certain of the RSNs may significantly exceed 23.3%.
Satellite. Netlink International uplinks the signals of six broadcast
television station to C-Band packagers in the U.S. and Canada and to cable
systems in the U.S. The C-Band packagers and cable companies pay Netlink
International a fee for the right to sell these services to their customers.
Netlink International leases six satellite transponders on an "unprotected" or
"transponder unprotected" basis on a communications satellite. Netlink
International has "seniority status" on such satellite transponders which
results in Netlink International having favorable ranking should transponders be
required to restore a "protected" service. See "Satellite Transponder
Agreements" below.
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<PAGE> 39
Superstar/Netlink was formed in April, 1996 as a joint venture owned
50% by Liberty Media Group and 50% by UVSG, an entity controlled by TCI Ventures
Group. Effective February 1, 1998, Turner-Vision contributed the assets,
obligations and operations of its retail C-Band HSD business to
Superstar/Netlink (the "Turner-Vision Acquisition"). As a result of the
Turner-Vision Acquisition, Superstar/Netlink is currently owned approximately
40% each by Liberty Media Group and UVSG and 20% by Turner-Vision.
Superstar/Netlink is the nation's largest provider of programming to
C-Band customers with approximately 57% of the C-Band market. This includes
approximately 330,000 subscribers added through the Turner-Vision Acquisition.
Superstar/Netlink acquires rights to market various satellite-transmitted
programming, including services such as HBO, STARZ!, ESPN and USA, to C-Band HSD
households. Superstar/Netlink offers HSD owners various packages of programming
for monthly, quarterly, semi-annual and annual subscription periods. Once a
subscriber has ordered service by telephone or through a C-Band HSD retailer,
Superstar/Netlink transmits an authorization code to the customer's descrambler,
allowing the customer to receive the programming.
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. (See "TCI Ventures Group - Diversified Satellite Communications"
for a detailed description of UVSG.
In January 1998, TCI acquired an additional 12,373,294 shares of the
Class A Common Stock of UVSG from Lawrence Flinn, Jr., the founder of UVSG, in
exchange for 7,336,745 shares of Liberty Group Series A Stock and 12,688,812
shares of TCI Ventures Group Series A Stock. Of the UVSG shares so acquired,
6,186,647 were attributed to the Liberty Media Group. As a result of such
transaction, TCI's total equity interest in UVSG increased to 73% of which
approximately 17% was attributable to Liberty Media Group.
On February 17, 1998, UVSG announced that it had agreed to acquire
Liberty Media Group's 40% interest in Superstar/Netlink and its 100% interest in
Netlink International. In exchange for these assets, UVSG will issue to TCI
approximately 6,375,000 shares of Class A Common Stock of UVSG, all of which
shares will be attributed to the Liberty Media Group. If the proposed
transaction is consummated, TCI's aggregate equity and voting interest in UVSG
will increase to approximately 77% of which, approximately 29% will be
attributed to Liberty Media Group. Consummation of the transaction is subject to
several conditions, including negotiation of definitive agreements, regulatory
approvals and approval of UVSG's stockholders. There can be no assurance that
such transaction will be consummated.
WTBS. During 1997 Southern and its wholly-owned subsidiary, Royal
Communications, Inc. ("Royal"), transmitted the signal of WTBS, a 24-hour
independent UHF television station originated by TBS, from the uplinking
facilities of LMC Satcom, Inc. ("LMC SatCom"). Southern made the WTBS signal
available to cable television system operators and operators of other
non-broadcast distribution media and to C-Band HSD owners through program
packagers. No payment to TBS was required for the transmission by Southern of
the WTBS signal.
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<PAGE> 40
In connection with the TBS/Time Warner Merger, Liberty Media Group and
Time Warner entered into an agreement providing for the grant to Time Warner of
the Southern Option to purchase the Southern Business. Effective January 1,
1998, Time Warner purchased such assets pursuant to the Southern Option. For a
more detailed description of this transaction, see the description of the
TBS/Time Warner Merger in "Entertainment and Information" above.
HSN, Inc. In December 1996, Silver King Communications, Inc. ("Silver
King") consummated mergers with Savoy Pictures Entertainment, Inc. ("Savoy")
(the "Savoy Merger") and with Home Shopping Network, Inc. ("HSN") and
subsequently changed its name to HSN, Inc. ("HSNI"). Following such mergers,
HSNI's principal areas of business are electronic retailing and television
broadcasting.
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"). Each outstanding share of HSN
Common Stock was converted into the right to receive .45 of a share of HSNI's
Common Stock. Each outstanding share of HSN Class B Common Stock was converted
into the right to receive .54 of a share of HSNI's Class B Common Stock except
for a portion of the HSN Common Stock and the HSN Class B Common Stock owned by
Liberty Media Group, the treatment of which is discussed below.
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 "Silver King Option") to
purchase 2 million shares of Class B common stock of 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 Silver King 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 Silver King 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 the Company
in Silver King not exceed 21.37% without the prior approval of the FCC (the "FCC
Order").
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Prior to the HSN Merger, HSN was a consolidated subsidiary of the
Company attributed to Liberty Media Group. 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. 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. Pursuant to an
Exchange Agreement between Liberty Media Group and Silver King, the shares of
HSN held by Liberty Media Group following the HSN Merger are mandatorily
exchangeable from time to time for shares of common stock and Class B common
stock of Silver King (in the same ratio as the merger ratio in the HSN Merger)
(x) upon the occurrence of certain events or changes in laws, rules or
regulations which would entitle Liberty Media Group to own directly a greater
number of shares of Silver King or (y) in connection with the sale of the shares
of Silver King to be received in the exchange to a third party who would be
entitled to own such shares under applicable law. If all shares of Silver King
stock issuable pursuant to the Contingent Right and the Exchange Agreement were
issued, Liberty Media Group's beneficial ownership of Silver King stock would
increase from 21.37% to approximately 36.5% of the outstanding common equity
(with such shares and the shares owned by BDTV-I and BDTV-II representing
approximately 77% of the total voting power of the Silver King common equity).
Liberty Media Group's shares of nonvoting stock of BDTV-I and BDTV-II
are convertible into voting stock upon the occurrence of certain events
(including a change in law), which would permit Liberty Media Group to own
directly and to vote the Silver King stock held by BDTV-I and BDTV-II,
respectively, pursuant to the rules and regulations of the FCC (a "Change in
Law"). At such time as a Change in Law occurs, Liberty Media Group will have the
right to acquire Mr. Diller's shares of BDTV-I and BDTV-II for an amount equal
to Mr. Diller's investment in such shares, plus interest. Following a Change in
Law, Liberty Media Group and Mr. Diller have agreed that they will vote upon a
slate of directors of Silver King, of which a majority will be Liberty Media
Group designees, and the remainder will be designees of Mr. Diller, and Liberty
Media Group will vote, and will cause its director designees to vote, in the
same manner as Mr. Diller, except with respect to certain fundamental matters
and certain matters related to Mr. Diller's employment with Silver King.
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The BDTV Agreement grants Mr. Diller the right, so long as he owns a
minimum number of shares of Silver King stock and is President, Chief Executive
Officer or Chairman of the Board of Silver King, to exchange shares of Silver
King Class B common stock owned by Liberty Media Group (10 votes per share) or
held by BDTV-I or BDTV-II for shares of Silver King common stock (one vote per
share) held by Mr. Diller, except to the extent that such exchange would result
in Liberty Media Group beneficially owning securities representing less than 50%
of the voting power of Silver King. The BDTV Agreement also contains
restrictions on transfers of shares of Silver King stock by Liberty Media Group
and Mr. Diller; rights of first refusal on permitted transfers of shares (except
to a controlled affiliate); and a right of Mr. Diller to sell his Silver King
shares to Liberty Media Group, if he ceases to be the President, Chief Executive
Officer or Chairman of the Board of Silver King following the third anniversary
of the BDTV Agreement (other than for cause). If Mr. Diller exercises his "put"
right, the purchase price for such shares will be their "Appraised Value" (as
defined) and such purchase price may be paid in cash or in any publicly traded
securities of TCI or Liberty Media Group.
The BDTV Agreement contemplates the creation of additional companies
("BDTV Entities") with the same capital structure as BDTV-I and BDTV-II, to
which Liberty Media Group may contribute shares of Silver King received pursuant
to the Contingent Right.
In July 1997, pursuant to a Stock Exchange Agreement, dated as of May
1997, by and between Paul G. Allen and HSNI (the "Stock Exchange Agreement"),
HSNI acquired 12,283,014 shares of the common stock ("Ticketmaster Common
Stock") of Ticketmaster Group, Inc. ("Ticketmaster") in exchange for the
issuance to Mr. Allen of 7,238,507 shares of HSNI's Common Stock, subject to the
issuance of up to an additional 3,257,238 shares of HSNI's Common Stock to be
reserved for contingent issuance in July 1998 if the average market price of HSN
Common Stock over a specified period prior to such date is below $29 per share.
In July 1997, HSNI acquired, in open market purchases, 70,000 and 42,000 shares,
respectively, of Ticketmaster Common Stock for $16 per share, or an aggregate
purchase price of $1,792,000 (excluding commissions). Under the Stock Exchange
Agreement, Mr. Allen was required to use all reasonable efforts to cause
Ticketmaster to take such action so that, effective upon the closing under the
Stock Exchange Agreement, the Board of Directors of Ticketmaster would consist
of up to a majority of persons designated by HSNI (the precise number of which
was to be determined by HSNI). Under this provision, Barry Diller, Chairman and
Chief Executive Officer of HSNI, and James Held, President and Chief Executive
Officer of HSN and Vice Chairman of HSNI, joined the Ticketmaster Board of
directors as of the closing under the Stock Exchange Agreement. Based upon
24,739,715 shares of Ticketmaster Common Stock outstanding as of May 20, 1997,
the shares of Ticketmaster Common Stock held by HSNI represent approximately
50.1% of the total number of shares of Ticketmaster Common Stock outstanding.
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As a consequence of the issuance of shares of HSNI Common Stock to Mr.
Allen pursuant to the Stock Exchange Agreement, under applicable FCC regulations
and interpretations (including the FCC Order), Liberty Media Group was permitted
to hold an indirect equity interest in a greater number of shares of HSNI than
it held immediately prior to the issuance of such shares. In accordance with the
terms of the Contingent Right held by Liberty Media Group, 2,002,591 shares of
HSNI Common Stock were issued to Liberty Media Group immediately following the
issuance of shares of HSNI Common Stock to Mr. Allen. The Contingent Rights
Shares issued to Liberty HSN were contributed to BDTV III INC. ("BDTV-III"), a
newly formed entity with substantially the same terms as BDTV-I and BDTV-II
(with the exception of certain transfer restrictions).
In October 1997, HSNI delivered a letter to the Board of Directors of
Ticketmaster proposing a transaction pursuant to which HSNI would acquire all
publicly held shares of Ticketmaster's Common Stock.
In February 1998, pursuant to an Investment Agreement among Universal,
HSNI, HSN and Liberty Media Group, dated as of October 1997 and amended and
restated as of December 1997 (the "Investment Agreement"), HSNI consummated a
transaction (the "Universal Transaction") through which USA Networks Partners,
Inc., a subsidiary of Universal, sold its 50% interest in USA Networks, a New
York general partnership ("USA Networks") to HSNI and Universal contributed the
remaining 50% interest in USA Networks and its domestic television production
and distribution operations to HSNI. In connection with the Universal
Transaction, Universal, HSNI, HSN and Liberty Media Group became parties to a
number of other agreements relating to, among other things, (i) the management
of HSNI, (ii) the purchase and sale or other transfer of voting securities of
HSNI, including securities convertible or exchangeable for voting securities of
HSNI, and (iii) the voting of such securities.
At the closing of the Universal Transaction, Universal (i) was issued
3,190,000 shares of HSNI's Class B Common Stock, 3,560,000 shares of HSNI's
Common Stock and 54,327,170 common equity shares ("LLC Shares") of USANi LLC, a
limited liability company ("USANi LLC") formed to hold all of the businesses of
HSNI and its subsidiaries, except for its broadcasting business and its equity
interest in Ticketmaster and (ii) received a cash payment of $1.3 billion.
Pursuant to an Exchange Agreement relating to the LLC Shares (the "LLC Exchange
Agreement"), 36,810,000 of the LLC Shares issued to Universal are each
exchangeable for one share of HSNI's Class B Common Stock and the remainder of
the LLC Shares issued to Universal are each exchangeable for one share of HSNI's
Common Stock.
At the closing of the Universal Transaction, Liberty Media Group was
issued 589,161 shares of HSNI's Class B Common Stock, representing all of the
remaining shares of HSNI's Class B Common Stock issuable pursuant to Liberty
Media Group's Contingent Right. Of such shares, 400,000 shares of Class B Common
Stock were contributed to BDTV IV Inc. ("BDTV-IV"), a newly-formed entity having
substantially the same terms as BDTV-I and BDTV-II (with the exception of
certain transfer restrictions). In addition, Liberty Media Group purchased 5 LLC
Shares at the closing of the Universal Transaction for an aggregate purchase
price of $200. Liberty Media Group has also agreed to contribute $300 million in
cash to USANI LLC by June 30, 1998 in exchange for an aggregate of 7,500,000 LLC
Shares and/or shares of HSNI's Common Stock. Liberty Media Group's cash purchase
price will increase at an annual interest rate of 7.5% beginning from the date
of the closing of the Universal Transaction through the date of Liberty Media
Group's purchase of such securities (the "Liberty Closing"). Pursuant to the LLC
Exchange Agreement, each LLC Share issued or to be issued to Liberty Media Group
is exchangeable for one share of HSNI's Common Stock.
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In connection with the Universal Transaction, each of Universal and
Liberty Media Group has been granted a preemptive right with respect to future
issuances of HSNI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in HSNI that they had
immediately prior to such issuances. In addition, with respect to issuances of
HSNI's capital stock in certain specified circumstances, Universal will be
obligated to maintain the percentage ownership interest in HSNI that it had
immediately prior to such issuances. In addition, HSNI, Universal and Liberty
Media Group have agreed that if the parties agree prior to June 30, 1998 (the
date of mandatory cash contributions) on the identity of assets owned by Liberty
Media Group that are to be contributed to the LLC and the form and terms of such
contributions, Liberty Media Group will contribute those assets in exchange for
LLC Shares valued at $40 per share. If Liberty Media Group contributes such
additional assets, Liberty Media Group has the right to elect to reduce the
number of LLC Shares it is obligated to purchase for cash by an amount equal to
45% of the value of the assets contributed by Liberty Media Group. If Liberty
Media Group exercises the option to contribute assets and thereby reduces its
cash contribution amount, Universal will be required to purchase a number of
additional LLC shares (valued at $40 per share) equal to the value of Liberty
Media Group's asset contribution, less the amount by which Liberty Media Group's
asset contribution is applied towards reducing Liberty Media Group's cash
contribution. In addition, Universal may purchase an additional number of LLC
shares (valued at $40 per share), equal to the value of Liberty Media Group's
asset contribution which is not applied towards reducing Liberty Media Group's
cash contribution.
Pursuant to agreements entered into in connection with the Universal
Transaction, Universal is permitted initially to designate four persons,
reasonably satisfactory to HSNI, to HSNI's Board of Directors, of whom no more
than one can be a non-affiliate of Universal, and generally will have the right
to designate one member of HSNI's Board of Directors for each 10% ownership the
equity of HSNI (including LLC Shares) up to a maximum of four directors.
Universal currently has four designees serving on HSNI's Board of Directors. In
addition, provided that Liberty Media Group's ownership of HSNI stock remains at
certain levels and subject to applicable law, Liberty Media Group will have the
right to designate up to two directors of HSNI at such time as Liberty Media
Group is no longer prohibited from having representation on HSNI's Board of
Directors. Pursuant to law and FCC regulations, Liberty Media Group is not
currently permitted to have a designee on HSNI's Board of directors. HSNI has
also agreed in the LLC Agreement that, subject to the same ownership thresholds,
Liberty Media Group will be permitted to designate, depending on its ownership
level, up to two directors to the Board of Directors of the LLC, to the extent
that Liberty Media Group is not permitted to designate directors of HSNI. The
two Liberty Media Group designees serving as directors of the LLC since the
closing of the Universal Transaction are Robert R. Bennett and Leo J. Hindery,
Jr.
In connection with the Universal Transaction, HSNI changed its name to
USA Networks, Inc.
HSNI, through its USA Broadcasting, Inc. subsidiary ("USA
Broadcasting") and through Savoy's broadcasting operations ("SF Broadcasting"),
acquired as a result of the Savoy Merger, controlled, as of December 31, 1996,
18 full-power television broadcast stations, including three satellite stations.
HSNI also owned 26 low-power television stations (the "LPTV Stations") and two
low-power translators.
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USA Broadcasting owns and operates 12 independent full-power UHF
television stations, including one television satellite station (the "USA
Stations"), which affiliate with and primarily broadcast HSN retail sales
programming. To a limited extent, the USA Stations also broadcast syndicated
programming, locally produced public affairs and public interest programming and
commercial-free children's programming. The USA Stations serve 10 of the 16
largest metropolitan television markets in the U.S. The LPTV Stations also
broadcast HSN programming. In addition, USA Broadcasting holds notes receivable
and/or equity interests in six other entities that hold broadcast licenses or
authorizations in nine television markets.
Each USA Station, through the applicable HSNI subsidiary, has entered
into an affiliation agreement with HSN pursuant to which such USA Station
broadcasts HSN's electronic retail sales programming for 164 hours per week.
HSNI is continuing to evaluate the status of these affiliation agreements
following the HSN Merger. HSNI plans to determine on a market by market basis
whether the USA Stations will continue to air HSN, or whether HSNI will instead
disaffiliate HSN and the USA Stations and develop and broadcast programming
independently of HSN. In addition to analyzing such a disaffiliation, HSNI may
consider a number of other options with respect to the USA Stations. These
options include selling the USA Stations or entering into partnership
arrangements with broadcasters and/or cable operators. HSNI has made no final
decision as to how it will utilize the USA Stations. HSNI plans to disaffiliate
and independently program its Miami station. HSNI intends over time to program
all of these stations on a local basis, either by itself or with partners. If
USA Broadcasting elects to develop programming independently of HSN, substantial
expenditures would be required to develop USA Broadcasting programming and
promotions, requiring significant capital expenditures, which, during this
developmental and transitional stage, will not be offset by sufficient revenues.
There can be no assurance that, if USA Broadcasting ceases to broadcast
HSN programming, USA Broadcasting will be successful in its strategy to develop
and broadcast its own programming, whether on a local or national basis, or that
HSN will be able to find other means of distributing its programming on
favorable terms to the households in the broadcast areas currently served by the
USA Stations.
SF Broadcasting owns and operates 6 full-power stations (the "SF
Stations"), including two satellite stations, and two low-power translators.
Each of the SF Stations has entered into affiliation agreements with Fox
Broadcasting Company ("Fox"). A subsidiary of HSNI owns a 50% equity and 100%
voting interests in the SF Stations. Fox owns the remaining 50% non-voting
equity interests and has the right to exchange all of such non-voting interests
for voting interests in the SF Stations beginning in the third and fourth
quarters of 1997, subject to necessary regulatory approvals.
Electronic Retailing Services. HSN. Upon consummation of the HSN
Merger, HSNI owned 80.1% of the equity of HSN and the Liberty Media Group owned
19.9% of the equity of HSN. After the HSN Merger, at such time from time to time
as Liberty Media Group or its permitted transferee may be allowed under
applicable regulations to hold additional shares of HSNI's stock, and after
exercise in full of the Contingent Rights, Liberty Media Group will exchange its
HSN Common Stock and HSN Class B Common Stock for shares of HSNI Common Stock
and HSNI Class B Common Stock at the same ratio as the merger ratio in the HSN
Merger. Upon completion of such exchange, HSN would become a wholly-owned
subsidiary of HSNI.
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HSNI through its Home Shopping Club, Inc. subsidiary, sells a variety
of consumer goods and services by means of live, customer-interactive electronic
retail sales programs which are transmitted twenty-four hours a day, seven days
per week, via satellite to cable television systems, affiliated broadcast
television stations and HSDs. HSN retail sales programming is currently carried
on two separate networks, The Home Shopping Network and America's Store
(formerly "Spree"). Both networks are carried by cable television systems and
broadcast television stations throughout the country. America's Store
programming is available in one-hour segments, which enables broadcast and cable
affiliates to air America's Store in available time slots that would not
otherwise produce revenue for the affiliate.
In addition to the electronic retailing and broadcasting businesses,
HSNI's subsidiaries are involved in Internet shopping and other businesses
complementary to electronic retailing.
During 1996 and in 1997, HSNI entered into two international ventures
as a minority participant. HSN owns a 29% interest in Home Order Television
("HOT"), a venture based in Germany. HOT is carried via cable and satellite to
several million households in Germany and Austria. HSN also owns a 30% interest
in "Shop Channel," a venture based in Japan. Shop Channel currently is carried
by cable affiliates to approximately one-half million Japanese households.
QVC. Liberty Media Group owns a 42.6% interest in QVC. Substantially
all of the remaining 57.4% of QVC is held by a subsidiary of Comcast
Corporation, which manages the day-to-day operations of QVC.
QVC markets and sells a wide variety of consumer products and services
primarily by means of its televised shopping programs, known as "QVC" and "Q2".
Cable television system operators that have entered into affiliation agreements
with QVC carry its programming as part of their basic service and pursuant to
such agreements receive from QVC commissions equal to 5% of the net sales of
merchandise sold to customers located in the cable operator's service area. QVC
is also a joint venturer in the operation of a British televised shopping
service. QVC also operates "iQVC," an online shopping service which is available
on the Internet and via the Microsoft Network. iQVC is offering a wide variety
of consumer products. During 1996, QVC launched a televised shopping service in
Germany and in January 1997, formed a joint venture in Japan to produce twelve
1/2 hour programs.
Competition-Programming Companies. The business of distributing
programming for cable television is highly competitive. The number of analog
channels available to the average customer of a domestic cable television system
is 60 or less. The various sports, entertainment and information Programming
Companies described above in which Liberty Media Group has interests (the
"Programming Companies") directly compete with other programming services for
distribution on a limited number of cable television channels and on other
distribution media and, when distribution is obtained, the programming offered
by the Programming Companies competes, in varying degrees, for viewers and
advertisers with other cable programming services and off-air broadcast
television, radio, print media, motion picture theaters, video cassettes,
internet services and other sources of information and entertainment. Important
competitive factors are the prices charged for programming, the quantity,
quality and variety of the programming offered and effectiveness of marketing
efforts. With the advent of new compression technologies, which are intended to
increase channel capacity, competition for channel capacity may substantially
decrease, although additional competitors may enter the marketplace thereby
increasing competition for subscriber fees and advertising revenue.
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In addition to competition for cable distribution, viewers and
advertisers, the Programming Companies also compete, to varying degrees, for
programming. With respect to the acquisition of sports programming rights, the
Programming Companies compete for national rights principally with the national
broadcast television networks; a number of national cable services that
specialize in or carry sports programming; television "superstations," which
distribute sports and other programming to cable television systems by
satellite; and with independent syndicators that acquire and resell such rights
nationally, regionally and locally. They also compete for local and regional
rights with those competitors, with local broadcast television stations and with
other local and regional sports networks. The owners of distribution outlets
such as cable television systems may also contract directly with the sports
teams in their service areas for the right to distribute a number of such teams'
games on their systems. Four professional sports leagues have each entered into
agreements with national DBS distribution outlets for the distribution of
selected league games. With respect to the acquisition of non-sports programming
(such as syndicated programs and movies) which is not produced by or
specifically for the Programming Companies, competitors include the national
broadcast television networks, local broadcast television stations, suppliers of
pay-per-view programs and other cable program suppliers.
Superstar/Netlink competes with other C-Band program packagers, some of
which are affiliated with well-known, large programmers and cable television
system operators. Because a significant portion of sales are generated through
C-Band HSD dealers, Superstar/Netlink also competes for dealer relationships on
the basis of commission rates and quality of service offered to the dealer and
its customers. In addition, the C-Band market faces competition from cable
television as well as technologies such as DBS services, which were launched in
1994. DBS uses higher power Ku-Band frequencies that can be received by
significantly smaller and less expensive HSDs than HSDs that receive C-Band
frequencies. Because of the smaller dish size, DBS is more widely accepted than
C-Band systems in urban markets. The Company believes that the entry of DBS will
serve to decrease the size of the C-Band market in the short and long term.
During 1997, the C-Band industry decreased 7% to 2.1 million subscribers.
Netlink International faces competition from multiple satellite
carriers which uplink other superstation and network signals, using C-Band and
Ku-Band frequencies. There are no specific statutory or regulatory restrictions
that would prevent another satellite carrier from retransmitting the
superstation and network signals transmitted by Netlink International so long as
that carrier meets the requirements of the Copyright Act and any applicable
requirements of the Communications Act of 1934, as amended (the "Communications
Act"). Further, Netlink International has no control over the programming on
such stations. Netlink International's business could be adversely affected by
changes in the type, mix or quality of the programming on the stations it
transmits that result in such services becoming less desirable to subscribers.
HSN and QVC operate in direct competition with businesses which are
engaged in retail merchandising, other electronic retailers, direct marketing
retailers such as mail order companies, companies that sell from catalogs, and
other discount retailers and companies that market through computer technology.
HSN and QVC also compete for access to their customers with broadcasters and
alternative forms of entertainment and information, such as programming for
network and independent broadcast television stations, basic and pay cable
television services, newspapers, radio, magazines, outdoor advertising, transit
advertising, yellow page directories and direct mail. In particular, the price
and availability of programming for cable television systems affects the
availability of these channels for programs for HSN and QVC and the compensation
which must be paid to the cable operators for carriage of such programming.
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In addition to the above factors, HSN's affiliation with broadcast
television stations creates another set of competitive conditions. These
stations compete for television viewers primarily within local markets. HSN's
affiliated broadcast television stations are located in highly competitive
markets and compete against both VHF and UHF stations. Due to technical factors,
a UHF television station generally requires greater power and a high antenna to
secure substantially the same geographical coverage as a VHF television
broadcasting station. Under present FCC regulations, additional UHF commercial
television broadcasting stations may be licensed in all such markets with the
possible exception of New York City. HSN cannot quantify the competitive effect
of the foregoing or any other sources of video programming on any of HSN's
affiliated television stations, nor can it predict whether such competition will
have a material adverse effect on its operations.
Satellite Transponder Agreements. The Programming Companies lease
satellite transponders under varying terms on both domestic and international
communications satellites. Domestic communications satellite transponders may be
leased full or part time on a "protected," "transponder protected" or
"unprotected" basis. When the carrier provides services to a customer on a
"protected" basis, replacement transponders are reserved on board the satellite
for use in the event the "protected" transponder fails. Should there be no
reserve transponders available, the "protected" customer will displace an
"unprotected" transponder customer on the same satellite. In certain cases, the
carrier also maintains a protection satellite, and, should a satellite fail
completely, all of the lessees' "protected" services would be moved to the
protection satellite. The customer who leases an "unprotected" transponder has
no reserve transponders available, and may have its service interrupted for an
indefinite period when its transponder is required to restore a "protected"
service.
The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which Liberty Media
Group has no control, including the market demand for additional transponder
capacity by other prospective users and the normal uncertainties surrounding the
launch of new satellites and the on-orbit failure of existing satellites, which,
collectively, determine the future price of satellite transponders as the demand
versus supply ratio fluctuates. Although the Company believes that the
Programming Companies have taken reasonable steps to ensure their continued
satellite transmission capability, there can be no assurance that termination or
interruption of satellite transmissions will not occur. Such a termination or
interruption of service by one or more of these satellites could have a material
adverse effect on the results of operations and financial condition of Liberty
Media Group.
The Company began deployment of compressed digital video transmission
in Hartford, CT, during 1996. This technology converts on average as many as
fourteen analog signals (now used to transmit video and voice) into a digital
format and compresses such signals (which is accomplished primarily by
eliminating the redundancies in television imagery) into the space normally
occupied by one analog signal. The industry is currently developing standards
for sending and receiving compressed signals. Several of Liberty Media Group's
transponder leases provide the right to use the transponders to provide
compressed services. Use of compressed service may result in greater transponder
capacity.
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Regulation-Programming Companies. The FCC regulates the providers of
satellite communications services and facilities for the transmission of
programming services, the cable television systems that carry such services and
to some extent the programming services themselves. Cable television systems are
also regulated by municipalities or other state and local government
authorities. Municipalities generally have the jurisdiction to grant and to
review the transfer of franchises, to review rates charged to subscribers, and
to require public, educational, governmental or leased-access channels, except
to the extent that such jurisdiction is preempted by federal law. Any such rate
regulation or other franchise conditions could place downward pressure on
subscriber fees earned by the Programming Companies, and such regulatory
carriage requirements could adversely affect the number of channels available to
carry the Programming Companies.
The 1992 Cable Act expanded greatly the scope of federal and local
regulation. Liberty Media Group believes that the legislation taken as a whole
and as presently implemented is having a material adverse impact upon the cable
industry in general and upon Liberty Media Group's programming operations
specifically.
The 1996 Telecom Act also made significant changes in the regulation of
and competition among telecommunications-related industries, including the cable
television industry. See "TCI Group - Domestic Cable and Communications -
Regulation and Legislation" above, for a more detailed summary of such changes.
Among other things, the 1996 Telecom Act eliminated the statutory prohibition of
telephone companies providing video programming in their service areas;
established a regulatory alternative for open video systems; eliminated rate
regulation of cable programming service tiers immediately for small cable
systems and on March 31, 1999, for all cable systems; extended the program
access and anti-discrimination rules to satellite cable programming vendors
owned by telephone companies and other common carriers; and imposed
closed-captioning requirements for video programming. A number of provisions of
the 1996 Telecom Act remain subject to implementation through rulemaking
proceedings by the FCC. Certain of the more significant areas of regulation
imposed by the 1992 Cable Act and the 1996 Telecom Act that relate to or may
affect programming operations are discussed below.
Regulation of Program Licensing. The 1992 Cable Act directed the FCC to
promulgate regulations regarding the sale and acquisition of cable programming
between multichannel video programming distributors (including cable operators)
and satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator which has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multichannel video distributors. Further, the 1992 Cable Act
requires that such affiliated programmers make their programming services
available to cable operators and competing multichannel video programming
distributors such as MMDS and DBS distributors on terms and conditions that do
not unfairly discriminate among such distributors. The 1996 Telecom Act has
extended this requirement to programming services in which telephone companies
and other common carriers have attributable ownership interests. On December 18,
1997, the FCC initiated a proposed rulemaking to consider, among other things,
whether it should award damages to prevailing complainants in proceedings
alleging violations of the FCC's program access rules. Certain members of
Congress and FCC officials recently have considered proposals that would further
expand such program access rights, including the possible extension of access
and nondiscrimination requirements to video programming offered by programmers
which are unaffiliated with cable operators.
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<PAGE> 50
Regulation of Carriage of Programming. Under the 1992 Cable Act, the
FCC has adopted regulations prohibiting cable operators from requiring a
financial interest in a programming service as a condition to carriage of such
service, coercing exclusive rights in a programming service or favoring
affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete.
Regulation of Cable Service Rates. Cable systems are subject to
extensive rate regulation as summarized above in "TCI Group - Domestic Cable and
Communication Services - Regulation and Legislation - Cable Rate Regulation".
Such comprehensive regulations include provisions controlling rate increases for
changes in costs, including programming costs, and for additional channels. The
1996 Telecom Act eliminates rate regulation of CPSTs (i.e., the tiers of
programming above the BST) in all cable systems as of March 31, 1999. However,
certain members of Congress and FCC officials have called for an extension of
such rate regulation and also have urged more rigorous rate regulation
(including the imposition of limits on pass-throughs of programming cost
increases).
The FCC's rate regulations permit cable operators to adjust rates to
account for inflation and increases in certain external costs, including
increases in programming costs. In 1995, the FCC adopted an alternative
methodology for adjusting regulated rates to account for such cost increases and
for the costs of adding channels which provides cable operators with increased
flexibility to recover such costs. Cable television systems also may adjust
rates when regulated tiers are affected by channel additions or deletions.
Additional programming costs resulting from channel additions can be accorded
the same external treatment as other programming cost increases, and cable
operators presently are permitted to recover a mark-up on their programming
expenses. However, a cable operator may pass through increases in the cost of
programming services affiliated with such cable operator only if the price
charged by the programmer to the affiliated cable operator reflects prevailing
prices offered in the marketplace by the programmer to unaffiliated third
parties, or the fair market value of the programming.
The FCC's rate regulations have impaired the willingness and ability of
cable operators to add programming services and to invest in additional cable
plant to expand channel capacity. Consequently, the cumulative impact of the
FCC's rate regulation is likely to continue to have an adverse impact on Liberty
Media Group's programming interests.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission consent"
rights. Cable operators are required to secure permission from broadcasters that
elected retransmission consent rights before retransmitting the broadcasters'
signals. Local and distant broadcasters can require cable operators to make
payments as a condition to carriage of such broadcasters' station on a cable
system. (Established "superstations" were not granted such rights.)
Alternatively, commercial broadcasters have the right to deny such carriage
unless they grant retransmission consent.
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<PAGE> 51
The 1992 Cable Act also imposed obligations to carry "local" broadcast
stations for such stations which chose a "must carry" right, as distinguished
from the "retransmission consent" right described above. The rules adopted by
the FCC generally provided for mandatory carriage by cable systems of all local
full-power commercial television broadcast signals selecting must carry and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals. In July 1993, the FCC ruled that stations predominantly used
for the transmission of sales presentations or program-length commercials
operate in the public interest and are entitled to choose "must carry" status.
HSNI's full-time broadcast affiliates have all requested "must carry" status in
lieu of a retransmission fee. A petition for reconsideration of the FCC's ruling
currently remains pending before the FCC, which petition has been opposed by
HSNI. On March 31, 1997, the United States Supreme Court upheld the
constitutionality of the must carry regulations. Such statutorily mandated
carriage of broadcast stations coupled with the provisions of the 1984 Cable
Act, which require cable television systems with 36 or more "activated" channels
to reserve a percentage of such channels for commercial use by unaffiliated
third parties ("Leased Commercial Access") and permit franchise authorities to
require the cable operator to provide channel capacity, equipment and facilities
for public, educational and governmental access, could adversely affect some or
substantially all of the Programming Companies by limiting the carriage of such
services in cable systems with limited channel capacity. The channel capacity
devoted to must carry could increase dramatically if television broadcast
stations proceed with planned conversions to digital transmission and the FCC
determines that cable systems must carry all analog and digital signals
transmitted by television stations. However, as a result of "must carry," HSNI
has experienced increased cable distribution of its programming due to an
increase in the number of cable systems that carry HSNI programming.
Leased Commercial Access. On February 4, 1997, the FCC released revised
rules for calculating the maximum rate for leased commercial access to tiered
channels. The revised formula yields a lower maximum rate than that calculated
under the prior rule such that the use of leased access may be expected to
increase, thereby further restricting the channel capacity available for
carriage of the Programming Companies. Users of commercial leased access have
sought judicial review of the FCC's February 1997 Order, claiming that the FCC
did not appropriately limit commercial leased access rates. If this challenge
were successful, the FCC would be required to initiate a further rulemaking
which could result in additional reductions of commercial leased access rates
and increased use of leased access channels.
Ownership Regulations. The 1992 Cable Act required the FCC to, among
other things, (1) prescribe rules and regulations establishing reasonable limits
on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable interest
and (2) consider the necessity and appropriateness of imposing limitations on
the degree to which multichannel video programming distributors (including cable
operators) may engage in the creation or production of video programming.
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<PAGE> 52
In 1993, the FCC adopted regulations limiting carriage by a cable
operator of national programming services in which that operator holds an
attributable interest (using the same attribution standards as were adopted for
its limits on the number of homes nationwide that a cable operator may reach
through its cable systems) to 40% of the first 75 activated channels on each of
the cable operator's systems. The rules provide for the use of two additional
channels or a 45% limit, whichever is greater, provided that the additional
channels carry minority-controlled programming services. The regulations also
grandfather existing carriage arrangements which exceed the channel limits, but
require new channel capacity to be devoted to unaffiliated programming services
until the system achieves compliance with the regulations. These channel
occupancy limits apply only up to 75 activated channels on the Cable System, and
the rules do not apply to local or regional programming services. These rules
may limit carriage of Liberty Media Group's programming services on certain
systems of cable operators affiliated with Liberty Media Group. In the same
rulemaking, the FCC concluded that additional restrictions on the ability of
multichannel distributors to engage in the creation or production of video
programming presently are unwarranted. See "TCI Group - Domestic Cable and
Communications Services Regulation and Legislation - Additional Ownership
Restrictions", above.
Closed Captioning Regulation. The 1996 Telecom Act also required the
FCC to establish rules and an implementation schedule to ensure that video
programming is fully accessible to the hearing impaired through closed
captioning. On August 22, 1997, the FCC released new rules which will require
substantial closed captioning over an eight to ten year phase-in period with
only limited exemptions. As a result, Liberty Media Group's programming
interests are expected to incur significant additional costs for closed
captioning. A number of parties have petitioned the FCC to reconsider various
provisions of these rules, and such petitions remain pending.
Voluntary Parental Television Guidelines. On January 17, 1997, the
National Association of Broadcasters, the National Cable Television Association,
and the Motion Picture Association of America submitted a joint proposal to the
FCC proposing a voluntary ratings system for video programming which they
supplemented on August 1, 1997. After consulting with public interest groups and
interested persons from the private sector, the Commission found on March 12,
1998 that the voluntary industry guidelines for rating video programming are
consistent with the requirements of the 1996 Telecom Act.
Several petitions filed with the FCC seeking reconsideration of various
aspects of the regulations implementing the 1992 Cable Act and/or the 1996
Telecom Act remain undecided. Petitions for judicial review of regulations
adopted by the FCC, as well as other court challenges to the 1992 Cable Act, the
1996 Telecom Act and the FCC's regulations, also remain pending. The Company is
uncertain how the courts and/or FCC ultimately will rule or whether such rulings
will materially change any existing rules or statutory requirements. Further,
virtually all are subject to revision at the discretion of the appropriate
governmental authority.
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Copyright Regulations. The Copyright Act provides cable television
operators with a compulsory copyright license for retransmission of broadcast
television programming without having to negotiate program rights with the
stations or individual copyright owners. However, see "Regulation-Programming
Companies-Regulation of Carriage of Broadcast Stations" above regarding the
imposition of retransmission consent for broadcast stations. Therefore, cable
systems that carry distant broadcast signals, such as KWGN, must pay royalty
fees to the Register of Copyrights, the amount of which is based upon a formula
utilizing the amount of the system's semi-annual gross receipts and the number
and type of distant signals carried by the system. Any increases in the required
fees could adversely affect the competitive position of distant superstation and
network signals and, therefore, Netlink International. The Copyright Act
empowers the Copyright Office to review periodically and adjust copyright
royalty rates based on inflation and/or petitions for adjustments due to
modifications of FCC rules. Further, the FCC has recommended to Congress
previously the abolition of the compulsory license for cable television carriage
of broadcast signals, a proposal that has received support from members of
Congress. If the compulsory license were abolished, a cable operator would not
be permitted to retransmit such distant signals unless such cable operator
reached a licensing agreement with the copyright owners or licensees of the
programming contained on the signals being retransmitted.
Under regulations adopted by the Copyright Office, satellite carriers
such as Netlink International are not "cable systems" within the meaning of the
Copyright Act. Accordingly, Netlink International is not permitted to provide
superstation or network station broadcast signals to C-Band HSD owners under the
separate compulsory license extended to cable systems. Pursuant to the Satellite
Home Viewer Act of 1994 (the "SHV Act"), Congress granted a compulsory copyright
license to satellite carriers retransmitting the broadcast signals of
"superstations," such as KWGN, and network stations to the public for private
home viewing. In 1994, Congress extended this license until December 31, 1999.
If the license granted under the SHV Act is not further extended, satellite
carriers will be required to negotiate private licenses for the retransmission
of copyrighted material to C-Band HSD owners after 1999. Netlink International
may only distribute the signals of network broadcast stations to "unserved
households" which are outside the Grade B contours of a primary station
affiliated with such network under the SHV Act. Netlink International has
entered into an agreement with representatives of the National Association of
Broadcasters and its television network affiliate members to identify by zip
code those geographic areas which are "unserved" by network affiliated stations.
Depending upon implementation of the agreement and such identification, Netlink
International may be required, after the expiration of a transition period, to
disconnect a substantial number of existing subscribers which would have a
material adverse effect upon the operations of Netlink International.
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<PAGE> 54
On October 28, 1997, the Librarian of Congress (the "Librarian")
announced final rules increasing the monthly copyright royalty fee for the
secondary transmission of superstations and network stations by satellite
carriers, such as Netlink International, to 27 cents per subscriber for distant
superstations and network stations. Those monthly fees had been 17.5 cents for
superstations and 6 cents for network stations. The Librarian adopted the
royalty fees which had been recommended by the Copyright Arbitration Royalty
Panel (the "Panel") in a report submitted to the Librarian. Although the Panel
had recommended that the new fees be effective as of July 1, 1997, the Librarian
determined that the fees became effective on January 1, 1998. Consequently, the
copyright fees paid by Netlink International for the retransmission of broadcast
signals to HSD owners will increase significantly. The resulting increases in
retail prices to subscribers may cause a substantial decrease in the number of
subscribers to Netlink International services. On October 30, 1997, the
Satellite Broadcasting & Communications Association, of which Netlink
International is a member, filed a Petition for Review of the Librarian's
decision with the United States Court of Appeals for the District of Columbia
Circuit, which remains pending. The Court of Appeals refused to grant an interim
stay of the increase. Various bills are being considered by Congress which if
enacted would amend and extend the satellite license and/or potentially change
the copyright royalty fee.
Syndicated Exclusivity. The FCC's syndicated exclusivity rules, which
became effective January 1, 1990, require cable systems with more than 1,000
subscribers to delete programming from distant broadcast signals if exclusive
local broadcast rights to such programming have been purchased by a television
station which broadcasts in the locale of the cable system and such station
requests the cable system to "black out" such programming. These rules could
have an adverse effect on Netlink's business if the stations it transmits were
to carry a material amount of programming subject to deletion.
FCC Licensing. Satellite carriers, including carriers like Netlink
International that lease transponders from others rather than owning a
satellite, may provide their services as a private carrier and/or as a common
carrier. Private carriers, such as Netlink International, are subject to a
lesser degree of regulation by the FCC. The Copyright Act exempts a carrier from
liability for copyright infringement in delivering television broadcast signals
to cable television systems if it meets the passive carrier requirements of the
Copyright Act.
Proposed Changes in Regulation. The regulation of cable television
systems, programming services, satellite carriers, and television stations is
subject to the political process and has been in constant flux over the past
decade. This process continues in the context of legislative proposals for new
laws and the adoption or deletion of administrative regulations and policies.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that Liberty Media Group's business
will not be affected adversely by future legislation, new regulation or
deregulation.
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Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry. Certain satellites are more valuable than others to cable
television programmers based on whether a particular satellite is used by other
programmers of popular cable services. Factors that may affect the Programming
Companies' ability to meet their transponder needs in the future include the
market demand for additional transponder capacity by other prospective users and
the normal uncertainties surrounding the launch of new satellites and the
on-orbit failure of existing satellites, which, collectively, determine the
future price of satellite transponders as the demand versus supply ratio
fluctuates. Under current policy, the carriers from whom the Programming
Companies obtain transponder services are not subject to the market exit
provisions of Section 214 of the Communications Act, and may therefore cease
providing communications services to customers on short notice, provided that
such action is just, reasonable and non-discriminatory, and subject to any
additional rights or remedies to which the customer and the carrier may have
agreed. The Company has no reason to believe that such service providers have
any intention to cease providing transmission services via their respective
satellite systems.
The FCC also grants licenses to construct and operate satellite uplink
facilities which transmit signals to satellites. These licenses are generally
issued without a hearing if suitable frequencies are available. A number of the
Programming Companies, as well as HSN, have been granted licenses for the
construction and operation of satellite uplink facilities and others obtain
satellite uplink services from established service providers.
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<PAGE> 56
TCI VENTURES GROUP
TCI Ventures Group includes TCI's principal international assets and
substantially all of TCI's non-cable and non-programming domestic assets.
Specifically, the assets that are attributed to the TCI Ventures Group are
comprised principally of (i) TCI's interest in TINTA, 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
domestic wireless and wireline telephony businesses, 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) and Sprint PCSsm brands
(trademarks of Sprint Communications Company L.P.) (the "PCS Ventures"), the
Company's 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) a
portion of TCI's 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 (a portion of TCI's interest in UVSG is also attributed
to the Liberty Media Group), (iv) TCI's interest in @Home, a provider of high
speed multimedia Internet services, and the Company's interest in other
Internet-related assets, and (v) other assets, including 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 ETC w/tci, Inc. ("ETC"), a wholly-owned
subsidiary of the Company that develops and distributes for-profit education,
training and communications services and products. The stocks of TINTA, TCG,
UVSG and @Home are traded on the National Market tier of The Nasdaq Stock Market
under the symbol "TINTA", "TCGI", "UVSGA" and "ATHM" respectively.
On January 8, 1998, TCG announced it had entered into certain
agreements pursuant to which it agreed to merge with a subsidiary of AT&T
Corporation ("AT&T"). As a result of the merger, TCG would become a wholly-owned
subsidiary of AT&T and the former stockholders of TCG would receive common stock
of AT&T, with TCI receiving for its interest in TCG, approximately 46.95 million
shares of AT&T common stock. Such shares would be attributed to the TCI Ventures
Group. The transaction is subject to a number of regulatory and other conditions
and there can be no assurance that such transaction will be consummated on the
terms contemplated by the parties, or at all.
Agreements governing the TCI Ventures Group's investment in certain of
the entities in which the TCI Ventures Group has interests contain (i) buy-sell
and other exit arrangements whereby the TCI Ventures Group could be required to
purchase another investor's ownership interest, (ii) performance guarantees
whereby the TCI Ventures Group and/or other subsidiaries of TCI have guaranteed
the performance of the TCI Ventures Group subsidiary that directly holds the TCI
Ventures Group's investment, (iii) restrictions on TCI Ventures Group's ability
to sell or otherwise transfer certain of its investments and (iv) provisions
restricting TCI's ability to compete with certain entities in which it has an
investment.
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<PAGE> 57
The following table lists the entities the Company's interest in which
has been attributed to the TCI Ventures Group and sets forth, as of December 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. 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.
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
DIRECT OR INDIRECT
------------------
COMPANY INTEREST(1) BUSINESS
- ------- ----------- --------
<S> <C> <C>
International Cable, Telephony and Programming
- ----------------------------------------------
Tele-Communications International, Inc. 85% equity International cable, telephony and
92% voting programming interests and operations
Domestic Telephony
- ------------------
Sprint Spectrum Holding Company, L.P. 30% PCS under the "Sprint" brand name
PhillieCo, L.P. 35% PCS under the "Sprint" brand name
Teleport Communications 28% equity (2) Competitive local exchange carrier
Group, Inc. 41% voting
Kansas City Fiber Network, L.P. 50% (3) Competitive local exchange carrier
serving the Kansas City metropolitan
area
NHT Partnership 40% (4) Competitive local exchange carrier
serving the Buffalo metropolitan area
New Jersey Fiber Technologies, L.P. 79% (4) Competitive local exchange carrier
serving the Morristown and New
Brunswick, NJ metropolitan area
Louisville Lightwave 50% (4) Competitive local exchange carrier
serving the Louisville and
Lexington, KY metropolitan area
</TABLE>
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<PAGE> 58
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
DIRECT OR INDIRECT
------------------
COMPANY INTEREST (1) BUSINESS
- ------- ------------ --------
<S> <C> <C>
Domestic Telephony (continued)
- ------------------------------
Western Tele-Communications, Inc. 100% Provider of microwave and wireline
transport of telecommunications
services
Diversified Satellite Communications
- ------------------------------------
United Video Satellite Group, Inc. 39% equity (5) Satellite distribution of video,
85% voting audio, data and program promotion
services
Internet Services
- -----------------
At Home Corporation 39% equity High-speed multimedia Internet
72% voting services
Sportsline USA, Inc. 5% Internet provider of branded
interactive sports information,
programming and merchandise
iVillage, Inc. 6% 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%(6) Internet provider of interactive
sports communities and information
services
KPCB Java Fund, L.P. 7% Investor in Java application
development
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
---------------------
DIRECT OR INDIRECT
------------------
COMPANY INTEREST (1) BUSINESS
- ------- ------------ --------
<S> <C> <C>
Other Assets
- ------------
National Digital Television Center, Inc. 100% Television production and provider
of digital compression and
transmission and authorization
services to programmers, cable
systems and other video distributors
ETC w/tci, Inc.(7) 100% Developer and distributor of
for-profit education, training and
communication services and products
CareerTrack, Inc.(7) (8) 95% Provider of business and
educational seminars and related
publications
National School Conference 80% Provider of conference and
Institute, Inc.(7)(8) satellite-delivered staff
development programming for
educators
IngeniusTM7 (8) (9) 100% Developer of educational software
products designed to facilitate
classroom learning
The Lightspan Partnership, Inc.(7) (8) 8% Developer of educational
programming
Academic Systems Corporation(7) (8) 5% Provider of higher education
multimedia instruction materials
DigiVentures, LLC(10) 99% Lessor of digital set-top box
equipment
Acclaim Entertainment, Inc.(11) 9% Publisher of entertainment software
Antec Corporation(12) 16% Manufacturer of products for
hybrid fiber/coaxial broadband
networks
Intessera, Inc. 100% Provider of database management
software
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
TCI VENTURES GROUP'S
--------------------
DIRECT OR INDIRECT
------------------
COMPANY INTEREST(1) BUSINESS
- ------- ----------- --------
<S> <C> <C>
Other Assets (continued)
TCI-TVGOS, Inc. 100% Holds an undivided interest in
certain intellectual property rights
of TV Guide on Screen, a joint
venture which has been dissolved
Your Choice TV (13) 25% Provider of programming service
offering recently aired first-run
television programming on a time
shifted basis
MCNS Holdings, L.P. 25% Developer of multimedia
communications network and
associated technologies
Kitty Hawk Capital Limited Partnership, II 3% Venture capital fund
New Enterprise Associates IV, L.P. 1% Venture capital fund
Venture First II, L.P. 1% Venture capital fund
TVSM, Inc. 10% Publishing company of various cable
television programming guides
</TABLE>
- ------------------------
(1) For indirect equity and voting interests, the percentage in
the table is calculated by multiplying TCI's percentage
interest in the holding company by the holding company's
percentage interest in the listed company.
(2) TCG has entered into an agreement to acquire ACC Corp. in a
stock for stock merger. If such transaction is consummated,
the Company's equity and voting interest in TCG would be
reduced. In addition, as described above, in January 1998, TCG
agreed to be acquired by AT&T in a stock for stock merger.
Both of such transactions are subject to a number of
regulatory and other conditions and there can be no assurance
that either of such transactions will be consummated on the
terms contemplated by the parties, or at all.
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<PAGE> 61
(3) The other 50% interest in Kansas City Fiber Network, L.P. ("KC
Fiber") is owned by Kansas City Cable Partners, a partnership
that owns and operates cable systems in the Kansas City area,
in which the TCI Group holds a 50% interest. TCI and the other
partner of KC Fiber have signed an agreement to sell the
assets of KC Fiber to TCG for cash proceeds of approximately
$55 million. Such transaction is subject to certain regulatory
and other conditions, and there can be no assurance that it
will be consummated. If consummated, 50% of the proceeds will
be attributed to the TCI Ventures Group and the remaining
proceeds will be attributed to Kansas City Cable Partners. TCG
has also agreed to make an additional cash payment for fiber
leased to KC Fiber by TCI affiliates which payment would be
attributed to the TCI Group.
(4) On February 12, 1998, TCI sold its interests in NHT
Partnership, Louisville Lightwave and New Jersey Fiber
Technologies, L.P. to Hyperion Telecommunications, Inc.
("Hyperion") for cash proceeds of $62.1 million. $44.3 million
of such purchase price has been attributed to the TCI Ventures
Group and the remainder of such proceeds has been attributed
to the TCI Group as payments by Hyperion for fiber leased to
such entities by TCI affiliates.
(5) In January 1998, TCI acquired an additional 12,373,294 shares
of the Class A Common Stock of UVSG from Lawrence Flinn, Jr.,
the founder of UVSG, in exchange for 7,336,745 shares of
Liberty Group Series A Stock and 12,688,812 shares of TCI
Ventures Group Series A Stock. 6,186,647 of the USVG shares so
acquired were attributed to the TCI Ventures Group and
6,186,647 of such shares were attributed to the Liberty Media
Group. As a result of such transaction, TCI's total equity
interest in UVSG increased to 73% and its voting interest
increased to 93%, with the TCI Ventures Group's equity
interest increasing to 56% and its voting interest increasing
to 89%. On February 17, 1998, UVSG announced that it had
agreed to acquire Liberty's 40% interest in Superstar/Netlink
and its 100% interest in Netlink International which delivers
various distant broadcast signal services commonly known as
the "Denver 6" and certain other programming interests to
multichannel video service providers. In exchange for these
assets, UVSG will issue to TCI approximately 6,375,000 shares
of Class A Common Stock of UVSG, all of which shares will be
attributed to the Liberty Media Group. If the proposed
transaction is consummated, TCI's aggregate equity and voting
interest in UVSG will increase to approximately 77% and 94%,
respectively, and TCI Ventures Group's equity and voting
interest will decline to 48% and 85%, respectively, as a
result of such transaction. Consummation of the transaction is
subject to several conditions, including negotiation of
definitive agreements, regulatory approvals and approval of
UVSG's stockholders; there can be no assurance that such
transaction will be consummated.
(6) On February 26, 1998, Interzine Productions, Inc.
("Interzine") sold all of its assets to a third party for $5
million. TCI expects that its share of the proceeds remaining
to be distributed to equity holders after the payment of
Interzine's creditors will be nominal.
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<PAGE> 62
(7) On September 23, 1997, the Company announced that it and ETC
entered into a letter of intent with Knowledge Universe,
L.L.C. ("Knowledge Universe"). The letter of intent
contemplates that TCI, through ETC, would become a partner of
Knowledge Universe in a new venture. Knowledge Universe would
make a substantial investment in the new venture, and ETC
would contribute a significant portion of its assets to the
new venture. As a result, Knowledge Universe would be the
majority owner of the new venture, with ETC retaining a
significant minority interest. Although the letter of intent
has expired, the parties continue to discuss the transactions
contemplated by it. There can be no assurance that a
definitive agreement for the proposed transaction with
Knowledge Universe will be entered into or that the terms
thereof will not be substantially different from those
described above or that the proposed transaction will
ultimately be consummated.
(8) Held through ETC.
(9) Ingenius(TM) is in the process of winding down most of its
lines of business and is offering for sale substantially all
of its remaining assets, which consist primarily of
intellectual property.
(10) In January 1998, the TCI Ventures Group's interest in
DigiVentures, LLC was assigned to TCIC, a member of the TCI
Group, in return for $7 million in cash. In connection
therewith, TCIC also assumed the capital lease obligations of
DigiVentures, LLC, totaling $176 million.
(11) The Company sold its interest in Acclaim Entertainment, Inc.
in February 1998 for cash proceeds of approximately $17
million.
(12) This interest was previously represented by TCI's interest in
TSX Corporation which merged with Antec Corporation in
February 1997.
(13) Liberty Media Group also owns a 24.5% interest in Your Choice
TV. Discovery owns the remaining 51% interest.
The principal assets attributed to the TCI Ventures Group are described
in greater detail below.
International Cable, Telephony and Programming.
The TCI Ventures Group's international cable, telephony and programming
assets consist primarily of the Company's interests in TINTA. TINTA, 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.").
TINTA's activities are concentrated in Europe, Latin America and The
Caribbean, and Asia and Australia, with particular focus at present on the
United Kingdom ("U.K."), Argentina and Japan. TINTA has ownership interests in
companies operating broadband networks that, at December 31, 1997, provided
cable television service to an aggregate of approximately 3.9 million basic
customers and provided telephone service over approximately 1.2 million
telephone lines (primarily in the U.K.) (a customer may have multiple telephone
lines). As of December 31, 1997, TINTA also had ownership interests in or
managed 48 cable and satellite programming services which were received by
customers in various countries outside the U.S.
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Included among TINTA's cable and telephony distribution assets are an
indirect 27% interest in Telewest Communications plc ("Telewest") and a 40%
interest in Jupiter Telecommunications Co., Ltd. ("Jupiter"). Telewest and
Jupiter provide cable television and residential and business cable telephony in
the United Kingdom and Japan, respectively. TINTA's interest in Telewest is held
through a joint venture with US WEST, Inc. Telewest is a leading provider of
cable television and cable telephony services in the United Kingdom. Telewest
provides cable television services over a broadband (i.e., high capacity)
network and uses such network, together with twisted-pair copper wire
connections for final delivery to the customer premises, to provide telephony
services to its customers. The broadband network enables Telewest to deliver a
variety of both television and telephony services to it customers and 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. As of December 31, 1997, Telewest was offering home
access to the Internet in all of its franchises.
Telewest is in the process of constructing its cable networks. As of
December 31, 1997, construction had been completed of broadband cable networks
which "passed" (i.e., could be connected to) approximately 75% of the homes in
Telewest's owned and operated franchises and 89.5% of the homes in the seven
franchises in which Telewest has a minority interest. Telewest is also
developing a broadband inter-franchise network to carry voice, data and video
traffic between its franchises which is expected to reduce interfranchise
connection charges. As of December 31, 1997, the inter-franchise network was
operational with full completion expected by the middle of 1998.
At December 31, 1997, Telewest's franchises (including franchises in
which it owns a minority interest) covered approximately 5.1 million homes and
.29 million businesses and within such franchises Telewest provided, on an
equity basis, cable television service to approximately 687,000 basic customers
and telephony service to approximately 929,000 residential and business
customers. "On an equity basis" means the total number of customers served
multiplied by Telewest's indirect percentage equity interest in the franchise.
Telewest believes that its franchises (including the franchises in which it owns
a minority interest) included more than 25.7% of the U.K. homes in areas covered
by cable licenses at December 31, 1997. 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.
Jupiter, the first multiple system operator ("MSO") in Japan, was
formed by TINTA and Sumitomo Corporation ("Sumitomo") in 1995. At December 31,
1997, Jupiter had ownership interests in 23 companies, of which it manages 20,
that own cable franchises clustered in three main areas: Tokyo, Osaka and
Kyushu. 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, which includes a fiber optic backbone or "trunk," 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. At December
31, 1997, Jupiter's franchises covered approximately 3,542,000 franchise homes,
its cable plant passed approximately 1,704,000 homes, and it served
approximately 194,000 basic cable customers. Jupiter began providing telephony
services over its cable system on a commercial basis on July 1, 1997 in its
Suginami franchise.
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TINTA also has a 26% ownership interest in Cablevision S.A.
("Cablevision") which provides cable television service in and around Buenos
Aires, Argentina. TINTA reduced its interest in Cablevision from 51% to 26% in
October 1997; however, TINTA will continue to have the right to manage
Cablevision (pursuant to a renewable five-year management contract), and all
material corporate transactions of Cablevision will require TINTA's approval, so
long as TINTA maintains at least a 16% interest in Cablevision. The purchasers
of TINTA's interest in Cablevision also purchased an additional 39% interest in
Cablevision that TINTA had the right to acquire. Cablevision has been
continually expanding its customer position through acquisitions and internal
growth. In the fourth quarter, Cablevision acquired a 50% interest in Video
Cable Comunicaciones S.A. and a 50% interest in United International Holdings
Inc.'s cable systems in Argentina. Cablevision also acquired 100% of Mandeville
Cable Partners Argentina II in January 1998. As a result of these acquisitions,
Cablevision added, on an equity basis, approximately 850,000 customers. At
February 1, 1998, Cablevision provided, on an equity basis, cable television
service to an aggregate of approximately 1.5 million subscribers.
TINTA's programming interests include a 37% equity interest
(representing a 50% voting interest) in Flextech p.l.c. ("Flextech"), a 33%
interest in MultiThematiques, S.A. ("MultiThematiques") and a 50% interest in
Jupiter Programming Co., Ltd. ("JPC"). Through its subsidiaries and affiliates,
Flextech creates, packages and markets entertainment and information programming
for distribution on cable television and direct-to-home ("DTH") satellite
providers throughout the United Kingdom and, to a lesser extent, parts of
continental Europe. Flextech also owns an interest in a terrestrial broadcast
network. 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 December 31, 1997, Flextech had interests in 15
cable and satellite channels of which 14 are distributed in the U.K. market.
Flextech's ordinary shares trade on the London Stock Exchange.
In April 1997, Flextech and BBC Worldwide Limited formed two separate
joint ventures (the "BBC Joint Ventures") and entered into certain related
transactions. One of the joint ventures will operate and launch a number of new
subscription television channels for distribution in the U.K. and Ireland; the
other joint venture will operate and develop U.K. Gold Television Limited, the
producers of U.K. Gold. As a result of the creation of the BBC Joint Ventures
and certain related transactions, TINTA's equity interest in Flextech declined
from 46% to 36%. TINTA's voting power would have fallen below 50% as a result of
these transactions; however, upon consummation of the BBC Joint Ventures, one of
TINTA's Flextech shares was redesignated as a "special voting share" which
enabled TINTA to maintain its voting power at 50%. The weighted voting rights
attached to the special voting share, which does not participate in dividends
and has only a nominal liquidation preference, will terminate upon the
occurrence of the earliest of (i) April 14, 2000, (ii) any transfer of Flextech
shares by TINTA outside a specified affiliated group or (iii) TINTA's interest
in Flextech falling below 30%. In light of TINTA's decreased voting interest in
Flextech, TINTA, effective January 1, 1997, ceased to consolidate Flextech and
began to account for Flextech using the equity method of accounting. In July
1997 and September 1997, TINTA purchased Flextech shares in transactions which
increased its equity ownership of Flextech to 37%.
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MultiThematiques and JPC provide multi-channel programming to cable
television and DTH satellite providers in continental Europe and Japan,
respectively. As of December 31, 1997, MultiThematiques offered sixteen
programming services which are distributed throughout France (five channels),
Spain (two channels), Germany (three channels), Italy (five channels) and Poland
(one channel) by cable television operators and DTH satellite providers.
MultiThematiques has also secured carriage on DTH satellite platforms in
Scandinavia. Programming developed by MultiThematiques may be used to support
TINTA's distribution interests in other regions, particularly Japan and Latin
America; for example, MultiThematiques has signed an agreement with JPC to
create two thematic channels for cable and satellite distribution in Japan. JPC
was formed in February 1996 by TINTA and Sumitomo and is Japan's first
multi-channel programming company. JPC has ownership interests in and management
control of six channels, two of which were launched in 1997 and one of which was
launched in February 1998. Of these six channels, JPC has management control of
four, shared management control of another, and, with respect to the sixth
channel, JPC has the right to veto certain material transactions. JPC also has
acquired distribution rights for all of Japan's premier soccer league matches.
Through certain other joint ventures with strategic partners, TINTA has
cable and telephony distribution and/or programming interests in Puerto Rico,
Chile, Poland, Ireland, Malta, Israel, France, and Australia. TINTA has also
formed (i) a strategic partnership with News Corp. and two of Latin America's
leading media companies, Globo Comunicacoes e Participacoes ltda. and Grupo
Televisa, S.A., for the development and operation of a DTH satellite service for
Brazil, Mexico, and various other Latin American countries and (ii) Fox Sports
International, a joint venture with Liberty Media Group and News Corp. 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
and certain other defined geographic areas. Fox Sports International is more
fully described under "Liberty Media Group--Programming Services--Sports
Programming Services." TINTA sold (i) its indirect 13% interest in Sky Network
Television New Zealand, Ltd. in September 1997, for cash proceeds of
approximately $54 million, (ii) its 49% interest in Asia Business News
(Singapore) Private ("ABN"), a financial business news channel distributed in
Asia, in December 1997, in exchange for a subordinated promissory note of ABN in
the principal amount of $25 million and (iii) its 49% interest in TeleCable
Nacional, CXA, a cable operator in the Dominican Republic, in January 1998, for
cash proceeds of $10 million.
Agreements governing TINTA's investment in certain of the entities in
which TINTA has interests contain (i) buy-sell and other exit arrangements
whereby TINTA could be required to purchase another investor's ownership
interest, (ii) performance guarantees whereby TINTA and/or other subsidiaries of
TCI have guaranteed the performance of the TINTA subsidiary that directly holds
the TINTA investment, (iii) restrictions on TINTA's ability to sell or otherwise
transfer its investment in an entity and (iv) provisions restricting TINTA's
(and in certain circumstances TCI's) ability to compete with the entity in which
it has an investment.
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Competition
International Cable and other Multi-Channel Television. The various
cable operators in which TINTA has interests directly compete for customers and
advertisers in local markets with other providers of entertainment, news and
information, including broadcast television and radio, newspapers, magazines and
other printed material, motion picture theaters and video cassette rental
stores. 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, MMDS,
DTH satellite services, 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. In those countries where, by regulation or
policy, cable operators do not have an exclusive franchise, TINTA's cable
operators compete with other cable operators, and if permitted by regulation or
policy, with telephone companies providing video services in their franchises.
The extent of competition with the services provided by TINTA'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. 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. TINTA also competes with similar
operators of broadband distribution networks for franchises, the acquisition of
existing cable operators and financing.
Cable television has a limited operating history in many regions of the
world outside the United States. Although TINTA operates cable systems in
markets where it believes there is consumer demand for multi-channel television
services, TINTA is unable to predict with certainty how consumer demand for the
services provided by its cable television subsidiaries and affiliates will
develop over time.
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International Cable Telephony. The Company believes that it is
preferable for TINTA's 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. and Japan are the only countries in which TINTA is
providing both television and telephony services to customers. Although no
assurances can be given, TINTA 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 TINTA is allowed to offer cable telephony services, the
primary competitor is the national public telephone company. TINTA 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 and Jupiter are both relatively new entrants to the
telephony business, and have sought to compete with the more well established
telephone operators by pricing cable telephony call charges below those of the
established telephone operators. In both the U.K. and Japan, 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 either Telewest or Jupiter will
be able to continue to price its telephony services below those charged by the
national public telephone providers, or that future price reductions will not
adversely impact the profitability of its telephony operations. The ability to
provide viable cable telephony services is also dependent on the ability of
TINTA's cable subsidiaries and affiliates to interconnect with the local
telephone network of the public telephone company in order to complete calls
that originate from a customer on the cable network of such subsidiary or
affiliate but terminate off its network, or that originate from a caller off its
cable network and terminate on its network. Regulations in the U.K. provide a
means by which disputes over pricing and other terms of interconnection can be
determined by a government representative. In Japan, under interim rules the
national public telephone provider currently is required to enter into
interconnection agreements.
International Programming. The business of distributing programming for
cable and satellite television is highly competitive. TINTA's programming
subsidiaries and affiliates (the "TINTA Programming Companies") directly compete
with other programming services for distribution on a limited number of
television channels and, when distribution is obtained, the programming offered
by the TINTA Programming Companies competes, in varying degrees, for viewers and
advertisers with other programming services, as well as with other entertainment
media. The Company believes that important competitive factors include the
prices charged for programming, the quantity, quality and variety of the
programming offered and effectiveness of marketing efforts. With the advent of
new compression technologies, 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. In addition to
competition for cable and satellite distributors, viewers and advertisers, the
TINTA Programming Companies also compete, to varying degrees, for product with
other programming companies that distribute similar types of programs.
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Government Regulation. Substantially every country in which TINTA has,
or proposes to make, an investment regulates, in varying degrees, (i) the
granting of cable and telephony franchises, the construction of cable and
telephony systems and the operations of cable, other multi-channel television
operators and telephony operators and service providers as well as the
acquisition of, and foreign investments in, such operators and service providers
and (ii) the broadcast and content of programming and Internet services and
foreign investment in programming companies. Regulations or laws may cover
wireline and wireless telephony, satellite and cable communications and Internet
services, among others. Regulations or laws that exist at the time TINTA makes
an investment in a subsidiary or affiliate may thereafter change, and there can
be no assurance that material and adverse changes in the regulation of the
services provided by TINTA's subsidiaries and affiliates will not occur in the
future. Regulation can take the form of price controls, service requirements and
programming and other content restrictions, among others. Moreover, some
countries do not issue exclusive licenses to provide multi-channel television
services within a geographic area, and in those instances TINTA may be adversely
affected by an overbuild by a competing cable operator. In certain countries
where multi-channel television is less developed, there is minimal regulation of
cable television, and hence the protections of the cable operator's investment
available in the United States and other countries (such as rights to renewal of
franchises and utility pole attachment) may not be available in these countries.
Domestic Telephony.
General. The TCI Ventures Group's telephony assets consist primarily of
(a) TCI's investments, held through TCI Telephony Holdings, Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of TCI, 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(R) and Sprint
PCSsm brands (trademarks of Sprint Communications Company L.P.), and its
investment in TCG, which is a competitive local exchange carrier ("CLEC"), and
(b) 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. The PCS
Ventures include Sprint Spectrum Holding Company, L.P. and MinorCo, L.P.
(collectively, "Sprint PCS" or the "Sprint PCS Partnerships"), and PhillieCo
Partners I, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast, Cox
Communications, Inc. ("Cox") and TCI (collectively, the "Sprint PCS Partners").
The partners of PhillieCo are subsidiaries of Sprint, Cox and TCI. TCI has a 30%
interest as a partner in each of the Sprint PCS Partnerships and an approximate
35% interest as a partner in PhillieCo. As of December 31, 1997, TCI had a 28%
equity interest (which represented a 41% voting interest) in the outstanding
common stock of TCG. In January 1998, TCG entered into certain agreements
pursuant to which it agreed to be acquired by AT&T in a stock for stock merger
as more fully described above. As used herein, the terms "Sprint PCS" and
"Sprint PCS Partnerships" include the consolidated subsidiaries of Sprint
Spectrum Holding Company, L.P. ("Sprint Spectrum").
Domestic Wireless Telephony. Sprint PCS is 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." The term "Pops" refers to
the population of a geographic area covered by a license or group of licenses
and, as used here, is based on the Donnelley Marketing Service estimate of the
December 31, 1995 population of a geographic area. At December 31, 1997, Sprint
PCS owned 30 MHz PCS licenses for 30 markets covering 152 million Pops
including, among others, the New York, San Francisco, Detroit, Dallas/Fort Worth
and Boston/Providence Major Trading Areas ("MTAs").
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To increase its network 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.
Pursuant to affiliation agreements, each affiliated PCS service provider will be
included in the Sprint PCS national network and will use the Sprint(R) and
Sprint PCSSM brand names (trademarks of Sprint Communications Company L.P.).
Sprint PCS, together with other PCS licensees that have affiliated, or are
expected to affiliate with Sprint PCS, will have licenses to provide service to
the entire United States population (excluding certain United States
territories).
Sprint PCS has entered into affiliation agreements with American PCS,
L.P. ("APC"), which operates a broadband PCS system in the Washington
D.C./Baltimore MTA covering 8.3 million Pops, the nation's first commercially
operational PCS system, and Cox Communications PCS, L.P. ("Cox PCS"), which
operates a broadband PCS system in the Los Angeles/San Diego MTA covering 21.5
million Pops. As of December 31, 1997, Sprint PCS had a 49% limited partnership
interest in Cox PCS and a 58% interest in APC. Effective January 1, 1998, Sprint
PCS acquired the remaining 42% interest in APC which it did not already own and
on February 3, 1998, Cox Pioneer Partnership notified Sprint PCS that it was
exercising its put rights and would transfer 10.2% of the interest in Cox PCS to
Sprint PCS, subject to FCC approval, which would give Sprint PCS a controlling
interest in Cox PCS. Sprint PCS also expects to enter into an affiliation
agreement with PhillieCo, which owns a PCS license for the Philadelphia MTA
covering 9.1 million Pops. (PhillieCo currently markets its products and
services as Sprint PCS.) However, no assurance can be given that PhillieCo and
Sprint PCS will enter into such an agreement.
SprintCom, Inc. ("SprintCom"), an affiliate of Sprint, participated in
the FCC's D and E Block PCS auctions for additional 10 MHz Basic Trading Area
("BTA") PCS licenses, and was awarded in April 1997 licenses for 139 BTAs
covering approximately 70 million additional Pops, all of which are geographic
areas not covered by Sprint PCS's PCS licenses or licenses owned by APC, Cox PCS
and PhillieCo. SprintCom has indicated that it intends to market products and
services as Sprint PCS when it offers commercial services. In accordance with
certain agreements among the Sprint PCS Partners, SprintCom is required to offer
to enter into an affiliation agreement with Sprint PCS with respect to such BTA
licenses pursuant to which SprintCom's PCS systems in such areas would be
included in Sprint PCS's national PCS network, although a final agreement has
not yet been reached. In the interim, Sprint PCS has been providing buildout
services in certain BTA markets where SprintCom was awarded PCS licenses and is
being reimbursed by SprintCom for such services.
Sprint PCS commenced initial commercial PCS operations late in the
fourth quarter of 1996 and emerged from the development stage during the third
quarter of 1997. As of February 15, 1998, Sprint PCS had launched service in 32
MTAs covering 133 metropolitan markets. Sprint PCS and its affiliates have more
than one million customers. During 1997, Sprint PCS's emphasis and focus shifted
from an initial network buildout process to network operations.
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Currently Sprint PCS uses a variety of distribution channels, including
third-party retailers, Sprint PCS-owned retail stores, direct sales force and
telemarketing. One of Sprint PCS's third party retailers, Radio Shack, accounted
for more than 10% of Sprint PCS's operating revenues in 1997. Sprint PCS will
continue to review and implement new distribution channels in the future as it
determines the most effective combination of options.
Sprint PCS's 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 is implementing what it believes to be
a state-of-the-art PCS network using a frequency management technology or
"protocol" called Code Division Multiple Access ("CDMA"). 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: CDMA, GSM and TDMA (IS-136). The GSM protocol is an updated,
up-banded version of the TDMA-based protocol now in use in Europe. APC's PCS
system uses the GSM protocol; however, APC expects to launch CDMA services on a
commercial basis before the end of the first quarter of 1998. TDMA (IS-136) is
an up-banded version of the TDMA-based digital cellular protocol now used by
cellular operators in the U.S. CDMA is a first-generation technology that was
commercially deployed in the United States in 1996. Sprint PCS selected the CDMA
technology rather than the other technologies because it believes it will have
increased subscriber capacity, higher quality of transmission and lower
infrastructure and ongoing support costs.
Handsets used for CDMA-based PCS systems are not automatically
compatible with analog cellular systems or other digital systems (cellular or
PCS) which utilize a different protocol (i.e., a non-CDMA protocol), and vice
versa. However, Sprint PCS offers dual-mode, dual-band telephones, which enable
Sprint PCS's customers with such handsets to make and receive calls on analog
cellular systems in areas where Sprint PCS does not offer service. The FCC
requires that all cellular, PCS, and enhanced specialized mobile radio
licensees, including Sprint PCS, permit customers in good standing of other such
providers with handsets technically compatible with the subject licensee's base
stations to manually roam (i.e., make and receive calls after providing separate
billing information to the service provider) on the subject licensee's network.
In addition, subject to Sprint PCS entering into and implementing contracts with
analog cellular providers and other CDMA PCS providers ("Roaming Partners"),
Sprint PCS is able to offer automatic roaming (the ability to make and receive
calls without providing separate billing information) to its own customers and
to customers of its Roaming Partners who are traveling in or through Sprint
PCS's service area. Customers typically pay higher rates while roaming outside
of their home market.
Sprint PCS has entered into roaming agreements with various analog
cellular providers throughout the United States and Canada. Additionally, Sprint
PCS has negotiated roaming arrangements with other CDMA PCS carriers who provide
service in geographic areas not currently covered by the CDMA network of Sprint
PCS and its affiliates. As a result, Sprint PCS customers who have dual-mode
handsets capable of transmitting over cellular and CDMA PCS frequencies have the
ability to roam automatically in areas where Sprint PCS service is not available
and where there are roaming agreements.
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Sprint PCS's business plan will require additional capital financing
prior to the end of 1998. Sources of funding for Sprint PCS's capital
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners. However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized management
to operate Sprint PCS in accordance with such budget. The Sprint PCS Partners
may mutually agree to make additional capital contributions. However, the Sprint
PCS Partners have no such obligation in the absence of an approved budget, and
there can be no assurance the Sprint PCS Partners will reach such an agreement
or approve the 1998 proposed budget. In addition, the failure by the Sprint PCS
Partners to approve a business plan may impair the ability of Sprint PCS to
obtain required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS Partners could result in the delay or
abandonment of Sprint PCS's development and expansion plans and expenditures,
the failure to meet regulatory requirements or other potential adverse
consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998. Under the Sprint PCS partnership
agreement, if one of the Sprint PCS Partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS Partners for
resolution pursuant to specified procedures and the issue remains unresolved,
buy/sell provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS Partners of the interests of the other Sprint PCS
Partners, or, in certain circumstances, liquidation of Sprint PCS. Discussions
among the Sprint PCS Partners about restructuring their interests in Sprint PCS
in lieu of triggering such buy/sell procedures are ongoing. However, there is no
certainty the discussions will result in a change to the partnership structure
or will avert the triggering of the resolution and buy/sell procedures referred
to above or a liquidation of Sprint PCS.
Domestic Wireline Telephony. The TCI Ventures Group's wireline
telephony investments currently consist primarily of its interest in TCG. TCG,
the largest CLEC in the United States as measured by route miles, offers
comprehensive telecommunications services in major metropolitan markets
nationwide. TCG competes with incumbent local exchange carriers ("ILECs") as
"The Other Local Phone Company"(R) (a registered service mark of TCG) by
providing high quality, integrated 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, healthcare and educational
institutions, governmental agencies, long distance carriers and resellers,
Internet service providers, disaster recovery service providers, wireless
communications companies and financial services companies. TCG believes that it
offers these customers technologically advanced telecommunications services, as
well as superior customer service, flexible pricing and vendor and route
diversity. As of December 31, 1997, TCG operated high-capacity state-of-the-art
digital networks in 65 metropolitan markets, including 19 of the 20 largest
metropolitan areas. As of December 31, 1997, TCG's fiber optic networks spanned
over 9,470 route miles, contained over 491,090 fiber miles and served
approximately 13,510 buildings. As described above, TCG has entered into an
agreement to be acquired by AT&T in a stock for stock merger.
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TCG introduced a general long distance service offering packaged with
its existing local services in 22 metropolitan areas in September 1997. The
service is being provided primarily through the resale of other carriers'
services, although TCG provides long distance services over its own facilities
wherever possible.
TCG provides its customers with a comprehensive array of local and long
distance telecommunications services, including basic local exchange telephone
services, enhanced switched services, Internet services, national and
international toll services, 800 services, dedicated services, high-speed
switched data services, disaster avoidance services and video channel
transmission services. Switched voice services offered by TCG primarily use
high-capacity digital switches to route voice transmission anywhere on the
public switched telephone network. TCG's dedicated services, which include
private line and special access services, use high-capacity digital circuits to
carry voice, data and video transmission from point-to-point in multiple
configurations. TCG provides its media industry customers with point-to-point,
broadcast-quality video channels for video transmission between two or more
locations, including video link services to major television networks as well as
to other programmers. TCG also provides private network management and systems
integration services for businesses that require combinations of various
dedicated and switched telecommunications services.
TCG believes that it has historically benefited from its relationships
with the corporate parents of the holders of its supervoting Class B Common
Stock, TCI, Cox, Comcast, and, for periods prior to November 13, 1997, MediaOne
of Delaware, Inc. (formerly Continental Cablevision, Inc.) (collectively, the
"TCG Cable Stockholders"). TCG has the indefeasible right to use certain fiber
optic and cable transmission facilities of each of the TCG Cable Stockholders
for compensation based on the cost of construction of such facilities. Such
arrangement was entered into between TCG and each of the TCG Cable Stockholders
prior to TCG's initial public offering in June 1996. In connection with the
execution of the merger agreement between AT&T and TCG, the TCG Cable
Stockholders entered into certain amendments to such arrangements which provide,
among other things, that, subject to certain exceptions, TCI (or the applicable
other TCG Cable Stockholders) will be obligated to construct, or permit certain
approved contractors to construct, additional fiber optic facilities for use by
TCG on similar terms at TCG's request during a period ending on January 8, 2008.
In addition, such arrangements, as so amended, place certain restrictions on the
ability of TCI and the other TCG Cable Stockholders to transfer cable systems
without causing the applicable owner of such cable systems following such
transfer to remain subject to such obligation to construct, or permit certain
approved contractors to construct, such additional fiber optic facilities.
In February 1997, TCG acquired CERFnet Services Inc. ("CERFnet"), a
dial-up and dedicated Internet access, World Wide Web hosting and co-location
services, and Internet training), in exchange for approximately 2.1 million
shares of TCG's Class A Common Stock. CERFnet operates an advanced nationwide
backbone network, maintains state-of-the-art Internet server facilities and has
established and maintains direct peering relationships with other Internet
service providers. TCG has accelerated the expansion of CERFnet's services on a
nationwide basis and has packaged CERFnet's Internet services with TCG's
telecommunications services. As of December 31, 1997, TCG offered a variety of
Internet services in 22 metropolitan areas.
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Effective as of March 1, 1997, TCG acquired Eastern TeleLogic
Corporation ("Eastern") for approximately 2.8 million shares of TCG's Class A
Common Stock. TCG also assumed $53 million in debt and loaned $115 million to
Eastern, the proceeds of which were used by Eastern to redeem the stock held by
certain minority shareholders. The acquisition of Eastern provided TCG with
access to the Philadelphia market, the nation's fifth largest market, and
allowed TCG to establish a contiguous network between Boston and Washington,
D.C.
In April 1997, TCG entered into a master communications services
agreement with @Home to provide targeted co-location facilities and local
telephone circuits for infrastructure and subscriber connectivity at promotional
and standard pricing over a five-year term. The agreement provides @Home with
the option to co-locate certain of its equipment in TCG premises in which event
@Home will incur certain obligations to use TCG's services. The Internet
services being or to be offered by @Home may compete with those being or to be
offered by TCG through CERFnet.
In October 1997, TCG acquired the remaining 50.1% equity interest in
BizTel Communications, Inc. ("BizTel") not owned by TCG in exchange for the
issuance of approximately 1.7 million shares of TCG's Class A Common Stock. TCG
had previously acquired a 49.9% interest in BizTel in February 1996. BizTel
holds FCC licenses to provide telecommunications services utilizing 38 GHz
digital milliwave transmission in over 200 geographic areas, which include more
than 95 of the 100 largest metropolitan markets and all markets where TCG
operates. BizTel's 38 GHz milliwave services can be used by TCG to economically
connect customers to TCG's fiber optic networks, to provide network redundancy,
diverse routing or quick temporary installations and to provide stand-alone
facilities where TCG does not have fiber optic networks.
On November 26, 1997, TCG entered into an agreement to acquire ACC
Corp. ("ACC"), a switch-based provider of telecommunications services to
businesses, residential customers and educational institutions in the United
States, Canada and the U.K., in a stock for stock merger. The total aggregate
amount of consideration to be received by the ACC stockholders is expected to be
approximately $1 billion, subject to adjustments to the merger exchange ratio in
certain circumstances. The merger is subject to approval of the ACC stockholders
and to a number of regulatory and other conditions and there can be no assurance
that such transaction will be consummated on the terms contemplated by the
parties, or at all.
TCG has substantial business relationships with a few large customers,
including major long distance carriers. During 1997, TCG's top 10 customers
accounted for approximately 40% of TCG's total revenues. No customer accounted
for more than 10% of such revenue during that period.
In addition to TCG, the TCI Ventures Group's wireline telephony
investments include a 50% partnership interest in KC Fiber, a CLEC serving the
metropolitan area of Kansas City, Missouri. The other 50% interest in KC Fiber
is owned by Kansas City Cable Partners, a partnership that owns and operates
cable systems in the Kansas City area, in which the TCI Group holds a 50%
interest. As described in more detail above, TCI and the other partner of KC
Fiber have signed an agreement to sell the assets of KC Fiber to TCG for a
purchase price of approximately $55 million (TCG will also be required to assume
certain obligations). If consummated, TCI Ventures Group's share of such
purchase price will be $20 million.
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The TCI Ventures Group also includes TCI's wholly-owned subsidiary,
WTCI, a regional carrier of long-haul telecommunications services, providing
primarily high-speed point-to-point private line and frame relay communications
services on a wholesale basis 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 two
additional states with minimal capital expenditures should its customer base
dictate the need. 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 data transport services. WTCI's
customers also include over 56 cable companies (including TCI) for whom WTCI
provides primarily video analog transmission 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. For the
year ended December 31, 1997, WTCI's six largest customers accounted in the
aggregate for approximately 55% of WTCI's consolidated gross revenue. 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 10 months.
Competition.
Domestic Wireless Telephony. There is substantial competition in the
domestic wireless telecommunications industry, and Sprint PCS has stated its
expectation that such competition will intensify as a result of the entrance of
new competitors and the increasing pace of development of new technologies,
products and services. Each of the markets in which Sprint PCS competes is
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. Sprint PCS
also expects that existing analog wireless service providers will upgrade their
systems and provide expanded and digital services to compete with Sprint PCS's
PCS system. In addition, Sprint PCS will face competition from other current or
developing technologies, such as paging, enhanced specialized mobile radio and
satellite networks.
Continuing technological advances in telecommunications and policies of
the FCC that encourage the development of new spectrum-based technologies make
it impossible to predict the extent of future competition. The Omnibus Budget
Reconciliation Act of 1993 requires, among other things, the allocation to
commercial use of a portion of 200 MHz of the spectrum previously reserved for
government use. It is possible that some portion of the spectrum that is
reallocated or other available spectrum will be used to create new land-mobile
services or to expand existing land-mobile services that may compete with Sprint
PCS's service offerings.
The Company anticipates that market prices for two-way wireless
services generally will decline in the future based upon increased competition.
Sprint PCS competes to attract and retain customers principally on the basis of
services and features, the size and location of its service areas and pricing.
Sprint PCS's ability to compete successfully also depends, in part, on its
ability to anticipate and respond to various competitive factors affecting the
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors, which could adversely affect Sprint PCS's operating
margins.
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The cost to Sprint PCS of PCS handsets is not currently comparable with
the cost to analog operators of analog cellular handsets. While Sprint PCS
believes that its PCS handsets are competitively priced as compared to digital
cellular handsets of comparable size, weight and features, cellular operators
may frequently subsidize the sale of analog handset units at prices below those
with which Sprint PCS can compete through its handset subsidies.
Domestic Wireline Telephony. TCG operates in an increasingly
competitive environment. Services substantially similar to those offered by TCG
are also offered by the ILECs and other CLECs serving the metropolitan markets
currently served or intended to be served by TCG. TCG believes that ILECs
generally benefit from their long-standing relationships with their customers,
substantial financial and technical resources, established ubiquitous networks
and federal and state regulations that could provide them with increased pricing
flexibility as competition increases. In addition, in most of the metropolitan
areas in which TCG currently operates, at least one, and sometimes several,
other CLECs offer substantially similar services at substantially similar prices
to those of TCG. Other CLECs or 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 TCG. In addition,
the current trend of business combinations and alliances in the
telecommunications industry, including mergers between ILECs, between
interexchange carriers ("IXCs") and international carriers and between CLECs and
IXCs, also may create significant new competitors or may increase the
competitiveness of TCG's existing competitors.
To the extent TCG interconnects with and uses the ILECs' networks to
service TCG's customers, TCG is dependent upon the technology and capabilities
of the ILECs to meet certain telecommunications needs of TCG's customers and to
maintain its service standards. Although the 1996 Telecom Act imposes
interconnection obligations on ILECs as described below, there can be no
assurances that TCG will be able to obtain the services it requires at rates,
and on terms and conditions that permit TCG to offer its services at rates that
are both profitable and competitive.
The 1996 Telecom Act is intended to increase competition in the local
telecommunications business. The 1996 Telecom Act requires all local exchange
providers, including TCG and new entrants, to interconnect with other carriers,
and to offer their services for resale. In addition, ILECs are required to offer
their retail services at wholesale rates for resale by competitors and to
provide other carriers with access to their network facilities on an unbundled
basis at any technically feasible point on rates, terms and conditions that are
just, reasonable and nondiscriminatory. These requirements may facilitate entry
by new competitors without substantial capital risk or investment. However,
there can be no assurance that any rates or facilities offered by ILECs to TCG
or other CLECs will be economically attractive or technically viable. While the
FCC in 1996 established national rules governing the rates and other terms and
conditions for the provision of facilities and services by the ILECs to TCG and
other would-be competitors, many of the FCC's rules, including those governing
rates, were overturned on appeal by the U.S. Court of Appeals for the Eighth
Circuit. In January 1998, the Supreme Court agreed to review the Court of
Appeals' rulings.
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TCG believes that the 1996 Telecom Act will provide it with increased
business opportunities and potentially better margins by opening all local
markets in urban areas to competition and by requiring ILECs to provide improved
direct interconnection at lower cost. However, under certain circumstances, the
FCC and state regulatory authorities permit the ILECs to lower selectively the
price of certain services within the areas in which TCG operates. In addition,
as a result of the FCC's access charge reform initiatives, ILECs are likely to
obtain additional pricing flexibility with regard to services that compete with
those offered by TCG. Further, some new entrants in the local market may price
certain services to a particular customer or for a particular route below the
prices charged by TCG for services to that customer or for that route, just as
TCG may itself underprice those new entrants.
In addition, under the 1996 Telecom Act, ILECs formerly subject to
restrictions on the provision of cable television service and interLATA long
distance services are no longer restricted from entry into these businesses,
subject to certain requirements in the 1996 Telecom Act and rules and policies
to be implemented by the FCC and the states. "InterLATA services" are
telecommunications which originate in one and terminate in another local access
and transport area. The 1996 Telecom Act requires RBOCs to comply with certain
requirements, designed to open local markets to competition, as a precondition
to the RBOCs' receipt of authority to provide interLATA long distance services
within its home region. Legislation has been introduced in the Senate which if
enacted would allow the RBOCs, beginning one year after the date of enactment,
to provide interLATA services within their respective regions, irrespective of
whether they have satisfied the entry requirements established in the 1996
Telecom Act. Moreover, while none of the RBOCs has as yet received the
regulatory approval required under current law, several RBOCs (including SBC
Communications and BellSouth) have filed appeals, which are currently pending
before the U.S. Court of Appeals (D.C. Circuit), challenging the validity of
decisions by the FCC denying the RBOCs' applications for authority to provide
interLATA services in particular states within their respective regions. In
addition, on December 31, 1997, the U.S. District Court for the Northern
District of Texas issued a ruling which found the provisions of the 1996 Telecom
Act which impose restrictions and conditions on RBOC provision of in-region
interLATA services to be unconstitutional. On February 11, 1998, the District
Court granted a temporary stay of its decision pending the resolution of appeals
of the court's ruling filed by the government and various industry groups. Three
of the RBOCs, Bell Atlantic, Ameritech and US West, have asked the FCC to grant
relief, pursuant to Section 706 of the 1996 Telecom Act, which would allow them
to construct and operate high-speed, packet-switched, broadband data networks,
within as well as outside their home regions, without regard to present LATA
boundaries and free from otherwise applicable access, unbundling and resale
obligations and certain other regulatory requirements. Other RBOCs are expected
to seek similar relief. An RBOC's receipt of authority to provide in-region
interLATA services, as a result of the District Court's decision or through
other judicial, legislative, or regulatory action, will enable the RBOCs to
offer customers a full range of local and long distance telephone services.
Given the market power the RBOCs currently possess in the local exchange market,
the ability to provide both local and long distance services could further
strengthen the RBOCs' already strong competitive positions.
Similar competitive factors to those described above as affecting TCG
affect KC Fiber.
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WTCI. WTCI faces growing competition from long distance carriers using
fiber optic cable. Historically, the area served by WTCI was remote and sparsely
populated and consequently fiber optic cable has only recently been laid in the
region. However, during the last two to three years, the network has been twice
overbuilt with fiber by other interexchange carriers. Additional overbuilds by
various IXCs are currently underway and/or planned for the near term. 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. Although WTCI has
taken certain actions in response to such competition, such as developing more
cost effective methods of conducting its business and new uses for its microwave
facilities, there can be no assurance that such efforts will be successful.
Government Regulation.
Domestic Wireless Telephony. The FCC regulates the licensing,
construction, operation, acquisition, resale and interconnection arrangements of
domestic wireless telecommunications systems. The activities of wireless service
providers are subject to regulation in varying degrees, depending on the
jurisdiction, by state and local regulatory agencies as well. The FCC, in
conjunction with the Federal Aviation Administration (the "FAA"), also regulates
tower marking and lighting, and FCC environmental rules may cause certain PCS
network facilities to become subject to regulation under the National
Environment Policy Act. Pursuant to the 1996 Telecom Act and the FCC's
implementing regulations, all telecommunications carriers that provide
interstate telecommunications service, including PCS, are required to contribute
to the support of federal universal service programs. Sprint PCS is currently
challenging the authority of the states to collect universal service
contributions from PCS providers. In addition, the 1996 Telecom Act requires
telecommunications services to be accessible to and usable by persons with
disabilities, subject to certain exceptions. The FCC also has established rules
regarding the provision of enhanced emergency (E-911) services and number
portability by providers of wireless services, including PCS. Sprint PCS is
currently evaluating potential technical solutions to provide enhanced 911
capabilities. If cost-effective solutions are not identified and implemented by
the FCC's scheduled implementation date, Sprint PCS and other affected service
providers may be subject to penalties imposed by the FCC.
Under the 1996 Telecom Act, both the FCC and state public utility
commissions regulate the terms of interconnection between broadband PCS networks
and the networks of local exchange carriers. Pursuant to Section 332(c)(3) of
the Communications Act, state and local governments generally are not permitted
to regulate the entry and rates charged by any commercial mobile service,
including PCS. 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. Under the 1996 Telecom Act,
states and localities cannot regulate the placement of wireless facilities so as
to prohibit the provision of wireless services or to discriminate among
providers of such services. In addition, so long as a wireless system complies
with the FCC's rules, the 1996 Telecom Act bars states and localities from using
environmental effects as a basis to regulate the placement, construction or
operation of wireless facilities. The FCC is considering numerous requests for
preemption of local actions affecting wireless facilities siting.
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The Communications Assistance for Law Enforcement Act of 1994 ("CALEA")
requires all telecommunications carriers, including wireless carriers, as of
October 25, 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.
Legislation is currently pending in Congress which if enacted would extend the
date by which carriers must comply with the "capability requirements" of CALEA
until October 1, 2000. Telecommunications industry standard-setting
organizations recently agreed to a joint standard to implement CALEA's
capability requirements. CALEA provides that in the absence of an FCC-prescribed
standard, a telecommunications carrier meeting publicly announced technical
requirements or standards adopted by an industry association or standard-setting
organization shall be considered to be in compliance with the capability
requirements of CALEA. Although Sprint PCS is able to offer traditional
electronic surveillance capabilities to law enforcement, Sprint PCS has
indicated that it will not be able to meet the requirements of the joint
standard by October 25, 1998. In addition, the United States Department of
Justice has objected that the industry joint standard is not sufficient to meet
CALEA's capability requirements and has requested the inclusion of a so-called
"punch list" of additional electronic surveillance capabilities. Government and
industry representatives currently are engaged in an effort to resolve
outstanding disputes with respect to the nature and scope of the obligations
imposed on carriers under CALEA. Should a court determine that Sprint PCS has
failed to meet its obligations under CALEA, Sprint PCS could be assessed a civil
penalty of up to $10,000 per day for each day it remains in violation after
issuance of an enforcement order or after such date as the court may specify.
FCC licenses to provide PCS services are subject to renewal and
revocation. Sprint PCS's existing PCS licenses will expire in 2005, but Sprint
PCS has indicated that it expects that such licenses will be renewed by the FCC.
Under the FCC's rules, third parties may oppose renewal applications and/or file
competing applications. If one or more competing applications are received, a
renewal application will be subject to a comparative renewal proceeding. In such
proceedings, the applicant licensee will receive the benefit of a "renewal
expectancy" if it has provided "substantial" service and substantially complied
with all requirements of the Communications Act,as amended by the 1996 Telecom
Act, and other applicable FCC rules and policies. FCC rules require all A and B
Block PCS licensees to meet certain requirements including, without limitation,
coverage to one-third of the population of their service area(s) within the
first five years and to two-thirds of the population within the first ten years
of the award of a license. Violations of applicable Communications Act
requirements or FCC rules could result in revocation, non-renewal, fines or
forfeiture of Sprint PCS's licenses. As of December 31, 1997, Sprint PCS had
already exceeded the FCC's 5-year coverage requirements in 85% of its licensed
services areas.
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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 licensee directly or more than 25% of the parent of a
common carrier licensee. The FCC has the authority to permit the parent of a
licensee to exceed the 25% benchmark for indirect foreign investment, but lacks
the authority to permit a licensee itself to exceed the 20% statutory limit on
direct foreign ownership. In November 1997, as a result of a multi-lateral
agreement negotiated under the auspices of the World Trade Organization ("WTO"),
the FCC adopted an order establishing new rules and policies implementing U.S.
commitments to allow up to 100% indirect foreign ownership of common carrier
licensees in appropriate circumstances. Under the new rules, licensees seeking
to accept indirect foreign investment above the 25% benchmark from WTO member
countries will no longer be required to demonstrate that the investor's home
market offers effective competitive opportunities to U.S. firms. 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. As an affiliate of Sprint Corporation,
Sprint PCS is permitted, pursuant to a 1996 FCC decision, to have a foreign
ownership level of up to 35%. 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.
Media reports have suggested that radio frequency ("RF") emissions from
wireless telephones or facilities might be linked to certain forms of cancer or
other health problems. Concerns over the potential health effects of RF
emissions may have the effect of discouraging the use of wireless telephones and
other wireless communications services, including PCS, and could lead to the
imposition of additional governmental regulations on PCS. 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.
The new rules generally are more stringent than the requirements in effect for
cellular operations and for PCS prior to the FCC's action. The owners of
wireless facilities and manufacturers of wireless telephones are responsible for
compliance with the new requirements.
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.
For a description of other regulatory issues applicable to WTCI, see "-Domestic
Wireline Telephony" below.
Domestic Wireline Telephony. TCG and KC Fiber are subject to extensive
regulation at the federal, state, and local level. In most states, TCG is
subject to certification and tariff filing requirements with respect to
intrastate services. Under the 1996 Telecom Act, states retain authority to
impose on TCG and other telecommunications carriers requirements to preserve
universal service, protect public safety, ensure quality of service and protect
consumers. In addition, state and local governments are permitted to manage
public rights of way and to require fair and reasonable compensation from
telecommunications providers, on a competitively neutral and non-discriminatory
basis, so long as the compensation required is publicly disclosed by the
governmental entity. States also are responsible under the 1996 Telecom Act for
mediating and arbitrating interconnection arrangements between CLECs and ILECs
if the carriers fail to agree on such arrangements.
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TCG and KC Fiber are permitted, but not required, to file tariffs for
interstate access services with the FCC pursuant to streamlined tariff rules
that are less restrictive than those imposed on ILECs offering similar services.
TCG and KC Fiber currently are required to file tariffs for any domestic
interstate inter-exchange service which they provide. Tariffs filed with the FCC
must contain the rates, terms and conditions under which service is generally
available from TCG. An October 1996 FCC ruling would have eliminated the federal
tariff requirement for domestic interstate, interexchange services as of
September 22, 1997, but such 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. On June 19, 1997, the FCC adopted an
Order that permits CLECs to voluntarily withdraw their FCC tariffs for
interstate access services. TCG has not decided whether to withdraw its
interstate access tariffs. The FCC is currently considering whether to require
that competitive local exchange carriers like TCG withdraw such tariffs. While
TCG cannot predict what decision the FCC will reach in this further inquiry,
were the FCC to require the withdrawal of TCG's tariffs and replacement of those
tariffs with contractual arrangements, TCG could incur substantial legal and
administrative expense. 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.
Under the 1996 Telecom Act, TCG is subject to certain federal statutory
and regulatory obligations when it provides local exchange service in a market.
All local exchange carriers, including CLECs, 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. Pursuant to orders issued by the FCC, all ILECs and CLECs are
required to begin phased deployment of a long-term service provider portability
method in the 100 largest MTAs no later than October 1, 1997, and to complete
deployment in those MTAs by December 31, 1998 for all MTAs in which another
carrier has made a specific request for the provision of portability. After
December 31, 1998, each ILEC and CLEC must make number portability available
within specific time frames after receiving a specific request by another
telecommunications carrier. The FCC is currently considering several requests
for extension of the current implementation deadlines. Until long-term service
portability is available, ILECs and CLECs must provide interim versions of
number portability as soon as reasonably possible after a specific request from
another carrier. TCG believes that implementation of the FCC's orders should
enhance the ability of TCG to offer service in competition with the ILECs, but
it is uncertain how effective the rules and policies adopted by the FCC will be
in promoting number portability. In particular, the FCC's orders do not address
how the costs of implementing long-term service portability, which could be
substantial, will be recovered.
The 1996 Telecom Act also requires all telecommunications carriers to
ensure that their services are accessible to and usable by persons with
disabilities, and TCG and other CLECs are required to contribute to the support
of the significantly expanded universal service programs provided for in the
1996 Telecom Act. In addition, the 1996 Telecom Act allows states to adopt
universal service rules, so long as they are not inconsistent with the federal
program. TCG may also be able to receive funds from universal service programs
if TCG provides services to schools and libraries. Several parties have filed
appeals challenging the FCC's universal service rules.
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Under the 1996 Telecom Act, 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 resale
by competitors. In August 1996, the FCC released several orders (the
"Interconnection Orders") establishing new policies and rules implementing the
local interconnection and access provisions of the 1996 Telecom Act. However,
the U.S. Court of Appeals for the Eighth Circuit subsequently overturned a
number of the rules adopted by the FCC, including the pricing rules and "pick
and choose" rule established in one of the FCC's orders, which would have
allowed CLECs to receive the benefit of the most favorable provisions contained
in an ILEC's agreements with other carriers. While certain FCC rules applicable
to commercial mobile radio service remain unaffected by the Court of Appeals'
decision, the court's order substantially limits the FCC's role in implementing
and enforcing the interconnection and access provisions of the 1996 Telecom Act
with respect to wireline carriers such as TCG. As a result of the Court of
Appeals' ruling, a number of significant issues affecting the terms and
conditions under which TCG and other CLECs obtain interconnection and access to
ILEC facilities and services will be resolved on a state-by-state basis by state
public utility commissions, whose decisions may then be subject to review by
federal and/or state courts. In January 1998, the Supreme Court agreed to review
the Court of Appeals' rulings. In addition, orders issued by the FCC in December
1996 and May 1997 grant increased pricing flexibility to ILECs competing with
TCG and other new entrants in the provision of interstate access, and
contemplate further flexibility as access competition continues to develop. The
FCC's May 1997 access charge order is the subject of appeals which are currently
pending before the U.S. Court of Appeals for the Eighth Circuit.
Various ILECs have urged the FCC to require Internet service providers
to pay the same rates that interexchange carriers pay for access to public
switched telephone exchanges. Although this position was rejected by the FCC in
its May 7, 1997 access charge order, certain ILECs have also taken the position
that they will not pay the reciprocal compensation normally associated with a
local call to CLECs with respect to telephone services from the ILEC's customer
to an Internet service provider served by a CLEC, on the grounds that such calls
are exchange access calls rather than local calls. TCG believes these positions
are contrary to the 1996 Telecom Act and every state commission which has so far
considered the issue has declared that ILECs should pay CLECs reciprocal
compensation for the Internet traffic. However, no prediction can be made as to
whether the ILECs ultimately will be successful in asserting their positions. If
state commissions, the FCC or courts were to reach final decisions which found
in favor of the ILECs, such decisions could result in a material adverse effect
on TCG, both as an Internet service provider itself and as a provider of TCG
local exchange services to other Internet service providers.
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The 1996 Telecom Act contains other provisions potentially affecting
TCG's business that 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
telephone exchange service in such cable operator's franchise area. This
provision does not affect acquisitions made prior to enactment of the 1996
Telecom Act. TCG and TCI's other wireline activities also will be subject to
certain requirements of CALEA described above under "-Domestic Wireless
Telephony."
In providing interstate transmission services to its non-carrier
customers, WTCI is subject to the streamlined tariffing and other requirements
applicable to "nondominant carriers" under the current federal regulatory
regime. WTCI's provision of intrastate transmission services may also be subject
to regulatory requirements at the state level, similar to those described above
with respect to TCG. In addition, WTCI's placement of facilities is subject to
applicable state and local laws and regulations.
Diversified Satellite Communications.
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, Inc., a wholly-owned subsidiary that develops
and distributes 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 division that markets
and distributes programming to C-Band DTH satellite dish owners in North America
through Superstar/Netlink (as more fully described under "Liberty Media
Group--Programming Services--Broadcasting and Satellite"); (iii) UVTV, a
division that markets and distributes three superstations, including WGN,
primarily to cable operators and to packagers and marketers of programs to the
home satellite dish industry, including Superstar/Netlink and (iv) SpaceCom
Systems, Inc., a wholly-owned subsidiary that provides audio and data satellite
transmission services to the paging industry and others. UVSG also has a 70%
interest in SSDS, Inc., which provides information technology consulting,
integration and software development services to large organizations with
complex computer needs. In January 1998, UVSG and Gemstar International Group
Limited announced plans to form Interactive Prevue Guide Inc. ("IPG"), a joint
venture that would be majority owned by UVSG and the focus of which would be the
marketing of a portfolio of intellectual property, technology and data services
for interactive program guides to multichannel video service providers. In
addition, as described in more detail above, in February 1998, UVSG announced
that it had agreed to acquire Liberty Media Group's 40% interest in
Superstar/Netlink, subject to the negotiation of definitive agreements and the
satisfaction of other conditions.
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. In addition, if and when IPG is formed, the TCI
Group is expected to enter into a 10-year affiliation agreement with IPG for the
deployment of interactive program guides in its digital cable customers' homes.
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Competition. Each of the businesses in which UVSG operates is highly
competitive. In general, UVSG faces competition from numerous other companies
offering video, audio, data, and program promotion and guide services, as well
as from companies offering alternative products and services that perform
similar functions. UVSG's Prevue products compete with printed program guides
and other on-screen program guides. UVSG anticipates that its Prevue Networks
subsidiary and IPG (if and when it is formed) will face competition from a
number of other companies that are attempting to develop viable interactive
television technologies which may be accessed through cable television systems
or otherwise. UVSG's UVTV division, which markets and distributes superstations
WGN, WPIX and KTLA, as well as other services, faces competition from over 100
cable network suppliers, including other superstations, for limited channel
capacity on cable television systems. For a description of the competition faced
by UVSG's Superstar Satellite Entertainment division, operating through
Superstar/Netlink, see "Liberty Media Group--Programming
Services--Competition--Programming Companies" above.
Government Regulation. As described previously, the satellite
transmission, cable and telecommunications industries are subject to federal
regulation, including FCC licensing and tariff requirements, and the cable and
telecommunications industries are also subject to extensive regulation by local
and/or state authorities. While most cable and telecommunications industry
regulations do not apply directly to UVSG, they have a significant effect on
programming distributors, the primary customers for UVSG's products and
services.
Under the "cable compulsory license" provisions of the Copyright Act,
programming distributors are required to pay copyright fees that arise from
their reception and retransmission of satellite-transmitted television
broadcasts such as WGN and other superstations. These provisions also grant an
exemption which allows UVTV and other "passive carriers" to transmit and market
superstations without agreements with, or copyright payments to, the broadcast
station transmitted.
The SHV Act provides for a "home satellite dish compulsory copyright
license" for the retransmission of network and superstation signals and
programming directly to subscribers with a home satellite dish. The SHV Act
extended the home satellite dish compulsory license through the end of 1999.
Under the terms of the SHV Act, satellite carriers, such as UVTV, are
responsible for paying compulsory copyright fees to the Copyright Office for the
sale of superstation signals. The Librarian of Congress recently approved a
significant increase in such fees, effective January 1, 1998. Several bills have
been introduced in Congress which, if enacted, would suspend application of the
rate increase pending a review by the FCC of its effect on the ability of
satellite carriers to compete in the multichannel video market. The rate
increase is also the subject of an appeal which is currently pending before the
U.S. Court of Appeals for the D.C. Circuit. See "Liberty Media
Group--Programming Services--Regulation-Programming Companies-Copyright
Regulations."
Legislation has been introduced from time to time to repeal the cable
compulsory license provision, although no such legislation has been passed by
Congress. Legislation is currently pending in Congress to reform the satellite
compulsory license. At Congress' request, the Copyright Office conducted a
review of compulsory licensing for both the cable and satellite industries and
issued its report and legislative proposals to Congress on August 1, 1997. Among
other things, the Copyright Office's report suggests that Congress further study
whether the passive carrier exemption should continue to apply to satellite
carriers, such as UVTV, in cases where the carrier is retransmitting a signal on
which national advertising has been substituted by the broadcaster for the local
advertising on the over-the-air signal.
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The 1992 Cable Act, which established substantial rate regulation for
certain services and equipment provided by most cable television systems in the
United States, includes provisions which 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 UVSG to home satellite dish programming
packagers and other programming distributors. For example, the FCC's "program
access" rules prohibit certain satellite programmers which are "affiliated"
(under the FCC's affiliation rules) with certain types of programming
distributors (such as cable operators) from, among other things: (i)
discriminating in prices, terms, or conditions between various programming
distributors; and (ii) entering into agreements with certain programming
distributors which provide for exclusivity, except in limited circumstances. To
the extent UVSG's programming is deemed to be affiliated with programming
distributors covered by these rules, such programming is also subject to these
pricing and marketing limitations. For a more detailed discussion of these
regulations, see "Liberty Media Group--Programming
Services--Regulation--Programming Companies--Regulation of Program Licensing."
Internet Services.
The TCI Ventures Group's primary Internet service asset is its
investment in @Home, a 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; in April 1997,
Rogers Cablesystems Limited ("Rogers") and Shaw Cablesystems Ltd. ("Shaw"), two
of the leading cable operators in Canada, became investors in @Home. On July 11,
1997, @Home consummated its initial public offering in which it received net
cash proceeds of approximately $100 million for shares of Series A Common Stock
of @Home representing at that time approximately 8% of @Home's common equity.
The Series A Common Stock of @Home has one vote per share, whereas @Home's
Series B Common Stock, which is owned by the Company, has ten votes per share.
In October 1997, @Home entered into an exclusive distribution
arrangement with CSC as described below and issued to CSC warrants to purchase
an aggregate of 10,946,936 shares of @Home's Series A Common Stock at an
exercise price of $.50 per share. Of these warrants, warrants to purchase
10,231,298 of such shares are immediately exercisable, subject to the receipt of
all necessary governmental consents or approvals, and the balance will become
exercisable as and to the extent certain Connecticut cable television systems
are transferred from TCI and its controlled affiliates to CSC, CSC's parent or
their controlled affiliates. For a description of the TCI Group's agreement to
transfer such systems to CSC, see "General Development of Business." Following
the exercise of all of CSC's warrants, the Company's equity interest and voting
power in @Home will decrease to approximately 36% and 69%, respectively.
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@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
residential subscribers to connect their personal computers via cable modem to a
new high-speed network developed and managed by @Home. This service enables
subscribers to receive the "@Home Experience," which includes Internet service
over hybrid fiber-coaxial cable ("HFC") plant at peak data transmission speeds
up to 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
scaleable, distributed, intelligent network architecture (the "@Network"), a
"parallel Internet" that 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 group, which aggregates content, sells advertising to businesses
and will provide premium services to @Home subscribers. For businesses, @Home's
@Work services provide a platform for Internet, intranet and extranet
connectivity solutions and networked business applications over both cable
infrastructure and leased digital telecommunications lines. By combining the
@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 has entered into distribution arrangements for the @Home service
with eight leading cable companies in North America: TCI, Comcast, Cox, Rogers,
Shaw, Marcus Cable Operating Company, L.P., InterMedia Partners IV L.P. and CSC.
Such cable companies operate cable systems which pass approximately 50 million
homes in North America. @Home believes that as of December 31, 1997,
approximately 4.5 million of these homes were passed by upgraded two-way HFC
plant. Although there are no contractual obligations relating to the schedule
for upgrading their cable systems, TCI, Comcast, Cox and CSC (the "@Home Cable
Partners") have agreed, subject to certain exceptions, that @Home will be their
exclusive provider of high-speed residential consumer Internet access services
during the period ending June 4, 2002. (The TCI entity which is the distributor
of the @Home services is a member of the TCI Group, and the assets and business
of such entity are included in the TCI Group.) In March 1997, @Home entered into
exclusive arrangements for the distribution of its @Home service in Canada
through Rogers and Shaw, two of the leading cable system operators in Canada.
Rogers and Shaw have the right to redistribute the @Home service to other cable
system operators in Canada.
Transmission of the @Home service over cable is dependent on the
availability of high speed two-way HFC infrastructure. Although they are not
contractually obligated to upgrade their cable systems, @Home believes that the
@Home Cable Partners will 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 there can be no
assurance that the necessary upgrades will be completed according to such
schedule or at all.
As of December 31, 1997, @Home had launched the @Home service in
portions of 21 cities and communities in the United States and Canada and had
approximately 50,000 cable modem subscribers across North America. As of
December 31, 1997, @Work had over 300 installed accounts, and the @Work service
was available in 14 metropolitan markets including Chicago, Los Angeles, New
York, Orange County, San Diego, San Francisco, Seattle, and Washington, DC. In
order to accelerate deployment of @Home and @Work services into major
metropolitan areas, @Home has established a strategic relationship with TCG, the
country's largest CLEC, to provide co-location facilities and local telephone
circuits for infrastructure and subscriber connectivity.
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In February 1998, NDTC, on behalf of TCI, entered into a Memorandum of
Understanding with @Home pursuant to which @Home agreed to develop software and
provide integration services for TCI's advanced set-top devices that will
deliver both digital television and data services. The Memorandum of
Understanding contemplates that @Home will supply e-mail accounts for these
devices and will provide connectivity, geographically dispersed mail servers,
and overall system management for TCI's e-mail services. @Home would also work
with NDTC on the overall software integration related to TCI's advanced digital
set-top devices, ensuring that application frameworks are consistent with
conditions and specifications currently outlined by CableLabs' OpenCable(TM)
initiative. Consummation of the transactions contemplated by the Memorandum of
Understanding is subject to the negotiation of a definitive agreement and other
conditions and there can be no assurance such transactions will be consummated.
Competition. The markets for consumer and business Internet services
and online content are extremely competitive, and the Company 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 Asymmetric Digital
Subscriber Line ("ADSL"). In January 1998, Compaq Computer Corporation, Intel
Corporation, Microsoft Corporation, other technology companies and numerous
telecommunications providers announced an initiative to develop a simplified
version of ADSL that reduces the complexity and expense of installing the
service. This initiative may accelerate the deployment of ADSL services. @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 with @Home. 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. Many of @Home's competitors and
potential competitors have substantially greater resources than @Home.
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Government Regulation. The law relating to liability of OSPs and ISPs
for information carried on or disseminated through their networks is currently
unsettled. A number of lawsuits have sought to impose liability for defamatory
speech and infringement of copyrights. Some courts have held OSPs/ISPs liable
for the copyright infringement of others accomplished using the OSP/ISP's
facility, while other courts have held that such providers would be liable only
upon taking affirmative steps in furtherance of the infringement. Because
materials are downloaded and redistributed by subscribers and cached or
replicated by @Home in connection with @Home's offering of its services, there
is a possibility that claims may be made against @Home or the @Home Cable
Partners under both United States and foreign law for defamation, negligence,
copyright or trademark infringement, or other theories based on the nature and
content of such materials. Such types of claims have been brought, and sometimes
successfully pressed, against OSPs in the past. In particular, copyright and
trademark laws are evolving both domestically and internationally, and there is
uncertainty concerning how broadly the rights afforded under these laws will be
applied to online environments. Various legislative proposals addressing
copyright liability for OSPs/ISPs have been introduced in Congress, which may be
considered in conjunction with Congress's consideration of legislation to
implement the World Intellectual Property Organization ("WIPO") Copyright
Treaty. While the U.S. Supreme Court has declared unconstitutional the provision
in the 1996 Telecom Act which prohibited the use of an interactive computer
service to knowingly transmit "indecent" and "patently offensive" communications
to minors (i.e., any recipient under 18 years of age), the Court upheld the
Act's prohibition on the knowing transmission of "obscene" communications to
minors. Thus an OSP or ISP may still be liable under the Act if it knowingly
permits, and intends for, a telecommunications facility under its control to be
used for the transmission of "obscene" material to minors. In addition,
legislation has been introduced in the Senate which, if enacted, would prohibit
the commercial distribution on the World Wide Web to persons under 17 years of
age of sexually oriented material which is deemed "harmful to minors."
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 @Home's pricing and/or ability to
successfully market its services. For example, regulation of cable television
rates may affect the speed at which cable operators who have agreed or will
agree in the future to provide the @Home service will be able to upgrade their
cable systems as necessary to carry @Home's services. Similarly, enactment of
proposed privacy legislation currently pending in Congress, which would restrict
the use of subscriber information by interactive computer services for marketing
and other purposes, could adversely affect the marketing of @Home's services as
well as its revenue from advertising. In addition, the FCC is currently
considering requests by Bell Atlantic, Ameritch and US West for relief pursuant
to Section 706 of the 1996 Telecom Act from various restrictions and regulatory
requirements which currently serve to inhibit the RBOCs' provision of Internet
services. Other RBOCs are expected to pursue relief similar to that proposed in
the pending RBOC petitions, which seek authority to provide high-speed,
packet-switched data services, including Internet access and related services,
without regard to LATA boundaries and free from otherwise applicable access,
unbundling and resale obligations and certain other regulatory requirements. The
FCC also is considering a separate request which if approved would provide all
ILECs with significant relief from existing access, unbundling, pricing and cost
recovery rules and policies, in order to encourage the deployment and operation
of the ILECs of high-capacity, packet-switched networks and other advanced
telecommunications facilities and related services, including Internet access
services.
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The @Home Cable Partners have advised @Home that their local cable
operators typically have elected to classify the provision of all or some of the
@Home services as "additional cable services" under their respective local
franchise agreements, and to pay franchise fees in accordance therewith. Local
franchise authorities may attempt to subject cable systems to higher or other
franchise fees or taxes or otherwise seek to require cable operators to obtain
additional franchises, in connection with their distribution of the @Home
service. There are thousands of franchise authorities, and thus it will be
difficult or impossible for @Home or such cable operators to operate under a
unified set of franchise requirements. Legislation has been introduced in
Congress which if enacted would impose a moratorium limiting the ability of
state and local governments to impose taxes on Internet services or the use
thereof for a specified period pending the formulation and submission to
Congress by the President of recommendations concerning appropriate parameters
for state and local taxation of such services. However, state and local
authorities have expressed strong opposition to such legislation, and there
remains the possibility that the @Home services may be subject to potentially
burdensome taxes or other assessments in a multitude of state and local
jurisdictions. It is also possible that governmental authorities may attempt to
classify @Home in some other manner (e.g., as a common carrier-type service or
information service) and impose additional potentially burdensome regulatory
requirements on @Home, the @Home Cable Partners, or other cable operators
carrying the @Home services.
Other Assets.
In addition to the ventures and businesses mentioned above, other
assets of the Company attributed to the TCI Ventures Group include (i) NDTC, a
wholly-owned subsidiary of TCI, which provides digital compression and
authorization services to programming suppliers and to video distribution
outlets and (ii) ETC, a wholly-owned subsidiary of TCI that develops and
distributes for-profit education, training and communication services and
products.
NDTC 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 (the "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; such
service is known as NDTC's Headend-in-the-Sky service or "HITS." NDTC launched
its HITS programming line-up in September 1997, initiating the broadcast of
approximately 130 channels of digital video programming and approximately 40
channels of digital music, which are accessible by cable operators who subscribe
to the HITS service. NDTC is currently providing the HITS service to TCI and has
contracts to provide service to certain additional cable operators. NDTC is also
currently conducting negotiations with many other operators.
NDTC derives a substantial portion of its revenue from companies that
are affiliated with TCI. For the year ended December 31, 1997, revenue from
services provided to TCI (including its consolidated subsidiaries, but not other
affiliates) was $39 million, or approximately 41% of NDTC's total revenue for
1997. NDTC has been, and intends to continue, seeking to expand its customer
base to increase the number of unaffiliated customers over time.
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Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators, including HITS' affiliates, that may be designated from time to
time by NDTC ("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation (formerly
NextLevel Systems, Inc., "GI") to purchase advanced digital set-top devices. The
hardware and software incorporated into these devices will be designed and
manufactured to be compatible and interoperable with the OpenCable(TM)
architecture specifications adopted by CableLabs, the cable television
industry's research and development consortium, in November 1997. NDTC has
agreed that Approved Purchasers will purchase, in the aggregate, a minimum of
6.5 million set-top devices over the next three years at an average price of
$318 per basic set-top device (including a required royalty payment). GI agreed
to provide NDTC and its Approved Purchasers the most favorable prices, terms and
conditions made available by GI to any customer purchasing advanced digital
set-top devices. In connection with NDTC's purchase commitment, GI agreed to
grant warrants to purchase its common stock proportional to the number of
devices ordered by each organization, which as of the effective date of the
Digital Terminal Purchase Agreement, represented at least a 10% equity interest
in GI (on a fully diluted basis). It is anticipated that the value associated
with such equity interest would be attributed to TCI Group upon purchase and
deployment of digital set-top devices.
Also in December 1997, NDTC entered into a memorandum of understanding
(the "GI MOU") with GI which contemplates the sale to GI of certain of the
assets of NDTC's set-top authorization business, the license of certain related
technology to GI, and an additional cash payment in exchange for approximately
21.4 million shares of stock of GI. In connection therewith, NDTC would also
enter into a services agreement pursuant to which it will provide certain
services to GI's set-top authorization business. The transaction is subject to
the signing of definitive agreements; accordingly, there can be no assurance
that it will be consummated.
NDTC has the right to terminate the Digital Terminal Purchase Agreement
if, among other reasons, the transactions related to the GI MOU are not
consummated or if GI fails to meet a material milestone designated in the
Digital Terminal Purchase Agreement with respect to the development, testing and
delivery of advanced digital set-top devices.
NDTC's Video Services, specifically the transmission, production and
post-production services, are highly competitive. There are a number of
well-established competitors located on both the east and west coasts to both
NDTC's uplinking and satellite transmission services and its production and
post-production services, many of which competitors have been in existence
significantly longer than NDTC and may have an established customer base. NDTC's
HITS authorization and transport services compete with locally operated
authorization controllers, purchased from the same vendor that supplies set-top
terminals to cable operators, and with programmers who provide their own digital
signal transport. There can be no assurance that the HITS service will achieve
significant market penetration beyond the TCI affiliated companies.
While NDTC's Video Services and other services offered by NDTC are not
directly regulated, the NDTC uplink facilities are operated pursuant to FCC
licenses and subject to applicable FCC rules, including but not limited to the
FCC's environmental rules, which, among other things, establish limits on human
exposure to RF radiation emanating from FCC-licensed facilities. Failure to
comply with applicable FCC rules could result in fines, denial of renewal, or
revocation of the relevant license(s).
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ETC's current investments include interests in : (i) CareerTrack, Inc.,
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) 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) 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)
Academic Systems Corporation, a venture capital-financed, start-up company which
provides multimedia instructional materials for higher education. ETC also holds
a 100% interest in Ingenius(TM), a general partnership formed to develop and
distribute interactive multimedia current events programming. Ingenius(TM) is in
the process of winding down most of its lines of business and is offering for
sale substantially all of its remaining assets, which consist primarily of
intellectual property.
As described in more detail above, in September 1997, the Company
announced that it and ETC entered into a letter of intent with Knowledge
Universe which contemplates that TCI, through ETC, will become a partner of
Knowledge Universe in a new venture in which Knowledge Universe would make a
substantial investment and to which ETC would contribute a significant portion
of its assets. Although the letter of intent has expired, the parties continue
to discuss the transactions contemplated by it. In contemplation of the proposed
restructuring of ETC's assets, in November 1997, TCI (through a wholly-owned
subsidiary) purchased the approximately 20% of the common stock of ETC formerly
held by certain members of ETC's management, and ETC is now wholly-owned by TCI.
In September 1997, the primary assets of TCI SUMMITrak, L.L.C., a
development-stage, customer management system, the assets of which were
attributed to the TCI Ventures Group, were sold to CSG Systems, Inc. ("CSG"). In
the transaction, the TCI Ventures Group received $106 million in cash, the right
to contingent consideration of up to $12 million in cash and warrants to
purchase up to 1.5 million shares of CSG stock at $24 per share, once certain
numbers of TCI affiliated subscribers are being processed on a CSG billing
system. Under certain circumstances, TCI may also be eligible to receive certain
other contingent royalties. In connection with the sale of such assets, the TCI
Group committed to purchase billing services from CSG pursuant to three
successive five-year agreements. The assets remaining in TCI SMTRK, LLC after
such sale were transferred to TCIC, a member of the TCI Group, in exchange for a
$19 million reduction of the intercompany amount owed by TCI Ventures Group to
TCI Group.
GENERAL
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three
fiscal years on research and development activities.
There is no one customer or affiliated group of customers to whom sales
are made in an amount which exceeds 10% of the Company's consolidated revenue.
Compliance with Federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
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At December 31, 1997, the Company had approximately 37,000 employees,
the majority of which are employees of TCIC.
(d) Financial Information about Foreign & Domestic Operations and
Export Sales
The Company has neither material foreign operations nor export sales.
Item 2. Properties.
The Company leases its executive offices in a suburb of Denver,
Colorado, and leases most of its regional and local operating offices. The
Company owns many of its head-end and antenna sites. Its physical cable
television properties, which are located throughout the United States, consist
of system components, motor vehicles, miscellaneous hardware, spare parts and
other components.
The Company's cable television facilities are, in the opinion of
management, suitable and adequate by industry standards. Physical properties of
the Company are not held subject to any major encumbrance.
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Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject, except as follows:
On September 30, 1994, an action captioned The Carter Revocable Trust
by H. Allen Carter and Sharlynn Carter as Trustees v. Tele-Communications, Inc.;
IR-Daniels Partners III; Daniels Ventures, Inc.; Cablevision Equities IV;
Daniels & Associates, Inc.; and John V. Saeman, 94-N-2253, was filed in the
United States District Court for the District of Colorado. The suit alleges that
all the defendants violated disclosure requirements under the Securities
Exchange Act of 1934, and that defendants IR-Daniels Partners III (now known as
IR-TCI Partners III), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.)
and Daniels & Associates, Inc. (now known as TCI Cablevision Associates, Inc. or
"D&A") breached a fiduciary duty to plaintiff and other limited partners of
American Cable TV Investors 3 (the "ACT 3 Partnership"), in connection with (i)
the sale to TCI Communications, Inc. of ACT 3 Partnership's ownership interest
in the Redlands System and (ii) the sale to affiliates of TCIC of ACT 3
Partnership's ownership interests in other cable television systems (the "ACT 3
Transactions").
Plaintiff brought this action on behalf of himself and on behalf of all
persons who were limited partners of the ACT 3 Partnership as of the close of
business on October 1, 1993 and who had their proxies solicited by the
defendants in connection with the ACT 3 Transactions that allegedly "resulted in
the dissolution of the ACT 3 Partnership and the loss of their limited
partnership interests."
A settlement was reached in this action, for which final approval was
granted on January 7, 1998. The settlement did not have a material adverse
effect upon the financial condition of the Company. The Company is awaiting
receipt of final documentation for the court order. This case will not be
reported on in the future.
On September 30, 1994, an action captioned WEBBCO v.
Tele-Communications, Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.;
Cablevision Equities III; Daniels & Associates, Inc.; and John V. Saeman,
94-N-2254, was filed in the United States District Court for the District of
Colorado. The suit alleges that all the defendants violated disclosure
requirements under the Securities Exchange Act of 1934, and that defendants
IR-Daniels Partners II (now known as IR-TCI Partners II), Daniels Ventures, Inc.
(now known as TCI Ventures, Inc.) and D&A breached a fiduciary duty to plaintiff
and other limited partners of American Cable TV Investors 2 (the "ACT 2
Partnership"), in connection with the sale to TCIC of ACT 2 Partnership's
ownership interest in the Redlands System (the "ACT 2 Transaction").
Plaintiff brought this action on behalf of himself and on behalf of all
persons who were limited partners of the ACT 2 Partnership as of the close of
business on October 1, 1993 and who had their proxies solicited by the
defendants in connection with the ACT 2 Transaction that allegedly "resulted in
the dissolution of the ACT 2 Partnership and the loss of their limited
partnership interests."
A settlement was reached in this action, for which final approval was
granted on January 7, 1998. The settlement did not have a material adverse
effect upon the financial condition of the Company. The Company is awaiting
receipt of final documentation for the court order. This case will not be
reported on in the future.
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Intellectual Property Development Corporation v. UA-Columbia
Cablevision of Westchester, Inc. and Tele-Communications, Inc. On September 1,
1994, plaintiff filed suit in federal court in New York for the alleged
infringement of a patent for an invention used in broadcasting systems with
fiber optic transmission lines. Plaintiff seeks injunctive relief and
unspecified treble damages. The patent at issue expired on January 16, 1996,
thereby eliminating any claim for injunctive relief by plaintiff. The issues now
center around whether defendants owe past damages up to the time the patent
expired. Discovery is currently ongoing. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition of this action should not have a
material adverse effect upon the financial condition of the Company.
Turner Broadcasting Systems, Inc. Shareholder Litigation. Following the
announcement of the proposed merger (the "TBS-Time Warner Merger") between
Turner Broadcasting Systems, Inc. ("TBS") and Time Warner, Inc. ("Time Warner")
several purported class action lawsuits were filed by TBS shareholders in Fulton
County Superior Court, Georgia. On November 1, 1995, plaintiffs in thirteen of
the cases filed a second amended class action Complaint in what will be a
consolidated action styled Lewis v. TBS, Inc. C.A. No. B-41500 (the "Lewis
Action"). The defendants include, among others, Tele-Communications, Inc., John
Malone, Peter Barton and Fred Vierra. The claims and defendants in the actions
other than the Lewis Action are substantially the same as set forth in the
second amended complaint in the Lewis Action. Plaintiffs allege in the second
amended complaint in the Lewis Action that defendants have injured the public
stockholders of TBS in conjunction with the TBS-Time Warner Merger proposal by
(a) misrepresenting the extent to which defendants Time Warner, TCI, John Malone
and R.E. Turner ("Turner") have acted for their own benefit and not for the
benefit of TBS or its stockholders, (b) failing to adequately disclose the full
nature and value of special considerations granted to TCI and Turner in
connection with the TBS-Time Warner Merger proposal, (c) failing to engage in
arms' length bargaining or give any consideration to maximizing TBS stockholder
value, (d) proposing to provide the public holders of TBS stock with unfair
consideration in the TBS-Time Warner Merger, and (e) seeking to entrench certain
of the TBS officers and directors. Plaintiffs in the Lewis Action seek to enjoin
the consummation of the TBS-Time Warner Merger, enjoin the transfer of any
assets to TCI in connection with the TBS-Time Warner Merger, or to rescind the
TBS-Time Warner Merger or transfer of assets if such acts are consummated.
Plaintiffs also seek unspecified compensatory and punitive damages. The TBS-Time
Warner merger was consummated on October 10, 1996. On December 20, 1996, the
Georgia State Court dismissed the plaintiffs third amended complaint in the
Lewis Action. Plaintiffs have stated their intention to appeal the dismissal
order and filed a fourth amended complaint on January 16, 1997. On July 14,
1997, the court granted defendants motion for summary judgment on the fourth
amended complaint. On October 14, 1997,plaintiffs filed an appeal from dismissal
of the third amended complaint order granting summary judgment on claims raised
in the fourth amended complaint. Discovery has not commenced in any of the
actions. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.
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Time Warner Stockholder Litigation. In November 1995, two derivative
action lawsuits on behalf of and for the benefit of Time Warner, Inc. were filed
in the Delaware Chancery Court by purported stockholders of Time Warner. These
actions, which have identical claims and allegations, are styled as Bernard v.
Time Warner, Inc., C.A. No. 14651, and Parnes v. Time Warner, Inc., C.A. No.
14660, respectively. The defendants named in both complaints are Time Warner,
Inc., Tele-Communications, Inc., and the following individuals who are directors
of Time Warner: Gerald M. Levin, Merv Adelson, Beverly Sills Greenough, Michael
A. Miles, Donald S. Perkins, Raymond S. Trough, Edward S. Finkelstein, Carla A.
Hills, Henry Luce, III, Reuben Mark, Francis T. Vincent, Jr., Lawrence B.
Buttenweiser, David T. Kearns, J. Richard Munro, and Richard D. Parsons. In both
cases, plaintiffs allege among other things that the Time Warner directors
breached their fiduciary duties in establishing the terms of Time Warner's
proposed merger with Turner Broadcasting System, Inc. Specifically, plaintiffs
contend in both cases that the Time Warner directors impermissibly sought to
entrench themselves and that TCI aided and abetted the Time Warner directors'
alleged breaches of fiduciary duty. Plaintiffs complain in both cases that, in
connection with the proposed TBS-Time Warner Merger, TCI will receive (i) a
premium for its TBS stock with a value of nearly 7% over the value of the merger
consideration to be received by other TBS stockholders, (ii) exclusive
programming benefits at discounted prices from TBS, (iii) an agreement to
purchase TBS's and Time Warner's interests in two regional sports networks, and
(iv) five million additional shares of Time Warner stock in exchange for giving
Time Warner an option to purchase a subsidiary of TCI. In exchange for these
alleged benefits, TCI allegedly facilitated efforts by the Time Warner directors
and Time Warner's management to entrench themselves by allowing the Time Warner
voting stock to be received by TCI upon consummation of the TBS-Time Warner
Merger to be placed in a voting trust controlled by defendant Levin, who is the
chairman and chief executive officer of Time Warner. Plaintiffs seek in both
actions to enjoin the consummation of the proposed TBS-Time Warner Merger, to
rescind the TBS-Time Warner Merger if it is consummated, and to enjoin the
transfer of Time Warner's assets or stock to TCI in connection with the TBS-Time
Warner Merger. TCI moved to dismiss these actions on November 22, 1995.
Discovery has not commenced in these actions. On December 5, 1995, plaintiffs in
both actions agreed to stay any proceedings pending regulatory developments
regarding the proposed TBS-Time Warner Merger. The TBS-Time Warner Merger was
consummated on October 10, 1996. Based upon the facts available, management
believes that, although no assurances can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
HSN Shareholder Litigation. During August 1996, five putative class
action complaints were filed with the Delaware Court of Chancery in C.A. Nos.
15179, 15187, 15188, 15189 and 15195 by stockholders of Home Shopping Network,
Inc. ("HSN"). The complaints were filed following the announcement of the
proposed merger between HSN and Silver King Communications, Inc. ("Silver
King"). The defendants in the actions include HSN, Silver King,
Tele-Communications, Inc. ("TCI"), Liberty Media Corporation ("Liberty") and the
directors of HSN (Barry Diller, James G. Held, Peter R. Barton, Robert R.
Bennett, Leo J. Hindery, Jr., H. Norman Schwarzkopf and Mr. Eli Segal). Mr.
Bennett is an executive officer of Liberty. Mr. Hindery is an executive officer
of TCI. The foregoing actions have been consolidated for all purposes pursuant
to an order by the court which specifies that the complaint in C.A. No. 15188 is
the designated complaint in the consolidated action.
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The gravamen of the complaint in C.A. No 15188 is that the HSN
directors breached their fiduciary duties by approving the merger agreement.
Plaintiffs also claim that TCI and Liberty, by supporting the proposed merger,
breached their asserted fiduciary duties as controlling stockholders of HSN.
Specifically, plaintiffs allege that the proposed merger is designed to allow
Silver King and, indirectly, TCI and Liberty to acquire HSN without paying
adequate consideration to the public holders of HSN common stock by timing the
transaction at a time when the price of HSN common stock is low and by ignoring
the anticipated positive prospects of HSN. Plaintiffs further allege that TCI
and Liberty will be unjustly enriched because, under the merger agreement, they
would receive a premium for their shares of HSN Class B stock while retaining
what plaintiffs assert to be a controlling interest in Silver King through their
ownership of Silver King Class B stock. According to plaintiffs, Silver King has
knowingly aided and abetted these alleged breaches of fiduciary duties.
Plaintiffs seek to enjoin the consummation of the proposed merger or, should the
proposed merger proceed, rescission or rescissory damages. Plaintiffs also seek
unspecified compensatory damages, fees and costs. The consolidated action
remains pending and discovery has not commenced. The HSN-Silver King merger was
completed on December 20, 1996. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
DMX Shareholders Litigation. In September 1996, a putative class action
complaint was filed with the Delaware Court of Chancery in C.A. No 15206 by a
stockholder of DMX Inc. ("DMX"). The complaint was filed following the
announcement of a proposed business combination in which TCI Music, Inc. ("TCI
Music"), a newly formed entity, would acquire DMX. The proposed business
combination contemplates that the shareholders of DMX, including subsidiaries of
TCI that currently own approximately 45% of DMX's outstanding stock, would
receive shares of TCI Music Class A common stock having one vote per share and
representing approximately 19% of TCI Music's outstanding shares. TCI would hold
TCI Music Class B common stock having ten votes per share and representing
approximately 81% of the TCI Music common equity outstanding immediately after
the transaction. TCI would acquire those shares in exchange for consideration
that includes DMX subscriber accounts held by TCI subsidiaries and equipment
used by those subsidiaries to distribute the DMX music service to TCI customers.
The defendants in the action include DMX, TCI and the directors of DMX (Jerold
H. Rubinstein, Donne F. Fisher, Leo J. Hindery, Jr., James R. Shaw, Sr., Kent
Burkhart, J.C. Sparkman and Menon Bhaskar). Mr. Fisher is a director of and a
consultant to TCI. Mr. Hindery is an executive officer of TCI. Mr. Sparkman is a
director of TCI.
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The gravamen of the complaint is that the DMX directors would breach
their fiduciary duties by approving the proposed business combination.
Specifically, plaintiff alleges that, due to TCI's alleged control over the DMX
board, the DMX directors are unwilling to negotiate with TCI to maximize the
value for the public stockholders of DMX. Plaintiff claims that the proposed
consideration to be paid the public stockholders of DMX is grossly unfair,
inadequate and substantially below the fair value of DMX. Plaintiff seeks to
enjoin the consummation of proposed business combination or, should the proposed
transaction proceed, to rescind the transaction. The TCI Music-DMX Merger was
consummated on July 11, 1997. Plaintiff also seeks unspecified rescissory and
compensatory damages, fees and costs. The action remains pending and discovery
has not commenced. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
Interactive Network, Inc. Shareholder Litigation (No. C95-0026 DLJ,
Northern District of California.) In January of 1995, two class action
complaints ("Actions") were filed against Interactive Network, Inc.
("Interactive") and certain of its then current and former officers and
directors (collectively the "Interactive Defendants") in the United States
District Court for the Northern District of California which sought unspecified
damages for alleged violations of the disclosure requirements of the federal
securities laws. The actions were filed on behalf of a class of shareholders
that purchased the stock of Interactive during the period of August 15, 1994
through November 22, 1994. Pursuant to an order of the Court, the Actions were
consolidated and in April 1995, a Consolidated Amended Class Action Complaint
captioned In re Interactive Network Inc. Securities Litigation ("Consolidated
Case") was filed in the same court which sought damages against the Interaction
Defendants for violation of the federal securities law disclosure requirements
during the class period May 2, 1994 through March 31, 1995. On or about January
13, 1997, Plaintiffs filed a Fourth Amended Complaint, seeking damages against
the Interactive Defendants and Tele-Communications, Inc., TCI Communications,
Inc., TCI Development Corporation, and Gary Howard (collectively, "the TCI
Defendants") for violation of federal securities law disclosure requirements
during the class period May 16, 1994 through March 31, 1995. In addition, the
Fourth Amended Complaint sought damages against the TCI Defendants based upon
the allegation that they were "controlling persons" of Interactive at the time
the alleged wrongs took place. On January 30, 1997, the TCI Defendants and the
Interactive Defendants separately moved to dismiss the Fourth Amended Complaint
on the ground that it failed to state a cause of action against them. On April
4, 1997, the Court issued an order dismissing, with prejudice, the primary
liability claims against the TCI Defendants. The Court granted the Plaintiffs
leave to amend their Complaint as to their claim for violation of federal
securities law disclosure requirements against the Interactive Defendants. The
Court further granted Plaintiffs leave to amend their "controlling person" claim
against the TCI Defendants. On or about April 30, 1997, Plaintiffs filed a Fifth
Amended Complaint seeking damages for violation of federal securities law
disclosure requirements against the Interactive and TCI Defendants during the
class period January 19, 1994 through March 31, 1995. The Fifth Amended
Complaint also seeks damages against the TCI Defendants as "controlling
persons." On October 9, 1997, the Court granted the Interactive Defendants'
Motion to Dismiss with Prejudice substantial portions of the Fifth Amended
Complaint. The remaining claims are limited to a class of just several months.
On January 16, 1998, the Court entered a scheduling order establishing pre-trial
deadlines, including a May 6, 1998 deadline for class certification. Based upon
the facts available, management believes that, although no assurances can be
given as to the outcome of this action, the ultimate disposition should not have
a material adverse effect upon the financial condition of the Company.
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Interactive Network, Inc. v. Tele-Communications, Inc., et al.(Alameda
County Superior Court, Case No. 754933-7). On October 20, 1995, Interactive
Network, Inc. ("Interactive") filed a complaint in the Superior Court of
California for the county of Alameda naming Tele-Communications, Inc., TCI
Communications, Inc., TCI Development Corporation, TCI Programming Holding Co.,
TCI Cablevision of California, Inc. ("the TCI defendants") and Gary Howard as
defendants. The Complaint alleges claims for breach of fiduciary duty, abuse of
control, intentional interference with prospective business advantage,
intentional interference with contractual relations, breach of contract,
constructive fraud, fraud and deceit, negligent misrepresentation,
misappropriation of corporate assets, unfair competition and unjust enrichment
arising out of the business relationship between the TCI defendants and
Interactive. Plaintiffs twice amended the complaint, following a series of
motions attacking the pleadings by the TCI defendants, resulting in the "Third
Amended Complaint". The Third Amended Complaint alleges that the TCI defendants
breached various duties owed to Interactive as a result of the TCI defendants'
purported status as a controlling shareholder. The Complaint further alleges
that the TCI defendants fraudulently promised to provide financing to
Interactive and fraudulently induced Interactive to enter into various
transactions. The Third Amended Complaint seeks various unspecified compensatory
and punitive damages as well as injunctive relief. On June 17, 1996, certain of
the TCI defendants, on their own behalf and as the agent of various additional
secured creditors, denied all claims and filed a cross-complaint for breach of
contract against Interactive seeking in excess of $24 million pursuant to
various promissory notes entered into by Interactive. On July 22, 1996,
Interactive filed a "cross-complaint to the cross-complaint" alleging economic
duress, breach of the implied covenant of good faith and fair dealing, fraud and
breach of contract in connection with the promissory notes entered into by
Interactive. On February 25, 1998, the parties agreed to a settlement, subject
to final execution of settlement documents. The settlement did not have a
material adverse effect upon the financial condition of the Company. This case
will not be reported on in the future.
Clarence L. Elder, both individually and as the group Representative
vs. Tele-Communications, Inc. et al. On December 11, 1995, plaintiff filed suit
in the Circuit Court for Baltimore City, Case No. 95345001/CL205580 against UCTC
L.P. Company, UCTC of Baltimore, Inc., UTI Purchase Company, Inc. and
Tele-Communications, Inc. The allegations made in the complaint pertain to
plaintiff's interest in United Cable Television of Baltimore Limited
Partnership. Plaintiff claims he was wrongfully denied certain preference
distributions, rights to purchase stock, rights to escrow funds, and tax
distributions. Plaintiff claims entitlement to compensatory damages in excess of
$70,000,000 plus punitive damages in excess of $450,000,000. Plaintiff asserts
claims for: breach of contract; negligent misrepresentation; negligence; unjust
enrichment; conversion; fraud; and breach of fiduciary duty. The Court granted
defendants' Motion for Summary Judgment and plaintiff has filed an appeal. On
September 24, 1997, the Maryland Court of Special Appeals affirmed in all but
one respect the Circuit Court's summary judgment in favor of the defendants. The
court found that the settlement agreement at issue is ambiguous concerning the
number of Limited Partnership units the plaintiffs were entitled to purchase
(186.6 or 311), but ruled in favor of defendants concerning the price at which
the units must be sold and all other issues.
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Plaintiffs have filed a motion for reconsideration, and have filed a
petition for certiorari in the Court of Appeals on December 24, 1997 as their
motion for reconsideration is denied. If the Court of Special Appeals decision
is not disturbed, the only issue for trial will be the number of units
Plaintiffs are entitled to purchase at fair market value, as determined in
accordance with the appraisal previously obtained by defendants. Based upon the
facts available, management believes that, although no assurance can be given as
to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.
Les Dunnaville v. United Artists Cable, et al. On February 9, 1994, Les
Dunnaville and Jay Sharrieff, former employees of United Cable Television of
Baltimore Limited Partnership, filed an amended complaint in the Circuit Court
for Baltimore City against United Cable Television of Baltimore Limited
Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and three
company employees, Roy Harbert, Tony Peduto, and Richard Bushey (the suit was
initially filed on December 3, 1993, but the parties agreed on December 30, 1993
that no responsive pleading would be due pending filing of an amended
complaint). The action alleges, inter alia, intentional interference with
contract, tortious interference with prospective advantage, defamation, false
light, invasion of privacy, intentional infliction of emotional distress, civil
conspiracy, violation of Maryland's Fair Employment Practices Act, and
respondeat superior with respect to the individual defendants. Six counts in the
complaint each seek compensatory damages of $1,000,000 and punitive damages of
$1,000,000; the intentional infliction of emotional distress count seeks
compensatory damages of $1,000,000 and punitive damages of $2,000,000; and the
count which alleges violation of Maryland's Fair Employment Practices Act seeks
damages of $500,000. By order dated May 18, 1994, the Court dismissed the
respondeat superior claim. Defendants filed Motions for Summary Judgment in
December 1995 and January 1996 on all remaining counts of plaintiffs' complaint.
The Court granted summary judgment in defendants' favor on March 18, 1996. The
plaintiffs appealed the Circuit Court ruling to the Maryland Court of Special
Appeals. In a decision dated June 5, 1997, the Maryland Court of Special Appeals
affirmed the trail court's grant of summary judgment in all respects except for
one portion of the defamation claim involving alleged statements of Roy Harbert.
The trial court is scheduled to try the one remaining claim on April 2, 1998.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the Company.
Donald E. Watson v. Tele-Communications, Inc., et al. On March 10,
1995, Donald Watson, doing business under the name of Tri-County Cable, filed
suit in Superior Court for the District of Columbia against TCI, TCI East, Inc.,
District Cablevision Limited Partnership, District Cablevision, Inc., TCI of
D.C., Inc., TCI of Maryland, Inc., TCI Development Corporation, United Cable
Television of Baltimore Limited Partnership, TCI of Pennsylvania, Inc. and two
individuals, Richard Bushey and Roy Harbert. The action alleges breach of
settlement agreement, intentional misrepresentations, tortious interference with
prospective advantage, tortious interference with contract, tortious
interference with economic relations, and discrimination on the basis of race.
Three counts in the Complaint each seek compensatory damages of $2,500,000 and
punitive damages of $25,000,000; one count seeks compensatory damages of
$2,500,000 and punitive damages of $40,000,000; and two counts each seek
compensatory damages of $20,000,000 and punitive damages of $40,000,000. In an
order dated September 25, 1997, the Court granted summary judgment in favor of
defendants on the claims of intentional misrepresentations, tortious
interference with prospective advantage, tortious interference with contract,
and discrimination on the basis of race. The remaining claims will be tried at
some date in the future. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
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C. Lamont Smith, et al. v. Mile Hi Cable Partners, et al. On December
9, 1996, C. Lamont Smith and The Black Movie Channel, LLC filed suit in the
District Court for the City and County of Denver against subsidiaries of
Tele-Communications, Inc. (TCI Communications, Inc.; Mile Hi Cable Partners, LP;
Liberty Media Corporation and Encore Media Corporation); Black Entertainment
Television; Steve Santamaria; Media Management Group, Inc. and Virginia Butler.
Plaintiffs assert, in part, that the defendants misappropriated plaintiffs'
concept for the development of a 24 hours a day, seven days a week, cable or
satellite premium channel which would broadcast movies made by or featuring
African Americans, as well as educational programming and community oriented
programming of interest to both the Hispanic and Black communities. Plaintiffs
claim anticipated annual net profits from such a network would exceed $600
million. Plaintiffs also assert that the franchise agreement with the City and
County of Denver has been breached for alleged implied covenants of good faith
and fair dealing under the Denver franchise; promissory estoppel and breach of
implied contract; misappropriation of confidential information and trade
secrets; breach of confidence; breach of fiduciary duty; as well as unjust
enrichment; fraud; negligent misrepresentation; non-disclosure and concealment;
civil conspiracy; and violation of the Colorado Antitrust Act of 1992.
Plaintiffs seek an award of consequential, special and restitutionary damages in
an unspecified amount as well as exemplary damages, prejudgment interest, expert
witness fees, attorneys fees and costs. On August 5, 1997, the trial court
entered an Order dismissing all of plaintiffs' claims against defendants Liberty
and Encore as well as plaintiffs' first, second, fifth, and a portion of the
twelfth claim for relief against the remaining Company defendants. The motion
for judgment on the pleadings with respect to plaintiffs' other claims was
granted in part. The court dismissed three additional claims. We anticipate the
parties will stipulate to certification of an immediate appeal, which will take
from 12 to 18 months. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
James Dalton, et al. v. Tele-Communications, Inc., et al. On February
24, 1997, James Dalton, et al. filed suit in District Court for Arapahoe County,
Colorado, Case No. 97-CV421, against Tele-Communications, Inc. ("TCI") and
certain officers of TCI. Plaintiffs filed this action under the Colorado
Securities Act and Colorado common law on behalf of all persons who purchased
TCI securities from January 10, 1996 through October 24, 1996 ("the class
period"). Plaintiffs claim, in part, that the defendants made false and
misleading statements during the class period concerning TCI's revenue and cash
flow growth, customer growth, and expansion and diversification into a
multi-business platform; and that TCI failed to disclose the performance of its
various operations. Plaintiffs claim further, in part, that TCI's cash flow
growth was weak and below levels necessary to fund a multi-business
diversification program and that TCI was competitively disadvantaged and would
likely be threatened by adverse conditions impacting its business. Plaintiffs
are seeking nationwide class certification and claim that the amount in
controversy is less than $75,000 per named plaintiff, exclusive of interest and
costs. On September 3, 1997, defendants motion to dismiss was denied. Defendants
answered the Complaint on October 3, 1997. Discovery is proceeding and the
parties have agreed to attend a mediation on May 19, 1998. Based upon the facts
available, management believes that, although no assurances can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
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IMedia Corporation v. Western Tele-Communications, Inc. On August 12,
1997, in the United States District Court for the Northern District of
California, Case No. C 97-2960 CAL, Plaintiff Imedia Corporation ("Imedia")
filed suit against Western Tele-Communications, Inc. ("WTCI"). The Plaintiff
alleges that Defendant WTCI breached its contract to pay IMedia $5,000,000 for
the use of IMedia's StatMux software, developed for multiplexing digitally
compressed video signals. Plaintiff also claims for loss of per-subscriber fees
through September 30, 2004, pursuant to the contract. Additionally, Plaintiff
requests an injunction against WTCI or any affiliated company prohibiting use by
WTCI of any multiplexing software other than IMedia's. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition of this matter should not
have a material adverse effect upon the financial condition of the Company.
Kim Magness, et al. v Tele-Communications, Inc. et al. On October 29,
1997 this action was filed in the District Court, Arapahoe County, Colorado,
against Tele-Communications, Inc. and Donne F. Fisher, individually and as
Personal Representative of the Estate of Bob Magness, deceased; Daniel Ritchie,
individually and as Personal Representative of the Estate of Bob Magness,
Deceased; Tele-Communications, Inc., John Malone; and DOES 1-10. This action
concerns the sale of stock by the Estate of Bob Magness and the Petitioner's
request to rescind the transaction. Plaintiffs allege, among other things, the
following Claims for Relief: Statutory Claim - Request to Void Transaction;
Breach of Fiduciary Duty; and Indemnification. The Complaint seeks a judgment
voiding, unwinding, and invalidating the agreements and transactions; a judgment
and order requiring TCI to return shares of stock to the Estate; an order
prohibiting any action to sell, transfer, pledge, hypothecate or dispose of
shares purchased from the Estate; a judgment awarding damages and surcharge,
including lost profits, consequential damages, and lost appreciation damages;
and reasonable costs and attorney fees. This case was settled on or about
January 5, 1998. This case will not be reported on in the future. A shareholder
derivative suit was subsequently filed which challenges this settlement and a
related payment to John Malone, see Magness Shareholder Litigation.
The TCI Series D Preferred Stockholders Litigation. In October 1997, an
individual and putative class action complaint was filed in the Delaware Court
of Chancery by certain holders of Tele-Communications, Inc. ("TCI") Convertible
Preferred Stock, Series D (the "Series D Preferred Stock"). TCI is the only
named defendant in the action styled as Batten v. Tele-Communications, In., C.A.
No. 15972 (the "Series D Preferred Stockholders Litigation"). The complaint was
filed in connection with an offer made by TCI to the holders of TCI Group Common
Stock to exchange up to 30% of the outstanding shares of TCI Group Common Stock
for shares of the newly created TCI Ventures Group Common Stock (the "Exchange
Offer"). On January 21, 1998, the court dismissed Batten v. Tele-Communications,
Inc. with prejudice and without prejudice to all other class members. This case
will not be reported on in the future.
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BET Litigation. In September 1997, five substantially similar purported
class action complaints were filed by stockholders of BET Holdings, Inc. ("BET")
in the Court of Chancery of the State of Delaware under the captions Herbert
Behrens v. Robert L. Johnson, et al., C.A. No. 15921; Harbor Finance Partners v.
Peter Barton, et al., C.A. No. 15923; Alan Friedman v. Robert L. Johnson, et
al., C.A. No. 15924; Tiger Options, L.L.C. v. Robert L. Johnson, et al., C.A.
No. 15936 and Jerome Ramos v. Robert L. Johnson, et al., C.A. No. 15941.
Subsequently, on October 14, 1997, an Order of Consolidation was entered
consolidating these actions under the caption In re BET Holdings, Inc.
Shareholders Litigation, C.A. No. 15921 (the "Consolidated Action"). In the
designated complaint in the Consolidated Action, the named defendants are:
Robert L. Johnson, John C. Malone, Peter R. Barton, Delano E. Lewis, Sheila
Crump Johnson, Herbert P. Wilkins, Denzel Washington, TCI, Liberty Media
Corporation, and BET. The Consolidated Action focuses on the announcement of an
offer by TCI, Liberty and Robert L. Johnson, the Chief Executive Officer of BET,
to purchase all outstanding shares of BET for $48 per share, alleging that the
proposed $48 per share price was inadequate and that the transaction
contemplated by the offer would constitute a breach of fiduciary duty by the
directors of BET. In March 1998, the parties agreed to a settlement in principle
which is subject to final negotiation and execution of settlement document,
confirmatory discovery, court approval and other matters. Based upon the facts
available, management believes that, although no assurances can be given as to
the outcome of this action, the ultimate disposition of this matter should not
have a material adverse effect upon the financial condition of the Company.
On October 7, 1997, a purported class lawsuit captioned Yvonne
Baskerville v. Robert L. Johnson, et al., Civil Action No. 97ca00778 was filed
in the Superior Court of The District of Columbia. The defendants in the
Baskerville action are: Robert L. Johnson, John C. Malone, Denzel Washington,
Delano E. Lewis, Sheila Crump Johnson, BET, TCI and Liberty Media Corporation.
The Baskerville action is substantially similar to the Consolidated Action. The
Complaint, among other things, alleges Breach of Fiduciary Duty in connection
with a proposed "freeze-out" transaction, where they allege that defendants
intended to take full equity ownership of BET through a merger into a new
entity. The Complaint seeks judgment declaring class action; granting injunctive
relief against consummation of the transaction or order rescinding the proposed
merger transaction; and ordering defendants to account for all damages including
costs and disbursements, attorney fees, and expert fees. By consent of the
parties, proceedings in the Baskerville action have been stayed conditionally.
No prediction can be made at this time as to the outcome of these actions. Based
upon the facts available management believes that, although no assurances can be
given as to the outcome of these actions, the ultimate disposition of this
matter should not have a material adverse effect upon the financial condition of
the Company.
TCG Shareholder Litigation. In December of 1997 and January of 1998, in
the Court of the Chancery of the State of Delaware, New Castle County the
following three actions were filed: Sternberg v. TCI Communications, Inc., et
al., Case No. 16092-NC, Cirillo v. Tele-Communications, Inc., et al., Case No.
16139-NC, and Blain v. Tele-Communications, Inc., et al., Case No. 16161-NC.
Plaintiffs filed suit against the Company and officers, directors, and
controlling shareholders of TCG. These class action complaints were brought on
behalf of the public stockholders of TCG alleging defendants breached fiduciary
duties by proceeding with the proposed merger of TCG with AT&T. The Complaints
allege, among other things, breach of fiduciary duties. The Complaints seek
class certification, injunctive relief, attorney fees, and costs. Plaintiffs did
not demand a jury trial. Based upon the facts available, management believes
that, although no assurances can be given as to the outcome of this action, the
ultimate disposition of this matter should not have a material adverse effect
upon the financial condition of the Company.
I-99
<PAGE> 102
Late Fee Litigation. The Company has been named in a number of
purported and certified class actions in various jurisdictions concerning late
fee charges and practices. Certain cable systems directly or indirectly owned or
managed by the Company charge late fees to customers who do not pay their cable
bills on time. These late fee cases challenge the amount of the late fees and
the practices under which they are imposed. The Plaintiffs raise claims under
state consumer protection statutes, other state statutes, and the common law.
Plaintiffs generally allege that the late fees charged by various cable systems
are not reasonably related to the costs incurred by the cable systems as a
result of the late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. These cases are at various stages
of the litigation process. Based upon the facts available management believes
that, although no assurances can be given as to the outcome of these actions,
the ultimate disposition of these matters should not have a material adverse
effect upon the financial condition of the Company.
Magness Shareholder Litigation. On January 8, 1998, the following
actions were filed in the Court of Chancery of the State of Delaware In and For
New Castle County: Morgan, et al. v. Tele-Communications, Inc., et al., Civil
Action No. 16128-NC; Steiner v. Tele-Communications, Inc., et al., Civil Action
No. 16130-NC; Weisberg v. Tele-Communications, Inc., et al., Civil Action No.
16131-NC. Pan v. Tele-Communications, Inc., et al., Civil Action No. 16133,
Klein v. Tele-Communications, Inc., et al., Civil Action No. 16135, Crandon
Capital Partners v. Tele-Communications, Inc., et al., Civil Action No. 16136
and Deutsch v. Tele-Communications, Inc., et al., Civil Action No. 16148. Also
named as defendants in these cases are John C. Malone, John W. Gallivan, Donne
F. Fisher, Leo J. Hindery, Jr., J.C. Sparkman, Paul A. Gould, Jerome H. Kern,
Kim Magness, and Robert A. Naify. These are derivative shareholder actions
challenging the Magness Estate settlement and the related payment to John C.
Malone. Plaintiffs allege, among other things, the following claims for relief:
breach of fiduciary duties, self-dealing and unjust enrichment, and waste of
Company assets. The Complaints seek repayment of amounts paid for call
agreements, injunctive relief, attorney fees, costs and unspecified compensatory
damages. The plaintiffs have not demanded a jury trial. Based upon the facts
available, management believes that, although no assurances can be given as to
the outcome of this action, the ultimate disposition of this matter should not
have a material adverse effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-100
<PAGE> 103
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
In addition to the TCI Ventures Group Stock described below,
Tele-Communications, Inc. ("TCI" or the "Company") has four other series of
common stock. Tele-Communications, Inc. Series A TCI Group Common Stock, par
value $1.00 per share ("TCI Group Series A Stock") and Tele-Communications, Inc.
Series B TCI Group Common Stock, par value $1.00 per share ("TCI Group Series B
Stock", and together with the TCI Group Series A Stock, the "TCI Group Stock").
The TCI Group Stock is intended to reflect the separate performance of the "TCI
Group," which is substantially comprised of TCI's domestic cable and
communications assets. Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share ("Liberty Group Series B Stock", and together with the Liberty
Group Series A Stock, the "Liberty Group Stock"). The Liberty Group Stock is
intended to reflect the separate performance of TCI's assets which produce and
distribute programming services ("Liberty Media Group").
On August 28, 1997, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue the Tele-Communications, Inc. Series A
TCI Ventures Group Common Stock, par value $1.00 per share (the "TCI Ventures
Group Series A Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series B
Stock," and together with TCI Ventures Group Series A Stock, the "TCI Ventures
Group Stock"). The TCI Ventures Group Stock is intended to reflect the separate
performance of the "TCI Ventures Group," which is comprised of TCI's principal
international assets and businesses and substantially all of TCI's non-cable and
non-programming assets.
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock for up to 188,661,330 shares of TCI Group Series A Stock and up
to 16,266,400 shares of TCI Group Series B Stock, respectively. The exchange
ratio for the Exchange Offers was two shares (as adjusted) of the applicable
series of TCI Ventures Group Stock for each share of the corresponding series of
TCI Group Stock properly tendered up to the indicated maximum numbers. Upon the
September 10, 1997 consummation of the Exchange Offers, 188,661,300 shares of
TCI Group Series A Stock and 16,266,400 shares of TCI Group Series B Stock were
exchanged for 377,322,600 shares of TCI Ventures Group Series A Stock and
32,532,800 shares of TCI Ventures Group Series B Stock, respectively (the "TCI
Ventures Exchange").
Effective February 6, 1998, the Company issued stock dividends to
holders of Liberty Group Stock (the "1998 Liberty Stock Dividend") and TCI
Ventures Group Stock (the "Ventures Stock Dividend"). The 1998 Liberty Stock
Dividend consisted of one share of Liberty Group Stock for every two shares of
Liberty Group Stock owned. The Ventures Stock Dividend consisted of one share
of TCI Ventures Group Stock for every one share of TCI Ventures Group Stock
owned. The 1998 Liberty Stock Dividend and the Ventures Stock Dividend have
been treated as stock splits, and accordingly, all share and per share amounts
presented have been restated to reflect the 1998 Liberty Stock Dividend and the
Ventures Stock Dividend.
II-1
<PAGE> 104
TCI Group Series A Stock, TCI Group Series B Stock, Liberty Group
Series A Stock, Liberty Group Series B Stock, TCI Ventures Group Series A Stock
and TCI Ventures Group Series B Stock are traded on the Nasdaq National Market
Tier of the Nasdaq Stock Market ("Nasdaq") under the symbols TCOMA, TCOMB,
LBTYA, LBTYB, TCIVA and TCIVB, respectively. The table below sets forth the
range of high and low sales prices in United States dollars of shares of common
stock of TCI for the periods indicated as furnished by Nasdaq. The prices have
been rounded up to the nearest eighth, and do not include retail markups,
markdowns, or commissions.
<TABLE>
<CAPTION>
TCI Group Stock
---------------
Series A Series B
------------------- -------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996:
----
First quarter 22-3/8 18-3/8 22-3/4 18-1/2
Second quarter 20-1/8 17-3/8 20-1/2 17-1/2
Third quarter 18-1/2 13-1/8 18 13-3/4
Fourth quarter 15 11-3/8 15 11-5/8
1997:
----
First quarter 14-7/8 11-7/8 14-3/4 12
Second quarter 17-1/8 10-3/4 18 10-1/4
Third quarter 21-1/8 14-1/8 22 15-1/2
Fourth quarter 29-1/8 19-1/2 29-1/2 21
Liberty Group Stock
--------------------
</TABLE>
<TABLE>
<CAPTION>
Series A Series B
------------------- -------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996:
----
First quarter 13 11-1/2 13-7/8 11-5/8
Second quarter 13-7/8 11-1/2 14 12
Third quarter 13-1/8 9-1/4 13-1/4 10-1/4
Fourth quarter 13-1/4 9-7/8 13 10-1/2
1997:
----
First quarter 15-7/8 12 15-1/2 12-3/8
Second quarter 18 12-1/2 17-7/8 12-3/8
Third quarter 20-1/8 15-7/8 19-3/4 16-1/4
Fourth quarter 24-5/8 19-5/8 25 20-1/4
</TABLE>
<TABLE>
<CAPTION>
TCI Ventures Group Stock
-------------------------
Series A Series B
------------------- -------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997:
----
Third quarter (from the TCI
Ventures Exchange through
September 30, 1997) 10-3/4 9-5/8 10-7/8 10-1/8
Fourth quarter 14-7/8 9-7/8 14-3/8 10-1/8
</TABLE>
As of December 31, 1997, there were 6,599 holders of record of TCI
Group Series A Stock, 364 of TCI Group Series B Stock, 5,583 of Liberty Group
Series A Stock, 306 of Liberty Group Series B Stock, 2,077 of TCI Ventures
Group Series A Stock and 127 of TCI Ventures Group Series B Stock (which
amounts do not include the number of stockholders whose shares are held of
record by brokerage houses but include each brokerage house as one
stockholder).
II-2
<PAGE> 105
The Company has not paid cash dividends on its common stock and has no
present intention of so doing. Payment of cash dividends, if any, in the
future will be determined by the Board in light of the Company's earnings,
financial condition and other relevant considerations. The Company is a
holding company and its assets consist almost entirely of investments in its
subsidiaries. As a holding company, the Company's ability to pay dividends on
any classes or series of its stock is dependent on the earnings of, or other
funds available to, the Company's subsidiaries and the distribution or other
payment of such earnings or other funds to the Company in the form of
dividends, loans or other advances, payment or reimbursement of management fees
and expenses and repayment of loans and advances from the Company. Certain of
the Company's subsidiaries are subject to loan agreements that prohibit or
limit the transfer of funds by such subsidiaries to the Company in the form of
dividends, loans, or advances, and require that such subsidiaries' indebtedness
to the Company be subordinate to the indebtedness under such loan agreements.
The amount of net assets of subsidiaries subject to such restrictions exceeds
the Company's consolidated net assets.
On December 16, 1997, the Company granted to an executive officer who
is also a director, in tandem with stock appreciation rights, an option to
purchase 2,800,000 shares (as adjusted) of TCI Ventures Group Series B Common
Stock at an exercise price of $10.37. The grant is subject to shareholder
approval. The Company has not yet filed a registration statement on Form S-8
to register the shares which are issuable upon the exercise of such option.
II-3
<PAGE> 106
Item 6. Selected Financial Data.
The following tables present selected information relating to the
financial condition and results of operations of Tele-Communications, Inc. for
the past five years. The following data should be read in conjunction with the
Company's consolidated financial statements.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996(a) 1995(a) 1994(a) 1993(a)
------- ------ ------ ------ ------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
---------------------------
Property and equipment, net $ 7,679 7,528 7,409 5,876 4,935
Franchise costs, net $15,147 15,436 12,230 9,444 9,197
Total assets $32,323 30,169 25,429 19,148 16,351
Debt $15,250 14,926 13,211 11,162 9,900
Minority interests in equity of
consolidated subsidiaries $ 1,585 1,493 651 429 285
Redeemable securities $ 660 658 478 170 18
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts ("Trust Preferred Securities")
holding solely subordinated debt
securities of TCI Communications, Inc. $ 1,500 1,000 -- -- --
Stockholders' equity $ 4,427 4,178 4,461 2,578 2,010
Common shares outstanding (net of treasury
shares and shares held by
subsidiaries):
Class A common stock -- -- -- 491 403
Class B common stock -- -- -- 85 47
TCI Group Series A Stock 469 579 572 -- --
TCI Group Series B Stock 38 85 85 -- --
Liberty Group Series A Stock 313 (b) 342 (b) 337 (b) -- --
Liberty Group Series B Stock 32 (b) 32 (b) 32 (b) -- --
TCI Ventures Group Series A Stock 377 (c) -- -- -- --
TCI Ventures Group Series B Stock 32 (c) -- -- -- --
</TABLE>
- ---------
(a) Restated - see note 13 to the TCI consolidated financial statements
included in Part II of this report.
(b) Adjusted to give effect to the 1998 Liberty Stock Dividend.
(c) Adjusted to give effect to the Ventures Stock Dividend.
II-4
<PAGE> 107
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------
1997 1996(a) 1995(a) 1994(a) 1993(a)
------- ------- ------- -------- ------
amounts in millions, except per share data
<S> <C> <C> <C> <C> <C>
Summary Statement of Operations Data:
- -------------------------------------
Revenue $ 7,570 8,022 6,506 4,682 3,977
Operating income $ 685 632 542 788 916
Interest expense $(1,160) (1,096) (1,010) (785) (731)
Share of losses of affiliates, other than
Liberty Media Corporation, net $ (930) (450) (213) (64) (90)
Gain (loss) on disposition of assets $ 401 1,593 49 (10) 42
Earnings (loss) from continuing
operations $ (626) 292 (183) 91 (13)
Net earnings (loss) attributable to common
stockholders:
TCI Class A and Class B common stock $ -- -- (78) (b) 83 (15)
TCI Group Stock (537) (799) (112) (c) -- --
Liberty Group Stock 125 1,056 (27) (c) -- --
TCI Ventures Group Stock (256)(d) -- -- -- --
------- ------- ------- ------- -------
$ (668) 257 (217) 83 (15)
======= ======= ======= ======= =======
Basic earnings (loss) attributable to
common stockholders per common share(g):
TCI Class A and Class B common stock -- -- (.12) (b) .15 (.03)
TCI Group Stock $ (.85) (1.20) (.17) (c) -- --
Liberty Group Stock $ .34 2.82 (e) (.07) (c)(e) -- --
TCI Ventures Group Stock $ (.62)(d)(f) -- -- -- --
Diluted earnings (loss) attributable to
common stockholders per common and
potential common share (g):
TCI Class A and Class B common stock $ -- -- (.12) (b) .15 (.03)
TCI Group Stock $ (.85) (1.20) (.17) (c) -- --
Liberty Group Stock $ .31(e) 2.58 (e) (.07) (c)(e) -- --
TCI Ventures Group Stock $ (.62)(d)(f) -- -- -- --
Weighted average common shares
outstanding:
TCI Class A and Class B common stock -- -- 648 (b) 541 433
TCI Group Stock 632 665 656 (c) -- --
Liberty Group Stock 366(e) 374 (e) 369 (c)(e) -- --
TCI Ventures Group Stock 410(d)(f) -- -- -- --
</TABLE>
- ---------------
(a) Restated - see note 13 to the Tele-Communications, Inc. consolidated
financial statements included in Part II of this report.
(b) From January 1, 1995 through August 10, 1995 (on August 10, 1995, TCI
distributed in the form of a dividend, 2.25 shares (as adjusted) of
Liberty Group Stock for each four shares of TCI Group Stock owned,
the "Liberty Distribution").
(c) From the date of the Liberty Distribution through December 31, 1995.
(d) From the date of the TCI Ventures Exchange through December 31, 1997.
(e) Adjusted to give effect to the 1998 Liberty Stock Dividend.
(f) Adjusted to give effect to the Ventures Stock Dividend
(g) Earnings per share have been restated for all periods to reflect the
adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share." See note 3 to TCI's consolidated financial
statements.
II-5
<PAGE> 108
The following tables present selected information relating to the
financial condition and results of operations of TCI Group for the past three
years. The following data should be read in conjunction with TCI Group's
combined financial statements.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996(a) 1995(a)
-------- ------ ------
amounts in millions
Summary Balance Sheet Data:
- ---------------------------
<S> <C> <C> <C>
Property and equipment, net $ 6,942 6,781 6,756
Franchise costs, net $ 15,077 14,793 11,657
Total assets $ 23,578 22,819 19,529
Debt $ 14,106 14,319 12,690
Minority interests in equity of attributed subsidiaries $ 1,048 1,083 237
Redeemable securities $ 660 658 478
Trust Preferred Securities $ 1,500 1,000 --
Combined equity (deficit) $ (802) (764) 468
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1997 1996 1995
------- ------- -------
amounts in millions
<S> <C> <C> <C>
Summary Statement of Operations Data:
- -------------------------------------
Revenue $ 6,429 5,881 4,827
Operating, selling, general and administrative expenses, and
stock compensation $(3,855) (3,842) (2,942)
Depreciation and amortization $(1,427) (1,406) (1,199)
Operating income $ 1,147 596 686
Interest expense $(1,105) (1,029) (969)
Share of losses of affiliates, net $ (90) (79) (3)
Loss before loss of Liberty Media Group and TCI Ventures Group
through the date of the Liberty Distribution and the TCI
Ventures Exchange, respectively $ (150) (506) (187)
Net loss $ (495) (764) (156)
Net loss attributable to common stockholders $ (537) (799) (190)
Basic and diluted loss attributable to common stockholders per
common share (b) $ (.85) (1.20) (.17)
</TABLE>
- -------------
(a) As a result of the TCI Ventures Exchange, the TCI Group combined
financial statements were restated to exclude those assets and
liabilities which, prior to being attributed to TCI Ventures Group in
connection with the issuance of the TCI Ventures Group Stock, had been
attributed to TCI Group. Additionally, the combined financial
statements of TCI Group were restated to reflect the adoption of the
equity method of accounting for an investee. See notes 1 and 12 to
the accompanying combined financial statements of TCI Group.
(b) Earnings per share have been restated for all periods to reflect the
adoption of Statement of Financial Accounting Standards No. 128,
"Earnings per Share." See note 3 to TCI Group's combined financial
statements.
II-6
<PAGE> 109
The following tables present selected information relating to the
financial condition and results of operations of Liberty Media Group for the
past three years. The following data should be read in conjunction with
Liberty Media Group's combined financial statements.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
amounts in millions
<S> <C> <C> <C>
Summary Balance Sheet Data:
- --------------------------
Investments in affiliates, accounted for under the equity
method, and related receivables $ 524 545 299
Investment in Time Warner, Inc. ("Time Warner") $ 3,538 2,017 --
Investment in Turner Broadcasting System, Inc. ("TBS") $ -- -- 945
Other investments, at cost, and related receivables $ 427 82 111
Excess cost over acquired net assets, net $ 194 7 331
Total assets $ 5,039 3,059 2,518
Debt $ 349 2 251
Minority interest in equity of attributed subsidiaries $ 120 1 88
Combined equity $ 2,920 2,397 1,613
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
amounts in millions
<S> <C> <C> <C>
Summary Statement of Operations Data:
- ------------------------------------
Revenue $ 374 1,339 1,441
Cost of sales, operating, selling, general administrative
expenses and stock compensation $ (473) (1,192) (1,437)
Depreciation and amortization $ (12) (61) (98)
Operating income (loss) $ (111) 86 (111)
Share of earnings (losses) of affiliates, net $ (12) 8 (15)
Gain (loss) on dispositions $ 304 1,537 (2)
Net earnings (loss) $ 125 1,056 (56)
Basic earnings (loss) attributable to common stockholders per
common share (a) $ .34 2.82 (.07)
Diluted earnings (loss) attributable to common stockholders per
common and potential common share (a) $ .31 2.58 (.07)
</TABLE>
(a) Earnings per share have been restated for all periods to reflect the
adoption of Statement of Financial Accounting Standards No. 128,
"Earnings per Share." See note 3 to Liberty Media Group's combined
financial statements.
II-7
<PAGE> 110
The following tables present selected information relating to the
financial condition and results of operations of TCI Ventures Group for the
past three years. The following data should be read in conjunction with TCI
Ventures Group's combined financial statements.
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996 1995
-------- ------ -------
amounts in millions
<S> <C> <C> <C>
Summary Balance Sheet Data:
- --------------------------
Investment in Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. (and their respective predecessor) and
PhillieCo, L.P. (collectively, the "PCS Ventures"),
accounted for under the equity method $ 607 830 689
Investment in Telewest Communications plc ("Telewest"),
accounted for under the equity method $ 324 488 550
Investment in other affiliates, accounted for under the
equity method $ 1,166 751 635
Property and equipment, net $ 709 737 449
Franchise cost, net $ 257 926 573
Total assets $ 3,780 4,260 3,447
Debt and capital lease obligations $ 795 726 321
Minority interests in equity of attributed subsidiaries $ 420 412 326
Combined equity $ 2,271 2,511 2,379
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
amounts in millions
<S> <C> <C> <C>
Summary Statement of Operations Data:
- -------------------------------------
Revenue $ 969 926 326
Operating, general and administrative expenses, and stock
compensation $ (957) (818) (284)
Cost of distribution agreement $ (173) -- --
Impairment of intangible assets $ ( 15) -- --
Depreciation and amortization $ (175) (149) (75)
Operating loss $ (350) (51) (33)
Interest expense $ (54) (51) (42)
Share of losses of affiliates, net $ (819) (368) (195)
Net earnings (loss) $ (601) (258) 60
Basic and diluted loss attributable to common stockholders per
common share subsequent to the TCI Ventures Exchange $ (.62)
========
</TABLE>
II-8
<PAGE> 111
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company, TCI Group,
Liberty Media Group and TCI Ventures Group. Such discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto of the Company and the accompanying combined financial statements and
notes thereto of each of the TCI Group, Liberty Media Group and TCI Ventures
Group.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board to
issue two new series of stock, Liberty Group Series A Stock and Liberty Group
Series B Stock. The Liberty Group Stock is intended to reflect the separate
performance of TCI's assets which produce and distribute programming services.
Additionally, the stockholders of TCI approved the redesignation of the
previously authorized Class A and Class B common stock into TCI Group Series A
Stock and TCI Group Series B Stock. The TCI Group Stock is intended to reflect
the separate performance of TCI and its subsidiaries and assets not attributed
to Liberty Media Group or TCI Ventures Group. Such subsidiaries and assets are
comprised primarily of TCI's domestic cable and communications business. On
August 10, 1995, TCI distributed in the form of a dividend, 2.25 shares of
Liberty Group Stock (as adjusted for stock dividends - see below) for each four
shares of TCI Group Stock owned.
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the TCI Ventures Group Stock. The TCI Ventures Group Stock is intended
to reflect the separate performance of TCI Ventures Group, which is comprised
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets.
Prior to stockholder approval to issue the TCI Ventures Group Stock,
TCI commenced the Exchange Offers to exchange shares of TCI Ventures Group
Stock for shares of TCI Group Stock in the ratio of two shares of the
applicable series of TCI Ventures Group Stock in exchange for each share of the
corresponding series of TCI Group Stock properly tendered. On September 10,
1997 the TCI Ventures Exchange was consummated.
Collectively, TCI Group, Liberty Media Group and TCI Ventures Group
are referred to as "Groups" and individually, may be referred to herein as a
"Group." The TCI Group Series A Stock, TCI Ventures Group Series A Stock and
Liberty Group Series A Stock are sometimes collectively referred to herein as
the "Series A Stock," and TCI Group Series B Stock, TCI Ventures Group Series B
Stock and Liberty Group Series B Stock are sometimes collectively referred to
herein as the "Series B Stock."
As a result of the TCI Ventures Exchange, the combined financial
statements of TCI Group were restated to exclude those assets and related
liabilities which, prior to being attributed to TCI Ventures Group in
connection with the issuance of the TCI Ventures Group Stock, had been
attributed to TCI Group.
II-9
<PAGE> 112
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and TCI
Ventures Group for the purpose of preparing their respective combined financial
statements of each such Group, the capital structure of TCI, which encompasses
the TCI Group Stock, Liberty Group Stock and TCI Ventures Group Stock, does not
affect legal title to such assets or responsibility for such 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,
Liberty Group Stock and TCI Ventures Group Stock are common stockholders of TCI
and are subject to risks associated with an investment in TCI and all of its
businesses, assets and liabilities. The redesignation of TCI Group Stock and
issuance of Liberty Group Stock and TCI Ventures Group Stock does not affect
the rights of creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could affect
the combined results of operations or financial condition of the separate
Groups and the market prices of shares of TCI Group Stock, Liberty Group Stock
and TCI Ventures Group Stock. In addition, net losses of any portion of TCI,
dividends or distributions on, or repurchases of, any series of common stock,
and dividends on, or certain repurchases of preferred stock would reduce funds
of TCI legally available for dividends on all series of common stock.
Accordingly, financial information of any one Group should be read in
conjunction with the financial information of TCI and the other Groups.
The common stockholders' equity value of TCI Ventures Group or Liberty
Media Group that, at any relevant time, is attributed to the TCI Group, and
accordingly not represented by outstanding TCI Ventures Group Stock or Liberty
Group Stock, respectively, is referred to as "Inter-Group Interest." Prior to
consummation of the Liberty Distribution and TCI Ventures Exchange, TCI Group
had a 100% Inter-Group Interest in Liberty Media Group and TCI Ventures Group,
respectively. Following consummation of the Liberty Distribution and TCI
Ventures Exchange, TCI Group no longer has Inter-Group Interests in Liberty
Media Group and TCI Ventures Group, respectively. For periods in which an
Inter-Group Interest exists, TCI Group accounts for its Inter-Group Interest in
a manner similar to the equity method of accounting. Following consummation of
the Liberty Distribution and the TCI Ventures Exchange, an Inter-Group Interest
would be created with respect to Liberty Media Group or TCI Ventures Group,
respectively, only if a subsequent transfer of cash or other property from TCI
Group to Liberty Media Group or TCI Ventures Group is specifically designated
by the Board as being made to create an Inter-Group Interest or if outstanding
shares of Liberty Group Stock or TCI Ventures Group Stock are purchased with
funds attributable to TCI Group. Management of TCI believes that generally
accepted accounting principles require that Liberty Media Group or TCI Ventures
Group be consolidated with TCI Group for all periods in which TCI Group held an
Inter-Group Interest in Liberty Media Group or TCI Ventures Group.
Dividends on TCI Group Stock, Liberty Group Stock or TCI Ventures
Group Stock are payable at the sole discretion of the Board out of the lesser
of assets of TCI legally available for dividends or the available dividend
amount with respect to each Group, as defined. Determinations to pay dividends
on TCI Group Stock, Liberty Group Stock or TCI Ventures Group Stock are based
primarily upon the financial condition, results of operations and business
requirements of the applicable Group and TCI as a whole.
II-10
<PAGE> 113
'
All debt incurred or preferred stock issued by TCI and its
subsidiaries is (unless the Board otherwise provides) 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.
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective liquidity
requirements, the cash needs of one Group may exceed the liquidity sources of
such Group. In such circumstances, one of the other Groups may transfer funds
to such Group. 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 could be remitted to TCI Group and certain cash
disbursements of the other Groups could be funded by TCI Group on a daily
basis. Such transfers of funds among the Groups will be reflected as
borrowings or, if determined by the Board, in the case of a transfer from TCI
Group to either Liberty Media Group or TCI Ventures Group, reflected as the
creation of, or increase in, TCI Group's Inter-Group Interest in such Group or,
in the case of a transfer from either Liberty Media Group or TCI Ventures Group
to TCI Group, reflected as a reduction in 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 TCI, 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.
Loans from one Group to another Group generally will 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 policies from time to time, after consideration of
such factors as it deems relevant, including, without limitation, the needs of
TCI, 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 reflect its net loans or
advances to or loans or advances from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect interest
income or expense, as the case may be, associated with such loans or advances
and the respective combined statements of cash flows of the Groups reflect
changes in the amounts of loans or advances deemed outstanding. In the
accompanying historical combined financial statements, net loans or advances
between Groups have been and will continue to be included as a component of
each respective Group's equity.
II-11
<PAGE> 114
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group or TCI Ventures Group resulting from an equity contribution by the
TCI Group to Liberty Media Group or TCI Ventures Group or any decrease in such
Inter-Group Interest resulting from a transfer of funds from Liberty Media
Group or TCI Ventures Group to the TCI Group would be determined by reference
to the market value of the Liberty Group Series A Stock, or the TCI Ventures
Group Series A Stock, respectively, 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 and purchases of shares of TCI
Group Stock, TCI Ventures Group Stock or Liberty Group Stock, the proceeds of
which are attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined financial
statements of TCI Group, TCI Ventures Group or Liberty Media Group,
respectively. All financial impacts of issuances of shares of TCI Ventures
Group Stock or Liberty Group Stock, the proceeds of which are attributed to TCI
Group in respect of a reduction in TCI Group's Inter-Group Interest in TCI
Ventures Group or Liberty Media Group, respectively, will be to such extent
reflected in the combined financial statements of TCI Group. Financial impacts
of dividends or other distributions on TCI Group Stock, TCI Ventures Group
Stock or Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that dividends or
other distributions on TCI Ventures Group Stock or Liberty Group Stock will (if
at the time there is an Inter-Group Interest in TCI Ventures Group or Liberty
Media Group, respectively) result in TCI Group being credited, and TCI Ventures
Group or Liberty Media 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 or Liberty Group
Stock and a fraction of the numerator of which is TCI Ventures Group or Liberty
Media Group "Inter-Group Interest Fraction" and the denominator of which is TCI
Ventures Group or Liberty Media Group "Outstanding Interest Fraction" (both as
defined). Financial impacts of repurchases of TCI Ventures Group Stock or
Liberty Group Stock, the consideration for which is charged to TCI Group, will
be to such extent reflected in the combined financial statements of TCI Group
and will result in an increase in the TCI Group's Inter-Group Interest in TCI
Ventures Group or Liberty Media Group, respectively.
II-12
<PAGE> 115
Magness Settlement
On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI. Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively, the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares exceeds the Investment
Bankers' cost, Option Shares with a fair value equal to the difference between
the market value and cost will be segregated from the other Option Shares in an
account at the Investment Bankers. If the market value of the Option Shares is
less than the Investment Bankers' cost, the Company, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures Group
Series A Stock or, subject to certain conditions, with cash or letters of
credit. In addition, the Company is required to pay the Investment Bankers a
quarterly fee equal to the London Interbank Offered Rate ("LIBOR") plus 1% on
the Sale Price, as adjusted for payments made by the Company pursuant to any
quarterly settlement with the Investment Bankers. Due to the Company's ability
to settle quarterly price fluctuations and fees with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock the Company records all amounts
received or paid under this arrangement as increases or decreases,
respectively, to equity. During the fourth quarter of 1997, the Company
repurchased 4,000,000 shares of TCI Group Series A Stock from one of the
Investment Bankers for an aggregate cash purchase price of $66 million.
Additionally, as a result of the Exchange Offers and certain open market
transactions, the Investment Bankers disposed of 4,210,308 shares of TCI Group
Series A Stock and acquired 23,407,118 shares (as adjusted for the Ventures
Stock Dividend) of TCI Ventures Group Series A Stock during the last half of
1997 such that the Option Shares were comprised of 16,402,082 shares of TCI
Group Series A Stock and 23,407,118 shares (as adjusted for the Ventures Stock
Dividend) of TCI Ventures Series A Stock at December 31, 1997. At December 31,
1997, the market value of the Option Shares exceeded the Investment Bankers'
cost by $325 million. In connection with the Exchange and Sale, Dr. Malone,
TCI's Chairman and Chief Executive Officer, agreed to forgo the exercise of
certain option rights and in consideration, TCI granted to Dr. Malone the
right (the "Malone Right") to acquire 30,545,864 shares of TCI Group Series B
Stock.
On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness Estate.
In connection with the Magness Settlement, portions of the Exchange
and Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock
and 11,666,506 shares (as adjusted for the Ventures Stock Dividend) of TCI
Ventures Group Series A Stock were returned to TCI as authorized but unissued
shares. TCI then issued to the Magness Estate 10,017,145 shares of TCI Group
Series B Stock and 12,034,298 shares (as adjusted for the Ventures Stock
Dividend) of TCI Ventures Series B Stock.
II-13
<PAGE> 116
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire the Malones' high-voting shares,
currently consisting of an aggregate of approximately 60 million shares (as
adjusted for stock dividends) of Series B Stock (the "High-Voting Shares"),
upon Dr. Malone's death or upon a contemplated sale of the High-Voting Shares
(other than a minimal amount) to third persons. In either such event, TCI has
the right to acquire the shares at a maximum price equal to the then relevant
market price of shares of "low-voting" Series A Stock plus a ten percent
premium. The Malones also agreed that if TCI were ever to be sold to another
entity, then the maximum premium that the Malones would receive on their
High-Voting Shares would be no greater than a ten percent premium over the
price paid for the relevant shares of Series A Stock. TCI paid $150 million to
the Malones for agreeing to the terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into
by the Malones, including a call on the shares owned by the Magness Family upon
Dr. Malone's death) (the "Magness Call Agreement") on the Magness Family's
aggregate of approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement. Additionally, on February 9, 1998, the Magness
Family entered into a shareholders' agreement (the "Shareholders' Agreement")
with the Malones and TCI under which (i) the Magness Family and the Malones
agree to consult with each other in connection with matters to be brought to
the vote of TCI's shareholders, subject to the proviso that if they cannot
mutually agree on how to vote the shares, Dr. Malone has an irrevocable proxy
to vote the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for the Board and Dr. Malone has agreed to vote
his High Voting Shares for such nominee and (iii) certain "tag along rights"
have been created in favor of the Magness Family and certain "drag along
rights" have been created in favor of the Malones. In addition, the Malone
Right granted by TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group
Series B Stock has been reduced to an option to acquire 14,511,570 shares of
TCI Group Series B Stock. Pursuant to the terms of the Shareholders'
Agreement, the Magness Family has the right to participate in the reduced
Malone Right on a proportionate basis with respect to 12,406,238 shares of the
14,511,570 shares subject to the Malone Right.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") will be
reflected as a $274 million reduction of additional paid-in capital. The Call
Payments will be allocated to each of the Groups based upon the number of
shares of each Group (before giving effect to the 1998 Liberty Stock Dividend
and the Ventures Stock Dividend) that were subject to the Malone Call Agreement
and the Magness Call Agreement. Accordingly, $134 million, $64 million and $76
million of the Call Payments will be allocated to TCI Group, Liberty Media
Group and TCI Ventures Group, respectively.
Inflation
Inflation has not had a significant impact on TCI's results of
operations during the three-year period ended December 31, 1997.
II-14
<PAGE> 117
Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard No. 128, Earnings Per Share, ("SFAS 128") in
February of 1997. SFAS 128 establishes new computation, presentation and
disclosure requirements for earnings per share ("EPS"). SFAS 128 requires
companies with complex capital structures to present basic and diluted EPS.
Basic EPS is measured as the income or loss available to common shareholders
divided by the weighted average outstanding common shares for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., convertible securities, options,
etc.) as if they had been converted at the beginning of periods presented.
Potential common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from diluted
EPS. The Company adopted SFAS 128 as of December 31, 1997 and has restated all
prior period EPS data, as required. SFAS 128 did not have a material impact on
EPS for all periods presented.
During 1997, the FASB also issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and displaying of comprehensive income and
its components in the financial statements. It does not, however, require a
specific format for the statement, but requires the Company to display an
amount representing total comprehensive income for the period in that financial
statement. The Company is in the process of determining its preferred format.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Year 2000
During 1997, the Company began an enterprise-wide comprehensive review
of its computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information. The
systems being evaluated include all internal use software and devices and those
systems and devices that manage the distribution of the Company's, as well as
third parties' products. Additionally, the Company has initiated a program of
communications with its significant suppliers, customers and affiliated
companies to determine the readiness of these third parties and the impact on
the Company as a consequence of their own year 2000 issues.
Over the past three years, the Company began an effort to convert a
substantial portion of its financial applications to commercial products which
are anticipated to be year 2000 ready, or to outsource portions of its
financial applications to third party vendors who are expected to be year 2000
ready. Notwithstanding such effort, the Company is in the process of
finalizing its assessment of the impact of year 2000. The Company is utilizing
both internal and external resources to identify, correct or reprogram, and
test systems for year 2000 readiness. To date, the Company has inventoried
substantially all of its cable systems and is currently evaluating the results
of such inventory. The Company expects that it will have to modify or replace
certain portions of its cable distribution plant, although the Company has not
yet completed its assessment. Confirmations have been received from certain
primary suppliers indicating that they are either year 2000 ready or have plans
in place to ensure readiness. As part of the Company's assessment of its year
2000 issue, it is evaluating the level of validation it will require of third
parties to ensure their year 2000 readiness. The Company's manual assessment
of the impact of the year 2000 date change should be complete by mid-1998.
II-15
<PAGE> 118
Management of the Company has not yet determined the cost associated
with its year 2000 readiness efforts and the related potential impact on the
Company's results of operations. Amounts expended to date have not been
material, although there can be no assurance that costs ultimately required to
be paid to ensure the Company's year 2000 readiness will not have an adverse
effect on the Company's financial position. Additionally, there can be no
assurance that the systems of other companies on which the Company relies will
be converted in time or that any such failure to convert by another company will
not have an adverse effect on the Company's financial condition or position.
SUMMARY OF OPERATIONS
GENERAL
Summarized operating data with respect to TCI is presented below for
the indicated periods:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 (a) 1995(a)
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 7,570 8,022 6,506
Operating, selling, general and administrative expenses (4,595) (5,746) (4,518)
Stock compensation (488) 13 (57)
Cost of distribution agreement (173) -- --
Impairment of intangible assets (15) -- --
Restructuring charges -- (41) (17)
Depreciation and amortization (1,614) (1,616) (1,372)
--------- --------- ---------
Operating income 685 632 542
Interest expense (1,160) (1,096) (1,010)
Share of losses of affiliates, net (930) (450) (213)
Gain on dispositions of assets and sale of stock 573 1,605 337
Other, net (28) (128) 33
--------- --------- ---------
Earnings (loss) before income taxes (860) 563 (311)
Income tax benefit (expense) 234 (271) 128
--------- --------- ---------
Net earnings (loss) $ (626) 292 (183)
========= ========= =========
</TABLE>
- ---------------
(a) Restated - see note 13 to the accompanying consolidated financial
statements of TCI.
II-16
<PAGE> 119
The Company's domestic cable and communications businesses and assets
are included in TCI Group, and the Company's programming businesses and assets
are included in Liberty Media Group. The Company's principal international
businesses and assets and the Company's remaining non-cable and non-programming
domestic businesses and assets are included in TCI Ventures Group. The operating
results of each of the TCI Group, Liberty Media Group and TCI Ventures Group are
separately discussed below.
TCI GROUP
TCI Group operates principally in the domestic cable and communications
industry. 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 TCI Group. Other items of
significance are discussed under separate captions below.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------
1997 1996 (a) 1995 (a)
-------------------- -------------------- --------------------
dollar amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue 100% $ 6,429 100% $ 5,881 100% $4,827
Operating expenses 36 (2,293) 38 (2,230) 35 (1,686)
Selling, general and administrative expenses 21 (1,370) 28 (1,635) 25 (1,216)
Stock compensation 3 (192) -- 23 1 (40)
Restructuring charges -- -- -- (37) -- --
Depreciation and amortization 22 (1,427) 24 (1,406) 25 (1,199)
------- ------- ------- ------- ------- -------
Operating income 18% $ 1,147 10% $ 596 14% $ 686
======= ======= ======= ======= ======= =======
</TABLE>
- ------------
(a) Restated - see notes 1 and 12 to the accompanying combined financial
statements of TCI Group.
The operation of TCI Group's cable television systems is regulated at
the federal, state and local levels. The Cable Communications Policy Act of
1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") and the Telecommunications Act
of 1996 (the "1996 Telecom Act" and together with the 1992 Cable Act, the
"Cable Acts") established rules under which TCI Group's basic and tier service
rates and its equipment and installation charges (the "Regulated Services") are
regulated if a complaint is filed by a customer or if the appropriate franchise
authority is certified by the Federal Communications Commission ("FCC") to
regulate rates. At December 31, 1997, approximately 71% of TCI Group's basic
customers were served by cable television systems that were subject to such
rate regulation.
During the year ended December 31, 1997, 73% of TCI Group's revenue
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 TCI Group's ability to increase its service
rates.
II-17
<PAGE> 120
TCI Group has completed a number of acquisitions during the three-year
period ended December 31, 1997. The most significant of such acquisitions was
consummated on July 31, 1996 when TCI Group acquired from Viacom, Inc. an
entity that owned cable television assets valued at $2.326 billion at the
acquisition date. Upon consummation of such acquisition (the "Viacom
Acquisition"), the acquired entity was renamed TCI Pacific Communications, Inc.
("TCI Pacific"). For additional information concerning the Viacom Acquisition,
see note 6 to the accompanying combined financial statements of TCI Group. The
following table sets forth summary information with respect to the operating
results of TCI Pacific that have been included in TCI Group's results of
operations since the July 1, 1996 acquisition date (amounts in millions):
<TABLE>
<CAPTION>
Year ended Five months ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenue $ 509 216
Operating costs and expenses before
depreciation and amortization (295) (133)
Depreciation and amortization (121) (45)
----------- -------------
Operating income $ 93 38
=========== =============
</TABLE>
Through December 4, 1996, TCI Group had an investment in Primestar
Partners L.P. ("Primestar"). Primestar provided programming and marketing
support to each of its cable partners who provided satellite television service
to their customers. On December 4, 1996, TCI 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 TCI Group's interest in Primestar, TCI Group's business of
distributing Primestar programming and two communications satellites. As a
result of the Satellite Spin- off, Satellite's operations subsequent to
December 4, 1996 are not consolidated with those of TCI Group.
The following table sets forth summary information with respect to the
operating results of Satellite for the period from January 1, 1996 through date
of the Satellite Spin-off (amounts in millions):
<TABLE>
<S> <C>
Revenue $ 377
Operating expenses (373)
Depreciation (166)
-----------
Operating income $ (162)
===========
</TABLE>
TCI Group's revenue increased 9% and 22% for the years ended December
31, 1997 and 1996, respectively, as compared to the prior year. Exclusive of
the effects of acquisitions, the Satellite Spin-off and another disposition,
revenue from TCI Group's customers accounted for 3% of such 1997 increase in
revenue, primarily as a result of a 7% increase in basic revenue and a 4%
decrease in premium revenue. TCI Group experienced a 9% increase in its
average basic rate, a 1% decrease in the number of average basic customers, a
7% increase in its average premium rate and an 11% decrease in the number of
average premium subscriptions. In addition, TCI Group's revenue increased 9%
due to acquisitions and decreased 6% due to the Satellite Spin-off and another
disposition. Advertising sales and other revenue accounted for the remaining
3% increase in revenue.
II-18
<PAGE> 121
Exclusive of the effects of acquisitions, revenue from TCI Group's
customers accounted for 8% of such 1996 increase in revenue, primarily as a
result of a 10% increase in basic revenue and a 1% decrease in premium revenue.
TCI Group experienced an 8% increase in its average basic rate, a 4% increase
in the number of average basic customers, an 11% decrease in its average
premium rate and an 11% increase in the number of average premium
subscriptions. In addition, TCI Group's revenue increased 8% due to
acquisitions and increased 4% due to an increase in TCI Group's satellite
customers through the date of the Satellite Spin-off. Advertising sales and
other revenue accounted for the remaining 2% increase in revenue.
Operating expenses increased 3% and 32% for the years ended December
31, 1997 and 1996, respectively. Exclusive of the effects of acquisitions, the
Satellite Spin-off and another disposition, such expenses increased 5% and 20%,
respectively. Programming expenses accounted for the majority of such
increases. TCI Group cannot determine whether and to what extent increases in
the cost of programming will affect its future operating costs. However, due to
TCI Group's obligations under a 25 year affiliation agreement (the "EMG
Affiliation Agreement") with Encore Media Group LLC ("Encore Media Group"), a
subsidiary of TCI that is a member of the Liberty Media Group, it is anticipated
that TCI Group's programming costs with respect to the "STARZ!" and "Encore"
premium services will increase in 1998 and future periods. See note 14 to the
accompanying combined financial statements of TCI Group.
Selling, general and administrative expenses decreased 16% and
increased 34% for the years ended December 31, 1997 and 1996, respectively.
Exclusive of the effects of acquisitions, the Satellite Spin-off and another
disposition, such expenses decreased 6% and increased 17%, respectively. The
1997 decrease is due primarily to lower marketing costs due primarily to launch
and other incentives from programming suppliers, a reduction in salaries and
related payroll expenses due to work force reductions in the fourth quarter of
1996 and other reductions in general and administrative expenses in 1997. The
1996 increase is due primarily to an increase in salaries and related payroll
expenses, as well as increased marketing and general and administrative
expenses.
During the fourth quarter of 1996, TCI Group restructured certain of
its operating and accounting functions. In connection with such restructuring,
TCI Group recognized a charge of $37 million related primarily to work force
reductions. Through December 31, 1997, $24 million of such charge had been
paid.
Depreciation expense decreased 4% and increased 20% for the years
ended December 31, 1997 and 1996, respectively. The 1997 decrease represents
the net effect of a decrease due to the Satellite Spin-off and another
disposition that more than offset increases attributable to acquisitions and
capital expenditures. The 1996 increase is attributable to acquisitions and
capital expenditures.
Amortization expense increased 14% and 12% for the years ended
December 31, 1997 and 1996, respectively. Such increases are primarily
attributable to the effects of acquisitions.
Certain corporate general and administrative costs are charged to
Liberty Media Group and 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
would approximate the costs Liberty Media Group and TCI Ventures Group would
incur for comparable services on a stand-alone basis. During the years ended
December 31, 1997, 1996 and 1995, Liberty Media Group was allocated $3 million
per year and TCI Ventures Group was allocated $10 million, $8 million and $4
million, respectively, in corporate general and administrative costs by TCI
Group.
II-19
<PAGE> 122
TCI Group records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by TCI to certain TCI
Group employees and members of the Board. The amount of expense associated
with stock compensation is based on the vesting of the related stock options
and stock appreciation rights and the market price of the underlying common
stock as of the date of the accompanying combined financial statements of TCI
Group. The expense associated with stock appreciation rights is subject to
future adjustment based upon market value fluctuation and, ultimately, on the
final determination of market value when the rights are exercised.
Other Income and Expenses
TCI Group's interest expense increased $76 million or 7% from 1996 to
1997 and $60 million or 6% from 1995 to 1996. The increase in 1997 is
primarily the result of higher average debt balances, as a result of the Viacom
Acquisition on July 31, 1996. The 1996 increase is the net result of higher
average debt balances, partially offset by a decrease due to a lower weighted
average interest rate. TCI Group's weighted average interest rate on borrowings
was 7.7%, 7.7% and 8.1% during 1997, 1996 and 1995, respectively.
During the years ended December 31, 1997 and 1996, TCI Group
purchased, in the open market, certain notes payable which had an aggregate
principle balance of $409 million and $904 million, respectively. Fixed
interest rates on notes payable ranged from 8.75% to 10.13% for purchases made
during 1997, and ranged from 7.88% to 10.44% for purchases made during 1996.
In connection with such purchases, TCI Group recognized losses on early
extinguishment of debt of $39 million and $62 million during the years ended
December 31, 1997 and 1996, respectively. Such losses related to prepayment
penalties amounting to $33 million and $60 million for the years ended December
31, 1997 and 1996, respectively, and the retirement of deferred loan costs.
Also, during the year ended December 31, 1996, certain TCI
subsidiaries attributed to TCI Group terminated, at such attributed
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, TCI Group
recognized a loss on early extinguishment of debt of $9 million related to the
retirement of deferred loan costs.
TCI Group's investments in affiliates are comprised of limited
partnerships and other entities that are primarily engaged in the domestic cable
business. TCI Group's share of losses of affiliates were $90 million, $79
million and $3 million in 1997, 1996 and 1995, respectively. The 1997 increase
is primarily due to TCI Group's share of losses of a 49%-owned cable television
partnership that was acquired by TCI Group in July 1996. The 1996 increase is
primarily due to TCI Group's share of (i) a 1996 nonrecurring charge by an
equity investee to recognize a decline in the market value of certain
securities and (ii) the 1996 losses of the aforementioned 49%-owned cable
television partnership.
Minority interests in earnings of consolidated subsidiaries aggregated
$168 million, $82 million and $3 million for the years ended December 31, 1997,
1996 and 1995, respectively. The majority of the 1997 and 1996 amounts
represent the accrual of dividends on the Trust Preferred Securities issued in
1997 and 1996 and the accrual of dividends on certain preferred securities
issued in August 1996 by TCI Pacific in connection with the Viacom Acquisition.
See notes 6 and 10 to the accompanying combined financial statements of TCI
Group.
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<PAGE> 123
Net Loss
As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI Group's net loss (before earnings (loss) of
Liberty Media Group and TCI Ventures Group and preferred stock dividend
requirements) of $150 million for the year ended December 31, 1997 changed by
$356 million, as compared to TCI Group's net loss (before earnings (loss) of
Liberty Media Group and TCI Ventures Group and preferred stock dividend
requirements) of $506 million for the year ended December 31, 1996, and (ii)
TCI Group's net loss (before earnings (loss) of Liberty Media Group and TCI
Ventures Group and preferred stock dividend requirements) of $506 million for
the year ended December 31, 1996 changed by $319 million, as compared to TCI
Group's net loss (before earnings (loss) of Liberty Media Group and TCI
Ventures Group and preferred stock dividend requirements) of $187 million for
the year ended December 31, 1995.
LIBERTY MEDIA GROUP
Liberty Media Group's assets include businesses which provide
programming services including production, acquisition and distribution through
all available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products. Liberty
Media Group's assets also include businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing. A significant portion of Liberty
Media Group's operations are conducted through corporations and partnerships in
which Liberty Media Group holds a 20%-50% ownership interest. As Liberty Media
Group generally accounts for such ownership interests using the equity method
of accounting, the financial condition and results of operations of such
entities are not reflected on a combined basis within Liberty Media Group's
combined financial statements.
During July 1997, Liberty Media Group, TCI Group and a corporation
which held the 10% minority interest in Encore Media Corporation ("EMC") that
Liberty Media Group did not already own entered into a series of transactions
pursuant to which the businesses of "Encore," a movie premium programming
service, and "STARZ!," a first-run movie premium programming service, were
contributed to Encore Media Group. Upon completion of the transaction, Liberty
Media Group owned 80% of Encore Media Group and TCI Group owned the remaining
20%. In connection with these transactions, the 10% minority interest in EMC
was exchanged for approximately 2.4 million shares of Liberty Group Series A
Stock, which was accounted for as an acquisition of a minority interest.
Liberty Media Group received its 80% ownership interest in Encore
Media Group in exchange for (i) the contribution of its 49.9% interest in QE+
Ltd. ("QE+"), a limited partnership which distributed STARZ! prior to the
formation of Encore Media Group, (ii) the contribution of EMC, (iii) the
issuance of a $307 million note payable to TCI Group (the "EMG Promissory
Note"), (iv) the cancellation and forgiveness of amounts due for certain
services provided to QE+ equal to 4% of the gross revenue of QE+ (the "STARZ
Content Fees") and (v) the termination of an option to increase Liberty Media
Group's ownership interest in QE+.
TCI Group received the remaining 20% interest in Encore Media Group
and the aforementioned consideration from Liberty Media Group in exchange for
the contribution of TCI Group's 50.1% ownership interest in QE+ and certain
capital contributions made by TCI Group to QE+. In addition, TCI Group entered
into the EMG Affiliation Agreement pursuant to which TCI Group will pay monthly
fixed amounts in exchange for unlimited access to all of the existing Encore
and STARZ! services.
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<PAGE> 124
Upon formation of Encore Media Group, the operations of STARZ! are
included in the combined financial results of Liberty Media Group. The EMG
Promissory Note is included in amounts due to related parties.
Effective December 31, 1997, Liberty Media Group and TCI Group agreed
to amend the above transactions. Pursuant to the amendment, the above
described series of transactions were rescinded, retroactive to July 1, 1997.
Such rescission was given effect as of December 31, 1997 for financial
reporting purposes. Simultaneously, Liberty Media Group and TCI Group entered
into a new agreement whereby the EMG Affiliation Agreement was amended to
permanently reduce the monthly fixed amounts for the life of the contract, TCI
Group's 20% ownership interest in Encore Media Group was eliminated and the EMG
Promissory Note was reduced by $32 million. The amounts to be paid to Encore
Media Group pursuant to the EMG Affiliation Agreement were reduced to amounts
which reflect current market prices.
Due to the related party nature of the above-described transactions,
the $133 million excess of the consideration paid over the carryover basis of
the assets transferred (including a deferred tax asset of $98 million) was
reflected as a decrease to combined equity. Subsequent to the amendment, 100%
of the operations of Encore Media Group are included in the combined financial
statements of Liberty Media Group. See note 5 to the accompanying combined
financial statements of Liberty Media Group.
Effective July 11, 1997, pursuant to an Agreement and Plan of Merger,
dated as of February 6, 1997, as amended (the "DMX Merger Agreement"), by and
among TCI, TCI Music Inc. ("TCI Music"), TCI Merger Sub, a wholly-owned
subsidiary of TCI Music ("Merger Sub") and DMX Inc. ("DMX"), Merger Sub was
merged with and into DMX, with DMX as the surviving corporation (the "DMX
Merger"). As a result of the DMX Merger, stockholders of DMX became
stockholders of TCI Music.
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<PAGE> 125
Effective with the DMX Merger, TCI beneficially owned approximately
45.7% of the outstanding shares of the Series A Common Stock, $.01 par value
per share, of TCI Music (the "TCI Music Series A Common Stock") and 100% of the
outstanding shares of Series B Common Stock, $.01 par value per share, of TCI
Music (the "TCI Music Series B Common Stock," and together with the TCI Music
Series A Common Stock, the "TCI Music Common Stock"), which represented 89.6%
of the equity and 98.7% of the voting power of TCI Music. Simultaneously with
the DMX Merger, Liberty Media Group acquired the TCI Music Series B Common
Stock and 2.6 million shares of the TCI-owned TCI Music Series A Common Stock
by issuing an $80 million promissory note (the "Music Note") to TCI and
assuming the obligation under a rights agreement among TCI, TCI Music and the
rights agent (the "Rights Agreement") whereby TCI granted to each stockholder
who became a stockholder of TCI Music pursuant to the DMX Merger, one right
(the "Right") with respect to each whole share of TCI Music Series A Common
Stock acquired by such shareholder in the DMX Merger. Each Right entitles the
holder to require TCI to purchase from such holder one share of TCI Music
Series A Common Stock for $8.00 per share, subject to reduction by the
aggregate amount per share of any dividend and certain other distributions, if
any, made by TCI Music to its stockholders, and, payable at the election of
TCI, in cash, a number of shares of TCI Group Series A Stock, having an
equivalent value or a combination thereof, if during the one-year period
beginning on the effective date of the DMX Merger, the price of TCI Music
Series A Common Stock does not equal or exceed $8.00 per share for a period of
at least 20 consecutive trading days. Following the above-described
transaction, Liberty Media Group holds TCI Music Common Stock, which when
combined with the TCI Music Common Stock received by Liberty Media Group in the
DMX Merger, represented approximately 86% of the equity and 98% of the voting
power of TCI Music. Therefore, TCI Music was included in the combined
financial statements of Liberty Media Group as of the date of the DMX Merger.
Due to the related party nature of the transaction, the $85 million excess of
the consideration paid over the carryover basis of the TCI Music Common Stock
acquired by Liberty Media Group from TCI was reflected as a decrease to
combined equity.
The estimated aggregate fair value of the consideration issued to
entities not controlled by TCI (the "Unaffiliated Stockholders") in the DMX
Merger and the carryover basis of the consideration issued to entities
controlled by TCI has been allocated to excess cost as the net book values of
DMX's assets and liabilities approximated their respective fair values at the
acquisition date. The Music Note is reflected in amounts due to related
parties. See note 10 to the accompanying combined financial statements of
Liberty Media Group.
On December 16, 1997, shareholders of the Box Worldwide, Inc. ("The
Box Worldwide") voted to approve an Agreement and Plan of Merger dated as of
August 12, 1997 (the "Box Merger"),pursuant to which The Box Worldwide became a
wholly-owned subsidiary of TCI Music and each outstanding share of common stock
of The Box Worldwide was converted into the right to receive .07 of a share of
TCI Music Preferred Stock ("TCI Music Preferred"). Each share of TCI Music
Preferred is convertible into 3 shares of TCI Music Series A Common Stock
without an associated Right.
Effective December 31, 1997, shareholders of Paradigm Music
Entertainment Company ("Paradigm") voted to approve an Agreement and Plan of
Merger dated as of December 8, 1997 (the "Paradigm Merger"), pursuant to which
Paradigm became a wholly-owned subsidiary of TCI Music and shareholders of
Paradigm received 0.61 restricted shares of TCI Music Series A Common Stock,
without an associated Right, for each share of Paradigm common stock held. The
acquisitions of The Box Worldwide and Paradigm were accounted for by the
purchase method. Accordingly, the results of operations of such acquired
entities have been included in the combined financial results of Liberty Media
Group since their respective dates of acquisition.
II-23
<PAGE> 126
Effective April 1, 1996, United Video Satellite Group, Inc. ("UVSG"),
a subsidiary of TCI and a member of the TCI Ventures Group, and Netlink USA
("Netlink"), a subsidiary of TCI and a member 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 satellite
business is no longer included in the combined financial statements of Liberty
Media Group. Superstar/Netlink is accounted for using the equity method.
As of April 29, 1996, Liberty Media Group, The News Corporation
Limited ("News Corp.") and Tele-Communications International, Inc. ("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 Fox/Liberty Networks 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 a distribution of
$350 million in cash. No gain or loss was recognized in connection with the
formation of Fox Sports.
Internationally, News Corp. and Liberty/TINTA LLC ("Liberty/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 America 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. The formation of Liberty/TINTA was recorded at carryover basis
and no gain was recognized.
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 "Silver King 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 Silver King 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 Silver King 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").
II-24
<PAGE> 127
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 and voting power
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. Pursuant
to an Exchange Agreement between Liberty Media Group and Silver King, the
shares of HSN held by Liberty Media Group following the HSN Merger are
mandatorily exchangeable (the "Exchange Agreement") from time to time for
shares of common stock and Class B common stock of Silver King (in the same
ratio as the merger ratio in the HSN Merger) either upon the occurrence of
certain events or changes in laws, rules or regulations which would entitle
Liberty Media Group to own directly a greater number of shares of Silver King
or in connection with the sale of the shares of Silver King to be received in
the exchange to a third party who would be entitled to own such shares under
applicable law. If all shares of Silver King stock issuable pursuant to the
Contingent Right and the Exchange Agreement were issued, Liberty Media Group's
beneficial ownership of Silver King stock would increase from 21.37% to
approximately 36% of the outstanding common equity (with such shares and the
shares owned by BDTV-I and BDTV-II (and collectively with BDTV III INC.,
"BDTV") representing approximately 77% of the total voting power of the Silver
King common equity).
As a result of the HSN Merger, HSN is no longer included in the
combined 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, as well as a direct interest in HSN which would be exchangeable into
shares of Silver King. Accordingly, HSN and BDTV are accounted for using the
equity method. Subsequent to the HSN Merger, the surviving corporation changed
its name to HSN, Inc. ("HSNI").
II-25
<PAGE> 128
Summary of Operations
Liberty Media Group's programming services include production,
acquisition and distribution through all available formats and media of branded
entertainment, educational and informational programming and software,
including multimedia products ("Entertainment and Information Programming
Services"). Through December 20, 1996 (the date of the HSN Merger), Liberty
Media Group was also engaged in electronic retailing, direct marketing,
advertising sales relating to programming services, infomercials and
transaction processing ("Electronic Retailing Services"). To enhance the
reader's understanding, separate financial data has been provided below for
Entertainment and Information Programming Services and for Electronic Retailing
Services, which includes a retail function. The table below sets forth, for the
periods indicated, certain financial information and the percentage
relationship that certain items bear to revenue. This summary provides trend
data related to the normal recurring operations of Liberty Media Group.
Corporate expenses have been reflected separately in the following table.
Liberty Media Group holds significant equity investments, the results of which
are not a component of operating income, but are discussed below under "Other
Income and Expense". Other items of significance are discussed separately
below.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------ ----------------------- ------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Entertainment and Information
- -----------------------------
Programming Services
- --------------------
Revenue 100% $ 374,223 100% $ 355,242 100% $ 521,050
Operating, selling, general and
administrative (83)% (310,845) (72)% (257,601) (91)% (475,533)
Stock compensation (16)% (60,747) (6)% (20,142) (1)% (2,183)
Depreciation and amortization (3)% (12,248) (7)% (23,676) (10)% (54,688)
--------- --------- --------- --------- --------- ---------
Operating income (loss) (2)% $ (9,617) 15% $ 53,823 (2)% $ (11,354)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------ ----------------------- ------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Electronic Retailing Services
- -----------------------------
Net sales N/A N/A 100% $ 984,117 100% $ 919,796
Cost of sales N/A N/A (61)% (605,116) (66)% (602,849)
Operating, selling, general and
administrative N/A N/A (31)% (305,681) (39)% (359,130)
Stock compensation N/A N/A -- -- -- 758
Depreciation and amortization N/A N/A (4)% (36,891) (4)% (43,249)
--------- --------- --------- ---------
Operating income (loss) N/A N/A 4% $ 36,429 (9)% $ (84,674)
--------- --------- --------- ---------
Corporate expenses
- ------------------
Selling, general and administrative
$ (8,552) $ (6,484) $ (4,743)
Stock compensation (93,115) 2,789 (10,261)
Depreciation and amortization (116) (125) (74)
--------- -------- --------
Operating loss $(101,783) $ (3,820) $(15,078)
========= ======== ========
</TABLE>
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<PAGE> 129
Entertainment and Information Programming Services
As of April 1, 1996, upon formation of Superstar/Netlink, Netlink's
retail operations were no longer included in the combined financial results of
Liberty Media Group. Similarly, effective April 29, 1996, Liberty Media Group's
regional sports programming businesses were no longer included in the combined
financial results of Liberty Media Group. In addition, effective January 1,
1997, the operations for TV Network Corporation were discontinued and,
therefore, revenue from such operations was not realized in 1997. However,
beginning July 1, 1997, upon formation of Encore Media Group, the operations of
STARZ! are included in the combined financial results of Liberty Media Group.
And, as of July 11, 1997 the operations of TCI Music are also included in the
combined financial results of Liberty Media Group. Consequently, the amounts in
the table above are not comparable year to year. The following table presents
adjustments to remove the effects of the aforementioned acquisitions and
dispositions.
<TABLE>
<CAPTION>
Year ended December 31, 1997
------------------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------ ---------------- ------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 374,223 (126,568) 247,655
Operating, selling, general and
administrative expenses (310,845) 164,950 (145,895)
Stock compensation (60,747) 294 (60,453)
Depreciation and amortization (12,248) 7,226 (5,022)
------------ ------------- ------------
Operating income (loss) $ (9,617) 45,902 36,285
============ ============= ============
</TABLE>
II-27
<PAGE> 130
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------ ---------------- ------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 355,242 (163,736) 191,506
Operating, selling, general and
administrative expenses (257,601) 152,614 (104,987)
Stock compensation (20,142) 3,540 (16,602)
Depreciation and amortization (23,676) 20,207 (3,469)
------------ ------------ ------------
Operating income $ 53,823 12,625 66,448
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1995
----------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------ ---------------- ------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 521,050 (383,179) 137,871
Operating, selling, general and
administrative expenses (475,533) 390,109 (85,424)
Stock compensation (2,183) -- (2,183)
Depreciation and amortization (54,688) 50,803 (3,885)
------------ ------------ ------------
Operating income (loss) $ (11,354) 57,733 46,379
============ ============ ============
</TABLE>
Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 29% or $56 million
for the year ended December 31, 1997, as compared to the year ended December
31, 1996. The increase is primarily attributable to higher revenue from
Encore, including the thematic multiplex services ("Multiplex"). During the
year ended December 31, 1997, revenue from Encore increased as a result of
higher revenue from TCI due to a higher number of units, the EMG Affiliation
Agreement, and an increase in the number of Encore and Multiplex units
distributed by other cable operators and direct broadcast satellites ("DBS")
operators, when compared to the year ended December 31, 1996.
II-28
<PAGE> 131
Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 39% or $41 million for the year
ended December 31, 1997 compared to the year ended December 31, 1996.
Programming costs for Encore and Multiplex increased $5 million for the year
due to more recent programming being purchased. Encore incurred approximately
$2 million for costs associated with the transition to digital technology
during 1997. Increased national advertising for Encore was responsible for
approximately $20 million of the increase during the year ended December 31,
1997 compared to 1996. Increased marketing support payments to distributors
accounted for $13 million of the increase in operating, selling, general and
administrative expenses for 1997 over 1996. The remaining increases in
operating, selling, general and administrative expenses from the Entertainment
and Information Programming Services was due to additional personnel and
related costs supporting the overall growth of the businesses within Liberty
Media Group.
The increase in stock compensation of Entertainment and Information
Programming Services for the year ended December 31, 1997, as compared to 1996,
is due to an increase in Encore Media Group's stock compensation of $44 million
(see note 11 to accompanying combined financial statements of Liberty Media
Group).
Revenue from Entertainment and Information Programming Services
increased 39% or $54 million for the year ended December 31, 1996, compared to
the year ended December 31, 1995 excluding the effect of acquisitions and
dispositions. Revenue from Encore increased approximately $50 million from 1995
to 1996. Approximately $22 million of this increase was related to Multiplex.
Multiplex units increased 103% from 6 million at December 31, 1995 to
approximately 12.2 million units at December 31, 1996. Encore subscribers
increased 39% to approximately 11 million at December 31, 1996 resulting in an
increase in revenue of approximately $23 million in 1996. Average rates per
subscriber were essentially unchanged during these periods. The remaining
increase in Encore's revenue in 1996 was due to increased management fees from
affiliates. The remaining increase in revenue for Entertainment and Information
Programming Services is related to increases in revenue from affiliate fees from
Southern and the increase in the STARZ Content Fees.
Excluding the effect of acquisitions and dispositions, operating,
selling, general and administrative expenses increased 23% or $19 million for
the year ended December 31, 1996, compared to the year ended December 31, 1995.
Programming costs for Encore increased approximately $13 million primarily due
to upgrading the quality of programming on all Encore and Multiplex channels.
Charges for satellite transponder facilities and other related operating
activities for Encore increased approximately $2 million during the year ended
December 31, 1996 compared to 1995. The overall growth of Encore led to an
increase of approximately $4 million in marketing and other general and
administrative costs during the year ended December 31, 1996, as compared to
1995.
The increase in stock compensation of Entertainment and Information
Programming Services for the year ended December 31, 1996 compared to 1995 is
due to an increase in stock compensation for Encore of approximately $14
million.
II-29
<PAGE> 132
Revenue from TCI Music contributed $23 million to the revenue from
Entertainment and Information Programming Services for the year ended December
31, 1997. Additionally, revenue from STARZ! contributed $102 million to
revenue for 1997. As discussed above, operations for TCI Music and STARZ! were
not included in the combined financial results of Liberty Media Group for the
year ended December 31, 1996. Operating, selling, general and administrative
expenses for Entertainment and Information Programming Services for the year
ended December 31, 1997 included $14 million from the operations of TCI Music
and $148 million from the operations of STARZ!.
Electronic Retailing Services
This information reflects the results of HSN, which was included in
the combined financial results of Liberty Media Group through the date of the
HSN Merger. HSN's primary business is electronic retailing conducted by Home
Shopping Club, Inc. ("HSC").
For the year ended December 31, 1996, revenue from Electronic
Retailing Services increased $64 million, or 7% as compared to 1995. Net sales
reflected an increase of 11.5% in the number of packages shipped and a decrease
of 8.5% in the average price per unit sold. The remaining increase in revenue
was due to increases in sales by other HSN wholly-owned subsidiaries, Internet
Shopping Network, Inc. ("ISN") and Vela Research, Inc. ("Vela"), which were
offset by decreases related to the sale of assets of Ortho-Vent, Inc., a
subsidiary of HSN Mail Order, Inc. ("Mail Order"), and decreases by HSN's
infomercial joint venture. During April 1996, HSN sold a majority of its
interest in its infomercial joint venture for $5.9 million to an affiliate of
TINTA resulting in a $1.9 million pre-tax gain.
For the year ended December 31, 1996, gross profit for Electronic
Retailing Services increased $62 million, or 20%, compared to 1995. As a
percentage of net sales, gross profit increased to 39% from 34%. Such increase
was partially offset by combined decreases related to HSN's infomercial joint
venture and Ortho-Vent, Inc.
The dollar increases in HSN's and HSC's gross profit relate to the
higher sales volume. The comparative increases in HSN's gross profit
percentage relate to warehouse sales and other promotional events held during
1995 which reduced gross profit in these periods and a 1996 product sales mix
which was composed of higher gross profit merchandise.
Operating, selling, general and administrative expenses decreased $53
million, to 31% of sales in 1996, compared with 39% of sales in 1995. In late
1995 and the first quarter of 1996, management of HSN instituted measures aimed
at streamlining operations primarily by reducing its work force and taking
other actions to reduce operating expenses. These changes resulted in
reductions in operating expenses in 1996 compared with the same period in 1995.
Additionally, $4 million of the restructuring charges for the year
ended December 31, 1995, represents costs incurred in connection with the
closing of HSN's Reno, Nevada, distribution center, which was accomplished in
June 1995. The decision to close the Reno distribution center was based on an
evaluation of HSN's overall distribution strategy.
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<PAGE> 133
Corporate Expenses
The increase in corporate selling, general and administrative expense
from 1996 to 1997 was primarily due to increased legal expenses. The increase
from 1995 to 1996 was an increase in personnel costs and stockholder expenses.
The amount of expense associated with stock compensation is based on the
vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on market price
fluctuations and, ultimately, on the final determination of market value when
the rights are exercised.
Certain TCI corporate general and administrative costs are charged to
Liberty Media Group at rates set at the beginning of each year based on
projected utilization for that year. The utilization-based charges are set at
levels that management believes to be reasonable and that would approximate the
costs Liberty Media Group would incur for comparable services on a stand alone
basis. During the years ended December 31, 1997, 1996 and 1995, Liberty Media
Group was allocated approximately $3 million each year in corporate general and
administrative costs by TCI Group.
Other Income and Expense
Interest expense was $6 million, $17 million and $19 million in 1997,
1996 and 1995, respectively. Because the operations of HSN have not been
included in the combined financial results of Liberty Media Group since
December 20, 1996, interest expense related to HSN accounted for a decrease of
$10 million in Liberty Media Group's interest expense for the year ended
December 31, 1997 compared to 1996.
Dividend and interest income was $48 million, $22 million and $12
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Dividends amounting to $13 million were received on a new series of 30 year
non- convertible 9% preferred stock of Fox Kids Worldwide, Inc. ("FKW") (the
"FKW Preferred Stock") beginning in August 1997. A full year of dividends
amounting to $19 million on shares of a certain series of Time Warner common
stock with limited voting rights (the "TW Exchange Stock"), offset by the loss
of dividends on TBS common stock, accounted for $11 million of the increase in
1997. Dividend income in 1996 increased compared to 1995 due to dividends
amounting to $4.5 million received on the TW Exchange Stock in December of
1996.
Liberty Media Group's share of losses of affiliates was $12 million in
1997 compared to earnings of $8 million in 1996.
Liberty Media Group's share of earnings of affiliates attributable to
its interest in Discovery Communications, Inc. ("Discovery") decreased $30
million during the year ended December 31, 1997 compared to 1996. While
Discovery's revenue increased by 30% in 1997, its earnings before interest,
taxes, depreciation and amortization decreased by 36%, principally because of
costs associated with launching new services (primarily Animal Planet),
continuing investments in international services and the acquisition of the
Nature Company. Additionally, expense from Discovery's executive compensation
plan, which is based on a periodic valuation of Discovery, increased by 40%
during 1997 compared to 1996 and interest expense for Discovery was 141% higher
in 1997 than 1996.
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<PAGE> 134
Liberty Media Group's share of earnings of affiliates attributable to
its interest in QVC Inc. ("QVC") increased approximately $7 million during 1997
compared to 1996. QVC's revenue increased by 12% during the year ended
December 31, 1997, resulting in a corresponding 12% increase in earnings before
interest, taxes, depreciation and amortization over the year ended December 31,
1996. In the aggregate, interest expense, taxes, depreciation and amortization
for QVC increased by 8% during 1997, resulting in a 32% increase in net income
for QVC for the year ended December 31, 1997 compared to the year ended
December 31, 1996.
In addition, Liberty Media Group's share of earnings of affiliates
attributable to its interest in Superstar/Netlink increased $8 million during
1997 compared to 1996. This increase is partially due to the timing of the
formation of Superstar/Netlink which did not occur until April of 1996.
Effective January 1, 1997, Liberty Media Group formed Your Choice TV, LLC
("YCTV") with Discovery and TCI Ventures Group. Liberty Media Group's share of
losses of affiliates attributable to its interest in YCTV decreased Liberty
Media Group's share of earnings by approximately $6 million for the year ended
December 31, 1997. As described above, DMX was included in the combined
financial results of Liberty Media Group beginning in July of 1997, resulting
in the share of losses attributable to Liberty Media Group's interest in DMX
decreasing by $13 million during 1997 compared to the year ended December 31,
1996. The share of losses of Liberty/TINTA was responsible for approximately
$8 million of the decrease in share of earnings of affiliates from 1996 to
1997. Prior to 1997, Liberty Media Group had no obligation, nor intention, to
fund Liberty/TINTA. During 1997, Liberty Media Group made the determination to
provide funding to Liberty/TINTA in 1998 based on a specific plan.
Consequently, Liberty Media Group's share of losses of Liberty/TINTA for the
year ended December 31, 1997 includes previously unrecognized losses of
Liberty/TINTA of approximately $4 million. Losses for Liberty/TINTA were not
recognized in prior periods due to the fact that Liberty Media Group's
investment in Liberty/TINTA had been reduced to zero.
Liberty Media Group's share of earnings of affiliates was $8 million
in 1996 compared to losses of $15 million in 1995.
The increase in earnings in 1996 was partially due to the investment
in Superstar/Netlink in April 1996 which contributed $11 million to the share
of earnings for 1996. The decrease in losses of Courtroom Television Network
("Court TV") was responsible for approximately $19 million of the increase in
earnings from 1995 to 1996. In August 1995, Liberty Media Group made an
additional $29 million investment in Court TV which represented Liberty Media
Group's pro rata share of capital calls made in prior years by the other
partners of Court TV that Liberty Media Group had no obligation to fund. Due
to the additional investment in Court TV, Liberty Media Group's share of losses
of Court TV for the year ended December 31, 1995 includes $18 million of
previously unrecognized losses of Court TV. Such losses were not recognized in
prior periods due to the fact that Liberty Media Group's investment in Court TV
had been reduced to zero.
Earnings before interest, taxes and depreciation and amortization for
QVC increased 18% in 1996 compared to 1995. Interest expense for QVC decreased
approximately $10 million for the year ended December 31, 1996 compared to the
year ended December 31, 1995. Additionally, QVC recorded a one time charge in
1995 for compensation resulting from stock option redemptions. Consequently,
Liberty Media Group's share of earnings in affiliates attributable to its
interest in QVC increased $20 million in 1996 compared to 1995.
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<PAGE> 135
These increases in share of earnings attributable to Liberty Media
Group's investments in affiliates were offset by increased share of losses in
other affiliates attributable to Liberty Media Group. Such losses include
share of losses of DMX which contributed $14 million in losses to Liberty Media
Group in 1996. Additionally, due to the formation of Fox Sports, share of
earnings in affiliates attributable to Liberty Media Group's interest in
certain regional sports programming businesses reflect twelve months of
earnings in 1995 but only four months of earnings in 1996. This represents a
$6 million decrease in earnings in 1996.
Liberty Media Group's share of earnings in affiliates attributable to
its interest in Discovery decreased by approximately $4 million in 1996
compared to 1995. Discovery's earnings before interest, taxes and depreciation
and amortization increased 34% in 1996 compared to 1995 for its established
businesses. This increase was almost entirely offset by increased losses
before interest, taxes and depreciation and amortization of its developing
businesses. Discovery also recorded increased depreciation and amortization on
increased fixed assets resulting from a 1996 acquisition by Discovery and
increased expense relating to an executive compensation plan.
In August of 1997, Liberty Media Group contributed its holdings in
International Family Entertainment, Inc. ("IFE") to FKW in exchange for the
FKW Preferred Stock. As a result of the exchange, Liberty Media Group
recognized a gain of approximately $304 million. See note 7 to the
accompanying combined financial statements of Liberty Media Group.
On October 10, 1996, Time Warner and TBS consummated a merger (the
"TBS/Time Warner Merger") whereupon Liberty Media Group 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, Liberty Media Group recognized a
pre-tax gain of approximately $1.5 billion in the fourth quarter of 1996.
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<PAGE> 136
TCI VENTURES GROUP
As of December 31, 1997, the TCI Ventures Group consisted principally
of the following assets and their related liabilities: (i) TCI's 85% equity
interest (representing a 92% voting interest) in TINTA, which is TCI's primary
vehicle for the conduct of its international cable, telephony and programming
businesses (other than those international programming businesses attributed to
Liberty Media Group), (ii) TCI's principal interests in the telephony business
("TCI Telephony") consisting primarily of TCI'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.), TCI's 28% equity interest (representing a 41%
voting interest) in Teleport Communications Group Inc. ("TCG"), a competitive
local exchange carrier, and Western Tele-Communications, Inc. ("WTCI"), a
wholly-owned subsidiary of TCI 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 39% 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 39% equity interest
(representing a 72% 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"), a wholly-owned subsidiary of the Company which is a developer and
distributor of for-profit education, training and communications services and
products and National Digital Television Center, Inc. ("NDTC"), which provides
digital compression and authorization services to programming suppliers and to
video distribution outlets. The stocks of TINTA, TCG, @Home and UVSG are
traded on the National Market tier of The Nasdaq Stock Market.
The TCI Ventures Group does not include any 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.
A significant portion of the TCI Ventures Group's operations are
conducted through corporations and partnerships in which the TCI Ventures Group
holds a 20%-50% ownership interest. As the TCI Ventures Group generally
accounts for such ownership interests using the equity method of accounting,
the financial condition and results of operations of such entities are not
reflected on a combined basis within the TCI Ventures Group's combined
financial statements.
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<PAGE> 137
In January 1997, TINTA reduced its voting interest in Flextech p.l.c.
("Flextech") to 50% by issuing to a nominee an irrevocable proxy (the "Flextech
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 TINTA's ownership
interest in Flextech to 35.9% and the issuance to TINTA by Flextech of a
special voting share (the "Special Voting Share"). The Special Voting Share
when combined with TINTA's other share capital in Flextech, allows TINTA to
cast 50% of the votes on most matters brought to the shareholders of Flextech
for vote. 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 TINTA outside a specified affiliated group. In connection
with the associated dilution of TINTA's ownership interest in Flextech, the TCI
Ventures Group recorded a $152 million increase to the carrying value of its
investment in Flextech, a $66 million increase to combined equity, a $53
million increase to deferred taxes and a $33 million increase to minority
interest in consolidated subsidiaries. No gain was recognized due to certain
contingent obligations of TINTA. In light of TINTA's decreased voting interest
in Flextech, TINTA, effective January 1, 1997, ceased to consolidate Flextech
and began to account for Flextech using the equity method of accounting.
On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision S.A. and certain affiliated companies ("Cablevision"). On October
9, 1997, TINTA sold a portion of its 51% interest in Cablevision to CEI
Citicorp Holdings Sociedad Anonima ("CEI") and T.I. Telefonica Internacional de
Espana S.A. (together with CEI, the "Buyers") for cash proceeds of $120
million. In addition, on October 9, 1997, Cablevision issued 3,541,829 shares
of stock in the aggregate to the Buyers for $80 million in cash and notes
receivable with an aggregate principal amount of $240 million, plus accrued
interest at LIBOR, due within the earlier of two years or at the request of
Cablevision's board of directors. The 1997 transactions (collectively, the
"Cablevision Sale") reduced TINTA's interest in Cablevision to 26.2%. Cash
proceeds received by TINTA of $120 million were based on a negotiated value of
$210 million for approximately one-half of TINTA's 51% interest in Cablevision.
TINTA recognized a gain of $49 million on the Cablevision Sale. TINTA will
continue to have the right to manage Cablevision pursuant to a renewable
five-year management contract that was entered into in connection with the
Cablevision Sale, and all material corporate transactions of Cablevision will
require TINTA's approval, so long as TINTA maintains at least a 16% interest in
Cablevision. The Buyers also purchased the additional 39% interest in
Cablevision that TINTA had the right to acquire. As a result of the
Cablevision Sale, effective October 1, 1997, TINTA ceased to consolidate
Cablevision and began to account for Cablevision using the equity method of
accounting.
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<PAGE> 138
The following table sets forth certain financial information for the
TCI Ventures Group and the businesses attributed to it during the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Revenue:
UVSG (1) (2) $ 507,598 52% $ 409,616 44% -- --
TINTA (3) (4) (5) 219,834 22 314,560 34 $ 190,533 59%
ETC 84,956 9 90,598 10 49,994 15
NDTC (6) 94,247 10 74,881 8 53,393 16
WTCI (7) 36,197 4 31,857 4 31,877 10
@Home 7,437 1 673 -- -- --
Corporate and other 18,925 2 3,491 -- 194 --
------------- ------ --------------- ------ ---------------- ------
$ 969,194 100% $ 925,676 100% $ 325,991 100%
============= ====== =============== ====== ================ ======
Operating, selling, general,
administrative:
UVSG (1) (2) $ 403,603 50% $ 342,544 41% -- --
TINTA (3) (4) (5) 144,445 18 282,355 34 $ 165,389 59%
ETC 108,665 13 107,785 13 51,360 18
NDTC 58,385 7 44,171 5 30,867 11
WTCI 24,665 3 19,530 2 19,399 7
@Home 49,049 6 23,950 3 2,845 1
Corporate and other 25,744 3 13,563 2 9,361 4
------------- ------ --------------- ------ ---------------- ------
$ 814,556 100% $ 833,898 100% $ 279,221 100%
============= ====== =============== ====== ================ ======
Depreciation, amortization,
stock compensation and
other non-cash charges:
UVSG (1) (2) $ 35,371 7% $ 29,775 21% -- --
TINTA (3) (4) (5) 70,513 14 55,562 39 $ 36,360 45%
ETC 21,035 4 4,953 4 3,900 5
NDTC 33,142 6 28,776 20 18,737 24
WTCI 8,942 2 10,595 7 10,164 13
@Home (8) 180,483 36 1,774 1 21 --
Corporate and other (9) 155,446 31 10,900 8 10,529 13
------------- ------ --------------- ------ ---------------- ------
$ 504,932 100% $ 142,335 100% $ 79,711 100%
============= ====== =============== ====== ================ ======
Operating income (loss):
UVSG (1) (2) $ 68,624 (10) $ 37,297 (10) -- (10)
TINTA (3) (4) (5) 4,876 (23,357) $ (11,216)
ETC (44,744) (22,140) (5,266)
NDTC 2,720 1,934 3,789
WTCI 2,590 1,732 2,314
@Home (8) (222,095) (25,051) (2,866)
Corporate and other (162,265) (20,972) (19,696)
------------ --------------- ----------------
$ (350,294) $ (50,557) $ (32,941)
============= =============== ================
</TABLE>
- --------------
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<PAGE> 139
(1) On January 25, 1996, the stockholders of UVSG adopted an
agreement and plan of merger dated as of July 10, 1995, as
amended. The results of operations of UVSG have been combined
with those of the TCI Ventures Group since January 25, 1996.
(2) Effective April 1, 1996, UVSG and the Liberty Media Group
contributed their retail C-band home satellite dish business
assets, obligations and operations, to a new entity owned 50%
each by UVSG and Liberty Media Group. The operations of
Superstar/Netlink have been consolidated effective April 1,
1996, with the operating results of UVSG as UVSG has voting
control over Superstar/Netlink.
(3) On October 1, 1996, Cablevision acquired 99.9% of the issued
and outstanding stock of Oeste Cable Color S.A. ("OCC"). In
accordance with the purchase method of accounting OCC has been
included in Cablevision's consolidated statements since the
acquisition date.
(4) As described above, TINTA, effective January 1, 1997, ceased
to consolidate Flextech and began to account for Flextech
using the equity method of accounting. As a result, TINTA's
results of operations for the year ended December 31, 1997 do
not include Flextech's results of operations on a consolidated
basis. The following table sets forth summary information
with respect to the operating results of Flextech that were
included in TINTA's results of operations for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
--------- ---------
amounts in thousands
<S> <C> <C>
Revenue $ 94,397 49,092
Operating costs and expenses before
depreciation and amortization
(131,182) (63,176)
Depreciation and amortization (8,042) (5,009)
--------- ---------
Operating loss $ (44,827) $ (19,093)
========= =========
</TABLE>
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<PAGE> 140
(5) As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision
using the equity method of accounting. As a result, effective
October 1, 1997, TINTA's results of operations no longer
include Cablevision's results of operations on a consolidated
basis. The following table sets forth summary information
with respect to the operating results of Cablevision that were
included in TINTA's results of operations for the periods
indicated:
<TABLE>
<CAPTION>
April 25, 1995
Nine months ended Year ended through
September 30, 1997 December 31, 1996 December 31, 1995
------------------ ----------------- -----------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 173,517 189,548 118,864
Operating costs and
expenses before
depreciation and
amortization (105,020) (114,139) (69,258)
Depreciation and
amortization (40,882) (41,429) (25,060)
-------------- -------------- --------------
Operating income $ 27,615 33,980 24,546
============== ============== ==============
</TABLE>
(6) A significant number of NDTC's major customers are affiliates
of TCI, and NDTC derives a substantial portion of its revenue
from such affiliated companies. For the years ended December
31, 1997, 1996 and 1995 revenue from services provided to TCI
and its consolidated subsidiaries accounted for 41%, 34% and
39%, respectively, of NDTC's total revenue.
(7) For each of the years ended December 31, 1997, 1996 and 1995,
WTCI's six largest customers accounted in the aggregate for
approximately 65%, 70% and 70%, respectively, of WTCI's
consolidated gross revenue. WTCI's six largest customers'
master service contracts all contain many service orders with
remaining terms varying from 1 month to approximately 15
months.
(8) During the fourth quarter of 1997, @Home recorded a non-cash
charge of $172.6 million to operations based on the fair value
of 7,875,784 shares of @Home's Series A common stock which
were underlying certain exercisable warrants. For additional
information concerning such warrants, see note 9 to the
accompanying combined financial statements of TCI Ventures
Group.
(9) Amount includes stock compensation expense of $124 million.
(10) Not meaningful.
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<PAGE> 141
Revenue
Revenue increased by $44 million or 5% during the year ended December
31, 1997 as compared to 1996. Revenue increased by $600 million or 184% during
the year ended December 31, 1996 as compared to 1995. The 1997 increase is
largely attributable to increases of UVSG and NDTC that were partially offset
by decreases due to the deconsolidation of Flextech and Cablevision. The 1996
increase is primarily attributable to the effects of acquisitions.
Revenue from UVSG increased by $98 million or 24% during the year
ended December 31, 1997 as compared to the corresponding prior year period.
Such increase is due primarily to (i) $40 million of additional revenue
attributable to Netlink's retail operations which have been included in
Superstar/Netlink since April 1, 1996, (ii) the inclusion of UVSG for twelve
months in 1997 versus eleven months in 1996, (iii) increases in UVSG's program
promotion and guide services business of $13 million, (iv) a $10 million growth
in the revenue of Superstar/Netlink and (v) a $6 million increase in revenue
from UVSG's software development and systems integration services.
UVSG revenue of $410 million for the year ended December 31, 1996
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 1996 increase
reflects $121 million of additional revenue resulting from Superstar/Netlink.
TINTA revenue decreased by $95 million or 30% during the year ended
December 31, 1997 as compared to the corresponding prior year period. Such
decrease is primarily attributable to the deconsolidation of Flextech and
Cablevision in 1997.
TINTA 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 acquisition of Cablevision and OCC.
A significant component of the increase in programming revenue is attributable
to acquisitions made by Flextech in 1996.
Revenue from ETC increased $41 million or 81% from 1995 to 1996. Such
increase is attributable to the June 1995 acquisition of CareerTrack, Inc.
Operating Costs and Expenses
Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges decreased by $19 million or 2%
during the year ended December 31, 1997 as compared to 1996. Operating costs
and expenses, excluding depreciation and amortization and stock compensation,
increased by $555 million or 199% during the year ended December 31, 1996 as
compared to 1995. The 1997 change is attributable to decreases due to the
deconsolidation of Flextech and Cablevision which were partially offset by
increased costs of UVSG and NDTC. The 1996 increase is primarily attributable
to the effects of acquisitions.
Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG increased $61 million or
18% during the year ended December 31, 1997 as compared to 1996. Such increase
is primarily attributable to Netlink's retail operations which have been
included in Superstar/Netlink since April 1, 1996, the inclusion of UVSG for
twelve months in 1997 versus eleven months in 1996 and increased personnel costs
resulting from the growth in UVSG's program promotion and guide services
business.
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<PAGE> 142
Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG represents 62% 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, the 1996 increase reflects $110 million of
additional expense resulting from Superstar/Netlink.
TINTA operating costs and expenses, excluding depreciation,
amortization, stock compensation and other non-cash charges decreased $138
million or 49% for the year ended December 31, 1997, as compared to the
corresponding prior year period. Such decrease is primarily attributable to the
deconsolidation of Flextech and Cablevision in 1997.
TINTA operating costs and expenses, excluding depreciation,
amortization, stock compensation and other non-cash charges increased $117
million or 71% for the year ended December 31, 1996, as compared to the
corresponding prior year period. TINTA programming costs and expenses increased
$64 million during 1996, a 103% increase. Such increase is attributable to
acquisitions made by Flextech in 1996 and higher programming and stock
compensation costs during 1996. TINTA cable costs and expenses increased $44
million or 48% during the year ended December 31, 1996, primarily as a result of
the acquisitions of Cablevision and OCC, and increased programming costs.
During 1996, TINTA revised its estimate of future revenue to be earned
from certain programming rights. As a result of such revisions, TINTA recorded
an adjustment of $9 million in 1996 to reduce the carrying value of the
affected programming rights.
Operating costs and expenses from ETC, excluding depreciation and
amortization, increased $56 million or 110% from 1995 to 1996. The 1996
increase is attributable to the June 1995 acquisition of CareerTrack, Inc.
During 1997, @Home recorded a non-cash charge of $172.6 million to
operations based on the fair value of 7,875,784 shares of @Home's Series A
common stock which were underlying certain exercisable warrants. For
additional information concerning such warrants, see note 9 to the accompanying
combined financial statements of TCI Ventures Group.
In addition, ETC recorded a $15 million charge to operations during
1997 for the impairment of certain of its intangible assets.
Certain TCI corporate general and administrative costs are charged to
the 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 would approximate the
costs TCI Ventures Group would incur for comparable services on a stand alone
basis. During the years ended December 31, 1997, 1996 and 1995, TCI Ventures
Group was allocated $10 million, $8 million and $4 million, respectively, in
corporate general and administrative costs by TCI Group.
Stock compensation expense increased $149 million and decreased $12
million during 1997 and 1996, respectively. Such amounts represent changes in
TCI Ventures Group's stock compensation liability. TCI Ventures Group records
stock compensation expense relating to restricted stock awards, options and/or
stock appreciation rights (collectively, "Awards") granted (i) by TCI to certain
TCI employees and/or directors who are involved with the TCI Ventures Group and
(ii) by TINTA, UVSG, and @Home to employees and/or directors of such entities.
Stock compensation with respect to Awards granted by TCI includes amounts
related to TCI common stock and to common stock of certain non-public
subsidiaries of TCI and is allocated to TCI Ventures Group based on the Awards
held by TCI employees and/or directors who are involved with TCI Ventures Group.
Estimated compensation relating to stock appreciation rights has been recorded
through December 31, 1997 pursuant to APB Opinion No. 25. Such estimate is
subject to future adjustment based upon vesting and market value, and
ultimately, on the final determination of market value when such rights are
exercised.
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The $26 million or 17% and $74 million or 99% increases in
depreciation and amortization expense during the years ended December 31, 1997
and 1996, 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. Such increases in 1997 were partially offset by the
effects of the deconsolidation of Flextech and Cablevision.
Other Income and Expense
The TCI Ventures Group's share of losses from its investment in the PCS
Ventures was $493 million, $133 million and $34 million during the years ended
December 31, 1997, 1996 and 1995, respectively. The PCS Ventures include Sprint
Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint PCS" or
the "Sprint PCS Partnership"), and PhillieCo Partnership I, 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 TCI Ventures Group has a 30% interest as a
partner in each of the Sprint PCS Partnerships and a 35% interest as a partner
in PhillieCo. The increases in the share of losses are attributed primarily to
selling, general and administrative costs associated with Sprint Spectrum's
efforts to increase its customer base and Sprint Spectrum's share of losses in
American PCS L.P. 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 expands its PCS network and
builds its customer base. 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.
Telewest Communications plc ("Telewest"), an entity in which the TCI
Ventures Group has a 26.6% indirect interest, has incurred losses since its
inception. The TCI Ventures Group's share of Telewest's net losses increased
$36 million or 33% and $39 million or 56% during 1997 and 1996, respectively.
Such increases are primarily attributable to (i) increases in interest expense
due to an increase in Telewest's outstanding debt balances, (ii) increases in
depreciation and amortization resulting from Telewest's construction of cable
television and telephony networks which has increased Telewest's assets that
are subject to depreciation and (iii) changes in 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 (the "Telewest Debentures"). Changes in the exchange rate
used to translate the Telewest Debentures into United Kingdom ("U.K.") pounds
sterling ("L.") and the adjustment of a foreign currency option contract to
market value caused Telewest to experience unrealized foreign currency
transaction gains (losses) of $(39 million), $2 million and $(23 million)
during 1997, 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.
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The share of losses from the TCI Ventures Group's investment in TCG
was $66 million for the year ended December 31, 1997 which represents a $15
million increase as compared to 1996. The share of losses from TCG was $51
million for the year ended December 31, 1996 which represents an increase of
$21 million, as compared to the share of losses of $30 million for the year
ended December 31, 1995. The increases in the share of losses are largely
attributed to costs incurred by TCG 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.
TCG has incurred net losses since its inception due to 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. In January 1998, TCG
entered into certain agreements pursuant to which it agreed to be acquired by
AT&T Corporation ("AT&T"). Upon consummation of such merger, TCI would receive
in exchange for all of its interest in TCG, approximately 46.95 million shares
of AT&T common stock, which shares would be attributed to the TCI Ventures
Group. The transaction is subject to a number of regulatory and other
conditions, accordingly, there can be no assurance that such transaction will
be consummated on the terms contemplated by the parties, or at all. In the
event the AT&T transaction is completed, the TCI Ventures Group would account
for its investment in AT&T using the cost method.
As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the equity
method of accounting. The TCI Ventures Group's share of losses from
Cablevision was $3 million from October 1, 1997 through December 31, 1997.
The TCI Ventures Group's share of the losses of affiliates other than
the PCS Ventures, Telewest, TCG and Cablevision (the "Other Affiliates")
increased $36 million or 48% and $14 million or 23% during the years ended
December 31, 1997 and 1996, as compared to the corresponding prior year
periods. The 1997 increase is attributable to increased losses of Jupiter
Programming Co., Ltd., Jupiter Telecommunications, Co., Ltd., MultiThematiques
S.A., Liberty/TINTA LLC and Asia Business News (Singapore) PTE Ltd. ("ABN").
TCI Ventures Group expects that such entities will continue to incur losses as
they continue to expand their operations and/or launch new services. As of
December 31, 1997, TINTA surrendered all of its shares of ABN in exchange for a
$25 million unsecured note receivable. Accordingly, effective December 31,
1997, ABN will no longer be accounted for under the equity method of
accounting. In addition, as described above, TCI Ventures Group, effective
January 1, 1997, ceased to consolidate Flextech and began to account for
Flextech using the equity method of accounting. 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. For additional information, see note 13
to the accompanying combined financial statements of TCI Ventures Group.
Interest income decreased $16 million or 53% and increased $15 million
or 97% during the years ended December 31, 1997 and 1996, respectively. Such
changes are primarily due to changes in the outstanding balance on amounts
loaned to TCI.
Interest expense increased $3 million or 5% and $9 million or 23%
during the years ended December 31, 1997 and 1996, respectively, as a result of
increases in the outstanding debt balance and increases in capital lease
obligations. The 1996 increase in the outstanding debt balance is primarily
attributable to the issuance of the Debentures.
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In April 1997, @Home issued 240,000 shares of convertible preferred
stock, resulting in cash proceeds of $48 million, less issuance costs. On July
11, 1997 @Home completed an initial public offering (the "@Home IPO"), in which
10,350,000 shares of @Home common stock were sold for cash proceeds of
approximately $100 million. As a result of @ Home's issuance of preferred
stock and the @Home IPO, the TCI Ventures Group's economic interest in @Home
decreased from 43% to 39%. In connection with the associated dilution of the
TCI Ventures Group's ownership interest of @Home, the TCI Ventures Group
recognized a non-cash gain of $60 million.
On July 18, 1995, TINTA completed an initial public offering (the
"TINTA IPO") in which 20,000,000 shares of TINTA's Series A common stock were
sold to the public for net proceeds of approximately $301 million. In
connection with the TINTA IPO, the TCI Ventures Group recognized a gain of $123
million.
In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures 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 $29 million gain (before
deducting deferred income taxes of $11 million) 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. The TCI Ventures Group
accounts for its investment in Antec using the cost method.
During 1997, TCG issued approximately 6.6 million shares of its Class
A common stock for certain acquisitions. The total consideration paid by TCG
through the issuance of common stock for such acquisitions was approximately
$123 million. In addition, effective November 5, 1997, TCG consummated a
public offering of 17.2 million shares of its Class A common stock. Of the 17.2
million shares, 7.3 million shares were offered by TCG and 9.9 million shares
were offered by MediaOne of Delaware, Inc. (formerly Continental Cablevision,
Inc., "MediaOne"). TCG did not receive any proceeds from the sale of shares by
MediaOne, which represented all of MediaOne's interest in TCG. TCG received
net proceeds from its sale of shares pursuant to the above offering of $318
million (after deducting expenses and fees). TCG conducted an initial public
offering on July 2, 1996 in which it sold 27,025,000 shares of Class A common
stock for aggregate net proceeds of approximately $410 million. In connection
with the dilution of the TCI Ventures Group's ownership interest in TCG that
occurred in connection with the above transactions, the TCI Ventures Group
recognized gains aggregating $112 million and $12 million (before deducting
deferred income tax expense of approximately $44 million and $5 million,
respectively) during the years ended December 31, 1997 and 1996, respectively.
In connection with the dilution of the TCI Ventures Group's ownership
interest in Telewest that occurred in connection with a 1995 merger
transaction, TCI Ventures Group recognized a gain of $165 million (before
deducting the related tax expense of $58 million) during the year ended
December 31, 1995. During 1996, the TCI Ventures Group also recognized a gain
of $258,000 in connection with the issuance of stock by Telewest.
The TCI Ventures Group recognized net gains upon the disposition of
assets of $117 million, $80 million and $49 million during 1997, 1996 and 1995,
respectively. The 1997 gain is primarily attributable to (i) a $49 million
gain on the Cablevision Sale and (ii) a $58 million gain on the sale of TINTA's
indirect 13% interest in Sky Network Television New Zealand, Ltd. ("Sky").
TINTA owned its interest in Sky through a 25.5% interest in HKP Partners of New
Zealand. The 1996 gain is attributable to the sale of certain investments for
aggregate proceeds of $73 million. The 1995 gain is attributable to the sale
of the cable television subsidiaries of IVS Cable Holdings Limited, a
subsidiary of Flextech.
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The minority interests' share of net losses (earnings) was $95
million, $28 million and $(15 million) during the years ended December 31,
1997, 1996, and 1995, respectively. Such amounts are comprised of the minority
interests' share of losses (earnings) for @Home, UVSG and TINTA.
The TCI Ventures Group recognized realized and unrealized foreign
currency transaction gains (losses) of $224,000, $7 million and $(3 million)
during the years ended December 31, 1997, 1996, and 1995, respectively. Such
gains (losses) resulted primarily from the remeasurement into the U.S. dollar
of (i) a French franc denominated obligation to make capital contributions to
MultiThematiques S.A. and (ii) the UK pound denominated intercompany debt owed
by Flextech to an indirect subsidiary of TINTA.
During 1997 and 1996, holding losses on certain available-for-sale
securities were determined to be other than temporary. Accordingly, the TCI
Ventures Group recognized losses of $1 million and $59 million during 1997 and
1996, respectively, in connection with the impairment of such securities.
Net Earnings (Losses)
The TCI Ventures Group reported net earnings (losses) of $(601
million), $(258 million) and $60 million during the years ended December 31,
1997, 1996 and 1995, respectively. Included in such amounts was the
recognition of certain non-operating gains aggregating $289 million, $92
million and $336 million during 1997, 1996 and 1995, respectively. TCI
Ventures Group would have reported net losses in all periods presented
excluding the impact of such gains. With the exception of UVSG, WTCI and
TINTA's Puerto Rico subsidiary, the entities included in the TCI Ventures
Group's combined financial statements generally have sustained losses since
their respective inception dates. Any improvements in such entities' results
of operations are largely dependent upon the ability of such entities to
increase their respective subscriber bases while maintaining pricing structures
and controlling costs. There can be no assurance that any such improvements
will occur.
LIQUIDITY AND CAPITAL RESOURCES
TCI GROUP
In January 1997, TCI Group acquired the 50% ownership interest in TKR
Cable Company ("TKR Cable") that TCI Group did not previously own and certain
additional assets for aggregate consideration of approximately $970 million.
TCI Group issued approximately 16 million shares of TCI Group Series A 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. Prior to the acquisition date, TCI Group accounted for its
50% interest in TKR Cable under the equity method. This acquisition has been
treated as a step acquisition for accounting purposes. Accordingly, the
results of operations of TKR Cable have been combined with those of TCI Group
since the date of acquisition and TCI Group's aggregate cost basis in TKR Cable
has been allocated to TKR Cable's assets and liabilities based on their fair
values.
During the year ended December 31, 1997, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 4,000,000
shares of TCI Group Series A Stock and 330,902 shares of TCI Group Series B
Stock at an aggregate cost of $72.9 million.
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Effective July 31, 1997, a wholly-owned subsidiary of TCI and a member
of the TCI Group, merged with and into Kearns-Tribune Corporation
("Kearns-Tribune"). The merger was valued at approximately $808 million. TCI
exchanged 47.2 million shares of TCI Group Series A Stock for shares of
Kearns-Tribune which held 17.9 million shares of TCI Group Stock and 10.1
million shares of Liberty Group Stock. Immediately following the merger,
Liberty Media Group purchased from TCI Group the 10.1 million shares of Liberty
Group Stock that were acquired in such transaction for $168 million in cash.
The merger of Kearns-Tribune has been accounted for by the purchase method.
Accordingly, the results of operations of Kearns-Tribune have been combined
with those of TCI Group since the date of acquisition, and TCI Group has
recorded Kearns-Tribune's assets and liabilities at fair value.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to the 1998 Liberty Stock Dividend and the Ventures Stock
Dividend) that were subject to the Malone Call Agreement and the Magness Call
Agreement. Accordingly, TCI Group paid $134 million during the first quarter
of 1998 for its allocated share of the Call Payments. For additional
information see note 12 to the accompanying combined financial statements of
TCI Group.
During the fourth quarter of 1997, TCI Group entered into a Total
Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
Equity Swap Facility, TCI Group has the right to direct the counterparty (the
"Counterparty") to use the Equity Swap Facility to purchase shares ("Equity
Swap Shares") of TCI Group Series A Stock and TCI Ventures Group Series A Stock
with an aggregate purchase price of up to $300 million. TCI Group has the
right, but not the obligation, to purchase Equity Swap Shares through the
September 30, 2000 termination date of the Equity Swap Facility. During such
period, TCI Group is to settle periodically any increase or decrease in the
market value of the Equity Swap Shares. If the market value of the Equity Swap
Shares exceeds the Counterparty's cost, Equity Swap Shares with a fair value
equal to the difference between the market value and cost will be segregated
from the other Equity Swap Shares. If the market value of the Equity Swap
Shares is less than the Counterparty's cost, TCI Group, at its option, will
settle such difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or letters of
credit. In addition, TCI Group is required to periodically pay the
Counterparty a fee equal to a LIBOR-based rate on the Counterparty's cost to
acquire the Equity Swap Shares. Due to TCI Group's ability to issue shares to
settle periodic price fluctuations and fees under the Equity Swap Facility, TCI
Group records all amounts received or paid under this arrangement as increases
or decreases, respectively, to equity. As of December 31, 1997, the Equity
Swap Facility has acquired 345,000 shares of TCI Group Series A Stock and
380,000 shares of TCI Ventures Group Series A Stock at an aggregate cost that
was approximately $3 million less than the fair value of such Equity Swap
Shares at December 31, 1997.
Prior to July 1, 1997, TCI Group had a 50.1% partnership interest in
QE+, a limited partnership interest which distributes "STARZ!," a first-run
movie premium programming service launched in 1994. Entities attributed to
Liberty Media Group held the remaining 49.9% partnership interest. Also prior
to July 1, 1997, EMC (at the time a 90%-owned subsidiary of TCI and a member of
Liberty Media Group) earned management fees from QE+ equal to 20% of managed
costs, as defined. In addition, Liberty Media Group earned STARZ Content Fees
for certain services provided to QE+ equal to 4% of the gross revenue of QE+.
Such STARZ Content Fees aggregated $4 million, $4 million and $1 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
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During July 1997, TCI Group, Liberty Media Group, and the 10% minority
holder of EMC, entered into a series of transactions pursuant to which the
businesses of "Encore," a movie premium programming service, and STARZ! were
contributed to Encore Media Group. Upon completion of the transaction, Liberty
Media Group owned 80% of Encore Media Group and TCI Group owned the remaining
20%. In connection with these transactions the 10% minority interest in EMC
was exchanged for approximately 2.4 million shares of Liberty Group Series A
Stock.
Liberty Media Group received its 80% ownership interest in Encore
Media Group in exchange for (i) the contribution of its 49.9% interest in QE+,
(ii) the contribution of EMC, (iii) the issuance of a $307 million note payable
to TCI Group (the "EMG Promissory Note "), (iv) the cancellation and
forgiveness of amounts due for STARZ! Content Fees and (v) the termination of
an option to increase Liberty Media Group's ownership interest in QE+.
TCI Group received the remaining 20% interest in Encore Media Group
and the aforementioned consideration from Liberty Media Group in exchange for
the contribution of TCI Group's 50.1% ownership interest in QE+ and certain
capital contributions made by TCI Group to QE+. In addition, TCI Group entered
into the EMG Affiliation Agreement pursuant to which TCI Group will pay monthly
fixed amounts in exchange for unlimited access to all of the existing Encore
and STARZ! services.
Upon formation of Encore Media Group, TCI Group ceased to include QE+
in its combined financial statements, and began to account for its investment
in Encore Media Group using the equity method of accounting. The EMG Promissory
Note is included in amounts due from related parties.
Effective December 31, 1997, Liberty Media Group and TCI Group agreed
to amend the above transactions. Pursuant to the amendment, the above-
described series of transactions were rescinded, retroactive to July 1, 1997.
Such rescission was given effect as of December 31, 1997 for financial
reporting purposes. Simultaneously, Liberty Media Group and TCI Group entered
into a new agreement whereby the EMG Affiliation Agreement was amended to
permanently reduce the monthly fixed amounts for the life of the contract. TCI
Group's 20% ownership interest in Encore Media Group was eliminated and the EMG
Promissory Note was reduced by $32 million. The amounts to be paid to Encore
Media Group pursuant to the EMG Affiliation Agreement were reduced to amounts
which reflect current market prices.
Due to the related party nature of the above-described transactions,
the $133 million excess of the consideration received over the carryover basis
of the assets transferred (including a deferred tax asset of $98 million) was
reflected as a decrease to combined deficit.
TCI Group's fixed annual commitments (as adjusted) pursuant to the EMG
Affiliation Agreement increase annually from $220 million in 1998 to $315
million in 2003, and will increase with inflation through 2022.
In January 1998, the TCI Ventures Group's interest in DigiVentures,
LLC ("DigiVentures") was assigned to TCI Group. In connection therewith, TCI
Group assumed DigiVenture's capital lease obligations totaling $176 million and
paid $7 million in cash to TCI Ventures Group.
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On March 4, 1998, TCI Group contributed to Cablevision Systems
Corporation ("CSC") certain of its cable television systems serving
approximately 830,000 basic customers in exchange for approximately 12.2
million newly issued CSC Class A shares. Such shares represent an approximate
33% equity interest in CSC's total outstanding shares and an approximate 9%
voting interest in CSC in all matters except for the election of directors, in
which case TCI Group has an approximate 47% voting interest in the election of
one-fourth of CSC's directors. CSC also assumed approximately $669 million of
TCI Group's debt. TCI Group has also entered into letters of intent with CSC
which provide for TCI Group to acquire a cable system in Michigan and an
additional 3% of CSC's Class A shares and for CSC to (i) acquire cable systems
serving approximately 250,000 basic customers in Connecticut and (ii) assume
$110 million of TCI Group's debt. The ability of TCI Group to sell or increase
its investment in CSC is subject to certain restrictions and limitations set
forth in a stockholders agreement with CSC.
Including the above-described CSC transactions and another transaction
that closed in February 1998, TCI Group, as of February 28, 1998, has, since
January 1, 1997, contributed, or signed agreements or letters of intent to
contribute within the next twelve months, certain cable television systems (the
"Contributed Cable Systems") serving approximately 3.8 million basic customers
to joint ventures in which TCI Group will retain non-controlling ownership
interests (the "Contribution Transactions"). Following the completion of the
Contribution Transactions, TCI Group will no longer consolidate the Contributed
Cable Systems. Accordingly it is anticipated that the completion of the
Contribution Transactions, as currently contemplated, will result in aggregate
estimated reductions (based on 1997 amounts) to TCI Group's debt, annual
revenue and annual operating income before depreciation, amortization and stock
compensation of approximately $4.6 billion, $1.7 billion and $783 million,
respectively. No assurance can be given that any of the pending Contribution
Transactions will be consummated.
On July 31, 1996, pursuant to certain agreements entered into among
TCI Communications, Inc. ("TCIC"), a subsidiary of TCI and a member of the TCI
Group, 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 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.
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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
"Viacom 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 Viacom
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
Viacom 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 TCI Group Series A
Stock at an exchange rate of 5.447 shares of TCI Group Series A 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 TCI
Group Series A Stock, or in any combination of the foregoing. Upon completion
of the Viacom Acquisition, Cable Sub was renamed TCI Pacific.
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of TCI Pacific have been combined with
those of TCI Group since the date of acquisition, and TCI Group recorded TCI
Pacific's assets and liabilities at fair value.
At December 31, 1997, TCI Group had approximately $1.6 billion of
availability in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper. Although TCI
Group was in compliance with the restrictive covenants contained in its credit
facilities at said date, additional borrowings under the credit facilities are
subject to TCI Group's continuing compliance with the restrictive covenants
after giving effect to such additional borrowings. Such restrictive covenants
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. See note 8 to the accompanying combined financial
statements of TCI Group for additional information regarding the material terms
of the lines of credit.
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One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of "Operating
Cash Flow" (operating income before depreciation, amortization, stock
compensation and other non-cash charges) ($2,766 million, $2,016 million and
$1,925 million 1997, 1996 and 1995, respectively) to interest expense ($1,105
million, $1,029 million and $969 million in 1997, 1996 and 1995, respectively),
is determined by reference to the combined statements of operations. TCI
Group's interest coverage ratio was 250%, 196% and 199% for 1997, 1996 and
1995, respectively. Management of TCI Group believes that the foregoing
interest coverage ratio is adequate in light of the relative predictability of
its cable television operations and interest expense. However, TCI Group's
current intent is to continue to reduce its outstanding indebtedness such that
its interest coverage ratio could be increased. There is no assurance that TCI
Group 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 combined statements of cash flows.
Net cash provided by operating activities ($1,595 million, $1,004 million and
$1,029 million in 1997, 1996 and 1995, respectively) generally reflects net
cash from the operations of TCI Group available for TCI Group's liquidity needs
after taking into consideration the aforementioned additional substantial costs
of doing business not reflected in Operating Cash Flow.
Amounts expended by TCI Group for its investing activities exceeded
net cash provided by operating activities during the years ended December 31,
1996 and 1995. However, during the year ended December 31, 1997, TCI Group's
net cash provided by operating activities exceeded amounts expended by its
investing activities. The amount of capital expended by TCI Group for property
and equipment was $538 million during 1997, as compared to $1,834 million and
$1,591 million during 1996 and 1995, respectively. In light of TCI Group's
plans to upgrade the capacity of its cable distribution systems, and its plans
to increase the number of customers to digital video services, TCI Group
anticipates that its annual capital expenditures during the next several years
will significantly exceed the amount expended during 1997. In this regard, TCI
Group estimates that it will expend approximately $1.7 billion to $1.9 billion
over the next three years to expand the capacity of its cable distribution
systems. TCI Group expects that the actual amount of capital that will be
required in connection with its plans to increase the number of digital video
service customers will be significant. However, TCI Group cannot reasonably
estimate such actual capital requirement since such actual capital requirement
is dependent upon the extent of any customer increases and the average
installed per-unit cost of digital set-top devices. As described below, TCI
is obligated to purchase a significant number of digital set-top devices
over the next three years.
In the event TCI Group is unable to achieve such objectives,
management believes that net cash provided by operating activities, the ability
of TCI Group to obtain additional financing (including the available lines of
credit and access to public debt markets), issuances and sales of TCI's equity
or equity of its subsidiaries, attributable to TCI Group, and proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future. See TCI Group's combined statements of cash flows
included in the accompanying combined financial statements.
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TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $191
million at December 31, 1997. With respect to TCI Group's guarantees of $166
million of such obligations, TCI Group has been indemnified for any loss, claim
or liability that TCI Group may incur, by reason of such guarantees. Although
there can be no assurance, management of TCI Group 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 TCI Group.
TCI Group has agreed to make fixed monthly payments to Liberty Media
Group pursuant to the EMG Affiliation Agreement. The fixed annual commitments
increase annually from $220 million in 1998 to $315 million in 2003, and will
increase with inflation through 2022.
TCI Group is a party to affiliation agreements with several of its
programming suppliers. Pursuant to these agreements, TCI Group is committed to
carry such suppliers programming on its cable systems. Several of these
agreements provide for penalties and charges in the event the programming is
not carried or not delivered to a contractually specific number of customers.
During the third quarter of 1997, TCI Group committed to purchase
billing services pursuant to three successive five year agreements. Pursuant to
such arrangement, TCI Group is obligated to make minimum payments aggregating
approximately $1.6 billion through 2012. Such minimum payments are subject to
inflation and other adjustments pursuant to the terms of the underlying
agreements.
Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated to make minimum revenue and license fee payments to TCI Music
aggregating approximately $445 million through 2017. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.
TCI Group is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output, distribution and
license agreements. As of December 31, 1997, the amount of such obligations or
guarantees was approximately $120 million. The future obligations of TCI Group
with respect to these agreements is not currently determinable 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.
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Effective as of December 16, 1997, NDTC, a subsidiary of TCI and a
member of TCI Ventures Group, on behalf of TCI Group and other cable operators
that may be designated from time to time by NDTC ("Approved Purchasers"),
entered into an agreement (the "Digital Terminal Purchase Agreement") with
General Instrument Corporation (formerly NextLevel Systems, Inc., "GI") to
purchase advanced digital set-top devices. The hardware and software
incorporated into these devices will be designed and manufactured to be
compatible and interoperable with the OpenCable(TM) architecture specifications
adopted by CableLabs, the cable television industry's research and development
consortium, in November 1997. NDTC has agreed that Approved Purchasers will
purchase, in the aggregate, a minimum of 6.5 million set-top devices over the
next three years at an average price of $318 per basic set-top device (including
a required royalty payment). GI agreed to provide NDTC and its Approved
Purchasers the most favorable prices, terms and conditions made available by GI
to any customer purchasing advanced digital set-top devices. In connection with
NDTC's purchase commitment, GI agreed to grant warrants to purchase its common
stock proportional to the number of devices ordered by each organization, which
as of the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis). It
is anticipated that the value associated with such equity interest would be
attributed to TCI Group upon purchase and deployment of the digital set-top
devices.
TCI Group's various partnerships and other affiliates accounted for by
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 TCI Group), through
net cash provided by their own operating activities and in certain
circumstances through required capital contributions from their partners.
In order to achieve the desired balance between variable and fixed
rate indebtedness, TCI Group has entered into various interest rate exchange
agreements ("Interest Rate Swaps") pursuant to which it (i) paid fixed interest
rates and received variable interest rates through December 1997 (the "Fixed
Rate Agreements") and (ii) pays variable interest rates and receives fixed
interest rates ranging from 4.8% to 9.7% on notional amounts of $2,400 million
at December 31, 1997 (the "Variable Rate Agreements"). During the years ended
December 31, 1997, 1996 and 1995, TCI Group's net payments pursuant to the
Fixed Rate Agreements were $7 million, $14 million and $13 million,
respectively; and TCI Group's net receipts (payments) pursuant to the Variable
Rate Agreements were (less than $1 million), $15 million, and (less than $1
million), respectively. At December 31, 1997, all of TCI Group's Fixed Rate
Agreements had expired.
During the year ended December 31, 1996, TCI Group terminated certain
Variable Rate Agreements with an aggregate notional amount of $700 million. TCI
Group received $16 million upon such terminations. TCI Group will amortize such
termination settlement over the remainder of the original terms of such Variable
Rate Agreements.
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In addition to the Variable Rate Agreements, TCI Group entered into an
Interest Rate Swap in September 1997 pursuant to which it pays a variable rate
based on the LIBOR rate (6.1% at December 31, 1997) and receives a variable
rate based on the Constant Maturity Treasury Index (6.4% at December 31, 1997)
on a notional amount of $400 million through September 2000. During the year
ended December 31, 1997, TCI Group's net receipts pursuant to such agreement
aggregated less than $1 million. At December 31, 1997, TCI Group would be
required to pay an estimated $3 million to terminate such Interest Rate Swap.
TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, TCI Group does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, TCI Group does not anticipate
material near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of December 31, 1997. See
note 8 to the accompanying combined financial statements for additional
information regarding Interest Rate Swaps.
At December 31, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,104 million (or 43%) of
fixed rate debt and $8,002 million (or 57%) of variable-rate debt.
Accordingly, in an environment of rising interest rates, TCI Group expects that
it would experience an increase in interest expense.
Approximately twenty-five percent of the franchises held by TCI Group,
involving approximately 4.8 million basic customers, expire within five years.
In connection with a renewal of a franchise, the franchising authority may
require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the
Cable Acts and other applicable federal, state and local law. Such provisions
establish an orderly process for franchise renewal which protects cable
operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet established standards.
TCI Group believes that its cable television systems generally have been
operated in a manner which satisfies such standards and allows for the renewal
of such franchises; however, there can be no assurance that the franchises for
such systems will be successfully renewed as they expire.
During 1997, TCI Group has continued to experience a competitive
impact from medium power and high power DBS operators that use high frequencies
to transmit signals that can be received by home satellite dishes ("HSDs") much
smaller in size than traditional HSDs. 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 6.2 million at the end of 1997, and TCI Group expects
that competition from DBS will continue to increase. However, TCI Group is
unable to predict what effect such competition will have on TCI Group's
financial position.
LIBERTY MEDIA GROUP
Liberty Media Group's source of funds include its available cash
balances, net cash provided by operating activities, cash distributions from
affiliates, dividend and interest receipts, proceeds from asset sales,
availability under certain credit facilities, and loans and/or equity
contributions from TCI Group. To the extent cash needs of Liberty Media Group
exceed cash provided by Liberty Media Group, TCI Group may transfer funds to
Liberty Media Group. Conversely, to the extent cash provided by Liberty Media
Group exceeds cash needs of Liberty Media Group, Liberty Media Group may
transfer funds to TCI Group.
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Effective February 6, 1998, the Company issued the 1998 Liberty Stock
Dividend which consisted of one share of Liberty Group Stock for every two
shares of Liberty Group Stock owned. The 1998 Liberty Stock Dividend has been
treated as a stock split, and accordingly, all share and per share amounts have
been retroactively restated to reflect the 1998 Liberty Stock Dividend.
During the year ended December 31, 1997, pursuant to a stock
repurchase program approved by the Board, Liberty Media Group repurchased
916,500 shares of Liberty Group Series A Stock in open market transactions and
219,937 shares of Liberty Group Series A Stock from the spouse of an officer
and director of TCI at an aggregate cost of $18,239,000.
Effective July 31, 1997, a wholly-owned subsidiary of TCI attributed
to TCI Group merged with and into Kearns- Tribune. TCI exchanged 47.2 million
shares of TCI Group Series A Stock for shares of Kearns-Tribune which held 17.9
million shares of TCI Group Stock and 10.1 million shares of Liberty Group
Stock. Liberty Media Group purchased from TCI Group the 10.1 million shares of
Liberty Group Stock that were acquired in such transaction for $168 million.
During the third quarter of 1997, Liberty Media Group commenced a
tender offer (the "Liberty Tender Offer") to purchase up to an aggregate of
22.5 million shares of Liberty Group Stock at a price of $20 per share through
October 3, 1997. During the fourth quarter of 1997, Liberty Media Group
repurchased 21.7 million shares of Liberty Group Series A Stock and 82,074
shares of Liberty Group Series B Stock at an aggregate cost of approximately
$435 million pursuant to the Liberty Tender Offer. All of the above described
purchases are reflected as a reduction of combined equity in the accompanying
combined financial statements of Liberty Media Group.
On January 12, 1998, TCI purchased 12.4 million shares of UVSG Series
A common stock held by Lawrence Flinn, Jr., UVSG's Chairman Emeritus, in
exchange for 12.7 million shares of TCI Ventures Group Series A Stock and 7.3
million shares of Liberty Group Series A Stock. As a result of such
transaction TCI increased its ownership in the equity of UVSG to approximately
73%, of which 56% is attributed to the TCI Ventures Group and 17% is attributed
to Liberty Media Group. In addition, TCI's collective voting power increased
to 93%.
On February 17, 1998, TCI, Liberty Media Group and UVSG announced that
UVSG agreed to acquire Liberty Media Group's interest in Superstar/Netlink and
Liberty Media Group's interest in Netlink in a tax free stock transaction. In
exchange for such interests, UVSG will issue 6.4 million shares of UVSG Series
A common stock to Liberty Media Group. As a result of such transaction, TCI's
collective interest in UVSG will increase to 77%, 29% of which is attributable
to Liberty Media Group and 48% of which is attributed to TCI Ventures Group. No
assurance can be given that such transaction will be consummated.
In connection with the DMX Merger, TCI and TCI Music entered into a
Contribution Agreement. Pursuant to the Contribution Agreement, effective as
of the closing of the DMX Merger: (i) TCI Music issued to TCI (as designee of
certain of its indirect subsidiaries), 62.5 million shares of TCI Music Series
B Common Stock and a promissory note in the amount of $40 million (the "TCI
Music Note"), (ii) until December 31, 2006, certain subsidiaries of TCI
transferred to TCI Music the right to receive all revenue from sales of DMX
music services to their residential and commercial subscribers, net of an
amount equal to 10% of revenue from such sales to residential subscribers and
net of the revenue otherwise payable to DMX as license fees for DMX Music
services under affiliation agreements currently in effect (the "Contributed Net
DMX Revenue"), (iii) TCI contributed to TCI Music certain commercial digital
DMX tuners that are not in service as of the effective date of the DMX Merger
(the "Contributed Tuners"), and (iv) TCI granted a Right to each stockholder
who became a stockholder of TCI Music pursuant to the DMX Merger.
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<PAGE> 156
Subsequently, TCI Music and TCI entered into an Amended and Restated
Contribution Agreement to be effective as of July 11, 1997 (the "Amended
Contribution Agreement") which provides, among other things, for TCI to
deliver, or cause certain of its subsidiaries to deliver to TCI Music monthly
payments (subject to inflation and other adjustments) through 2017.
On June 24, 1997 Liberty Media Group granted Time Warner an option,
expiring October 10, 2002, to acquire the business of Southern Satellite
Systems, Inc. ("Southern") and certain of its subsidiaries (together with
Southern, the "Southern Business") through a purchase of assets (the "Southern
Option"). Liberty Media Group received 6.4 million shares of TW Exchange
Stock valued at $306 million in consideration for the grant. Such amount has
been reflected as a deferred option premium in the accompanying combined
financial statements of Liberty Media Group. In September 1997, Time Warner
exercised the Southern Option. Pursuant to the Southern Option, Time Warner
acquired the Southern Business, effective January 1, 1998, for $213 million,
which was paid in cash, together with the assumption of certain liabilities on
January 2, 1998. (See note 6 to the accompanying combined financial
statements). Subsequent to the exercise of the Southern Option, cash provided
by operating activities of Southern is no longer available as a source of cash
for Liberty Media Group.
Encore Media Group's loan agreement contains restrictions regarding
transfers of funds to other members of Liberty Media Group in the form of
loans, advances or cash dividends. Additionally, subsequent to the sale of
Netlink to UVSG, cash provided by operating activities of Netlink will no
longer be available as a source of cash for Liberty Media Group. Although no
assurance can be given, cash provided by operating activities of Southern and
Netlink have been a significant source of cash for Liberty Media Group. Cash
generated by Liberty Media Group's remaining operating activities, distributions
from affiliates, dividend and interest payments, availability under its credit
facilities and available cash balances should provide adequate cash to meet its
obligations.
As of December 31, 1997, Liberty Media Group holds approximately 57
million shares of the TW Exchange Stock. Holders of TW Exchange Stock are
entitled to receive dividends ratably with Time Warner common stock. Liberty
Media Group received $19 million and $4.5 million in cash dividends for the
years ended December 31, 1997 and 1996, respectively. It is anticipated that
Time Warner will continue to pay dividends on its common stock and consequently
Liberty Media Group will receive dividends on the TW Exchange Stock it holds.
However, there can be no assurance that such dividends will continue to be
paid. Liberty Media Group received $13 million in cash dividends on the FKW
Preferred Stock during the year ended December 31, 1997. The FKW Preferred
Stock is a 30 year non-convertible 9% preferred stock with a stated value of
$345 million.
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<PAGE> 157
Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million. Borrowings of $292 million were outstanding
at December 31, 1997. As security for this indebtedness, Liberty Media Group
pledged a portion of its TW Exchange Stock. During 1997, Encore Media Group
obtained a new $625 million senior, secured facility (the " EMG Senior
Facility") in the form of a $225 million reducing revolving line of credit and
a $400 million, 364-day revolving credit facility convertible to a term loan.
The credit agreement for the EMG Senior Facility contains certain provisions
which limit Encore Media Group as to additional indebtedness, sale of assets,
liens, guarantees, and distributions. Additionally, Encore Media Group must
maintain certain specified financial ratios. No borrowings were outstanding on
the EMG Senior Facility at December 31, 1997. The EMG Senior Facility serves
to replace an EMC bank credit facility which was terminated. On December 30,
1997, TCI Music entered into a revolving loan agreement which provides for
borrowings of up to $100 million. Borrowings of $53 million were outstanding
at December 31, 1997.
Various partnerships and other affiliates of Liberty Media Group
accounted for under the equity method finance a substantial portion of their
acquisitions and capital expenditures through borrowings under their own credit
facilities and net cash provided by their operating activities.
The Music Note may be reduced by the payment of cash or the issuance
by TCI of shares of Liberty Media Group Stock for the benefit of entities
included within the TCI Group. Additionally, Liberty Media Group may elect to
pay $50 million of the Music Note by delivery of a Stock Appreciation Rights
Agreement that will give TCI Group the right to receive 20% of the appreciation
in value of Liberty Media Group's investment in TCI Music, to be determined at
July 11, 2002. Including Rights held by subsidiaries of TCI that are not
members of the Liberty Media Group, the obligation under the Rights Agreement
could be as high as $85 million.
It is anticipated that the EMG Promissory Note will be repaid during
the first quarter of 1998.
As of December 31, 1997, Liberty Media Group was not exposed to
material near-term losses in future earnings, fair values, or cash flows
resulting from derivative financial instruments.
Liberty Media Group has guaranteed capital contributions to a joint
venture entered into by Encore International, Inc. ("EI"). The amount of the
guarantee at December 31, 1997 is approximately $11 million and is
automatically reduced as EI makes capital contributions or advances to the
joint venture.
Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming. As of December 31, 1997, Liberty
Media Group's future minimum obligation related to certain film licensing
agreements was $695 million. The amount of the total obligation 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. Continued development may require additional financing and
it cannot be predicted whether Liberty Media Group will obtain such financing.
If additional financing cannot be obtained, Liberty Media Group could attempt
to sell assets but there can be no assurance that asset sales, if any, can be
consummated at a price and on terms acceptable to Liberty Media Group.
Further, Liberty Media Group and/or TCI could attempt to sell equity securities
but, again, there can be no certainty that such a sale could be accomplished on
acceptable terms.
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Due to the high costs of first-run movie programming, the operations
of STARZ! generate a significant operating loss. However, the operating loss
should be reduced as revenue increases. Although no assurance can be given,
Encore Media Group should have sufficient cash from operations of Encore and
Multiplex, as well as availability under its credit facility to meet the needs
of their costs of programming.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to the 1998 Liberty Stock Dividend and the Ventures Stock
Dividend) that were subject to the Malone Call Agreement and the Magness Call
Agreement. Accordingly, Liberty Media Group paid $64 million during the first
quarter of 1998 for its allocated share of the Call Payments. See note 10 to
the accompanying combined financial statements of Liberty Media Group.
In February 1998, pursuant to an Investment Agreement among Universal
Studios, Inc. ("Universal"), HSNI, HSN and Liberty Media Group, dated as of
October 1997 and amended and restated as of December 1997 (the "Investment
Agreement"), HSNI consummated a transaction (the "Universal Transaction")
through which USA Networks Partners, Inc., a subsidiary of Universal, sold its
50% interest in USA Networks, a New York general partnership ("USA Networks")
to HSNI and Universal contributed the remaining 50% interest in USA Networks
and its domestic television production and distribution operations to HSNI. In
connection with the Universal Transaction, Universal, HSNI, HSN and Liberty
Media Group became parties to a number of other agreements relating to, among
other things, (i) the management of HSNI, (ii) the purchase and sale or other
transfer of voting securities of HSNI, including securities convertible or
exchangeable for voting securities of HSNI, and (iii) the voting of such
securities.
At the closing of the Universal Transaction, Universal (i) was issued
3,190,000 shares of HSNI's Class B Common Stock, 3,560,000 shares of HSNI's
Common Stock and 54,327,170 common equity shares ("LLC Shares") of USANi LLC, a
limited liability company ("USANi LLC") formed to hold all of the businesses of
HSNI and its subsidiaries, except for its broadcasting business and its equity
interest in Ticketmaster and (ii) received a cash payment of $1.3 billion.
Pursuant to an Exchange Agreement relating to the LLC Shares (the "LLC Exchange
Agreement"), 36,810,000 of the LLC Shares issued to Universal are each
exchangeable for one share of HSNI's Class B Common Stock and the remainder of
the LLC Shares issued to Universal are each exchangeable for one share of
HSNI's Common Stock.
At the closing of the Universal Transaction, Liberty Media Group was
issued 589,161 shares of HSNI's Class B Common Stock, representing all of the
remaining shares of HSNI's Class B Common Stock issuable pursuant to Liberty
Media Group's Contingent Right. Of such shares, 400,000 shares of Class B
Common Stock were contributed to BDTV IV Inc. ("BDTV-IV"), a newly-formed
entity having substantially the same terms as BDTV-I and BDTV-II (with the
exception of certain transfer restrictions). In addition, Liberty Media Group
purchased 5 LLC Shares at the closing of the Universal Transaction for an
aggregate purchase price of $200. Liberty Media Group has also agreed to
contribute $300 million in cash to USANI LLC by June 30, 1998 in exchange for
an aggregate of 7,500,000 LLC Shares and/or shares of HSNI's Common Stock.
Liberty Media Group's cash purchase price will increase at an annual interest
rate of 7.5% beginning from the date of the closing of the Universal
Transaction through the date of Liberty Media Group's purchase of such
securities (the "Liberty Closing"). Pursuant to the LLC Exchange Agreement,
each LLC Share issued or to be issued to Liberty Media Group is exchangeable
for one share of HSNI's Common Stock.
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<PAGE> 159
In connection with the Universal Transaction, each of Universal and
Liberty Media Group has been granted a preemptive right with respect to future
issuances of HSNI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in HSNI that they had
immediately prior to such issuances. In addition, with respect to issuances of
HSNI's capital stock in certain specified circumstances, Universal will be
obligated to maintain the percentage ownership interest in HSNI that it had
immediately prior to such issuances. In addition, HSNI, Universal and Liberty
Media Group have agreed that if the parties agree prior to June 30, 1998 (the
date of mandatory cash contributions) on the identity of assets owned by
Liberty Media Group that are to be contributed to the LLC and the form and
terms of such contributions, Liberty Media Group will contribute those assets
in exchange for LLC Shares valued at $40 per share. If Liberty Media Group
contributes such additional assets, Liberty Media Group has the right to elect
to reduce the number of LLC Shares it is obligated to purchase for cash by an
amount equal to 45% of the value of the assets contributed by Liberty Media
Group. If Liberty Media Group exercises the option to contribute assets and
thereby reduces its cash contribution amount, Universal will be required to
purchase a number of additional LLC shares (valued at $40 per share) equal to
the value of Liberty Media Group's asset contribution, less the amount by which
Liberty Media Group's asset contribution is applied towards reducing Liberty
Media Group's cash contribution. In addition, Universal may purchase an
additional number of LLC shares (valued at $40 per share), equal to the value
of Liberty Media Group's asset contribution which is not applied towards
reducing Liberty Media Group's cash contribution.
The FCC has initiated a number of rulemakings to implement various
provisions of the 1996 Telecom Act. Among other things, the 1996 Telecom Act
also requires the FCC to establish rules and implementation schedules to ensure
that video programming is fully accessible to the hearing impaired through
closed captioning. On August 22, 1997, the FCC released new rules which will
require substantial closed captioning over an eight to ten year phase in period
with only limited exceptions. As a result, Liberty Media Group's programming
interests are expected to incur significant additional costs for closed
captioning. A number of parties petitioned the FCC to reconsider various
provisions of these rules, and such petitions remain pending.
On August 1, 1997, the United State Copyright Office released a
"Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast
Signals" in response to a request from the Chairman of the United States Senate
Committee on the Judiciary. The Copyright Office recommended a number of
significant changes in the laws regulating the copyright licensing of broadcast
retransmissions which, if adopted, would have a significant impact upon
Netlink. Congressional committees have held and scheduled hearings on such
recommendations.
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<PAGE> 160
On October 28, 1997, the Librarian of Congress (the "Librarian")
announced final rules increasing the monthly copyright royalty fee for the
secondary transmission of superstations and network stations by satellite
carriers, such as Netlink, to 27 cents per subscriber for distant superstations
and network stations. Those monthly fees had been 17.5 cents for superstations
and 6 cents for network stations. The copyright royalty fees for Netlink were
approximately $3 million for each of the three years ended December 31, 1997.
The Librarian adopted the royalty fees which had been recommended by the
Copyright Arbitration Royalty Panel (the "Panel") in a report submitted to the
Librarian. Although the Panel has recommended that the new fees be effective
as of July 1, 1997, the Librarian determined that the fees became effective on
January 1, 1998. Consequently, the copyright fees paid by Netlink for the
retransmission of broadcast signals to home satellite dish owners will increase
significantly. The resulting increases in retail prices to subscribers may
cause a substantial decrease in the number of subscribers to Netlink services.
On October 30, 1997, the Satellite Broadcasting & Communications Association,
of which Netlink is a member, filed a Petition for Review of the Librarian's
decision with the United States Court of Appeals for the District of Columbia
Circuit which remains pending. The Court of Appeals refused to grant an
interim stay of the increase. Various bills are being considered by Congress
which if enacted would amend and extend the satellite license and/or
potentially change the copyright royalty fee.
Netlink has entered into an agreement in principle with
representatives of the National Association of Broadcasters and of its
television network affiliate members. Netlink's wholesale C-band satellite
business uplinks the signals of broadcast televisions stations to C-Band
packagers and marketers in the United States and Canada. In uplinking and
selling the signals of broadcast television stations in the United States,
Netlink's wholesale C-band satellite business is subject to certain FCC
regulations and Copyright Act provisions. Pursuant to such regulations,
Netlink's wholesale C-band satellite business may only distribute the signals
of network broadcast stations to "unserved households" which are outside the
Grade B contours of a primary station affiliated with such network. The
parties to the agreement will identify by zip code those geographic areas which
are "unserved" by network affiliated stations. Depending upon finalization of
the agreement and such identification, Netlink's wholesale C-band satellite
business may be required to disconnect a substantial number of existing
subscribers which would have a material adverse effect upon the operations of
the Netlink wholesale C-band business.
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<PAGE> 161
TCI VENTURES GROUP
The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the businesses attributed to
it:
<TABLE>
<CAPTION>
December 31,
1997
------------------
amounts in thousands
<S> <C> <C>
Total assets
TINTA $ 1,394,000
TCI Telephony 927,862
UVSG 428,984
NDTC 348,940
@Home 160,583
ETC 87,487
WTCI 81,283
Other 350,763
------------------
$ 3,779,902
==================
Debt and capital lease obligations (1)
TINTA $ 390,042
DigiVentures 175,833
NDTC 158,172
UVSG 28,164
ETC 11,083
@Home 25,706
Other 6,340
------------------
$ 795,340
==================
</TABLE>
- ---------------
(1) For additional information concerning the terms of TCI Ventures Group's
debt, see note 14 to the accompanying combined financial statements of
the TCI Ventures Group.
The TCI Ventures Group's combined operating activities provided cash
of $90.5 million, $85.9 million and $6.9 million during the years ended
December 31, 1997, 1996 and 1995, respectively. As discussed above, effective
October 1, 1997, Cablevision's cash flows will no longer be included in the TCI
Ventures Group's combined statements of cash flows. Cablevision operating
activities provided cash of $40 million during the nine months ended September
30, 1997. In addition, as discussed above, effective January 1, 1997,
Flextech's cash flows will no longer be included in the TCI Ventures Group's
combined statements of cash flows. At December 31, 1997, @Home and UVSG held
cash and cash equivalents of $120 million and $31 million, respectively. The
cash balances of such entities are generally intended to be applied towards the
respective liquidity requirements of such entities. It is not presently
anticipated that any significant portion of such cash balances will be
distributed or otherwise made available to the TCI Ventures Group.
During the years ended December 31, 1997, 1996 and 1995, cash used by
TCI Ventures Group's investing activities aggregated $429.2 million, $654.7
million and $1.3 billion, respectively. Such amounts include $548.9 million,
$473.1 million and $1.0 billion, respectively, that were used by the TCI
Ventures Group to fund investments in, and loans to, affiliates.
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<PAGE> 162
Substantially all of the entities the ownership of which, or the
investment in which, has been attributed to the TCI Ventures Group 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 significant additional capital
contributions to the entities in which it has investments. TINTA and its
consolidated subsidiaries also 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. There
can be no assurance that any of the TCI Ventures Group's 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
them to be able to meet their respective capital requirements. There is also
no assurance that the anticipated capital requirements of the TCI Ventures
Group's entities and/or affiliates 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 or in certain instances, could result in the
failure to meet certain regulatory requirements, any and all of which could
have a material adverse effect on such entity's growth, its ability to compete
in its industry and its ability to service its debt.
The ability of a cash flow generating business of one of the TCI
Ventures Group Entities to fund the cash flow deficits of the businesses of one
or more of the other TCI Ventures Group entities is limited not only by the
structural separation of such businesses in separate corporations and
partnerships, but also by the presence of other investors, both debt and
equity, in many of the TCI Ventures Group entities. In addition, TINTA and
certain of the other TCI Ventures Group entities, such as Teleport and Sprint
PCS, are holding companies, the assets of which consist solely or primarily of
investments in their subsidiaries and affiliates. 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 external financing and/or of dividends, loans or other
payments 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, including
debt service, is severely limited as a result of their dependence upon external
financing and funds received from 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, among
other things, to statutory, regulatory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and affiliates, and are
subject to various business considerations.
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). As of December 31, 1997 approximately $4.0
billion of such $4.2 billion had been contributed to Sprint PCS, of which
amount TCI Telephony had contributed approximately $1.3 billion. The TCI
Ventures Group currently expects that the remaining approximately $200 million
of such amount (of which TCI Telephony's share would be approximately $60
million) will be contributed by the Sprint PCS Partners by the end of the
second quarter of 1998 (although it is not presently known whether any
additional capital will be contributed by any or all of the Sprint PCS
Partners). The TCI Ventures Group expects that the Sprint PCS Partnerships
will require additional equity thereafter.
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Sprint PCS's business plan will require additional capital financing
prior to the end of 1998. Sources of funding for Sprint PCS's capital
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners. However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.
Additionally, the proposed budget for 1998 has not yet been approved
by the Sprint PCS partnership board, although the board has authorized
management to operate Sprint PCS in accordance with such budget. The Sprint
PCS Partners may mutually agree to make additional capital contributions.
However, the Sprint PCS Partners have no such obligation in the absence of an
approved budget, and there can be no assurance the Sprint PCS Partners will
reach such an agreement or approve the 1998 proposed budget. In addition, the
failure by the Sprint PCS Partners to approve a business plan may impair the
ability of Sprint PCS to obtain required financing. Failure to obtain any such
additional financing or capital contributions from the Sprint PCS Partners
could result in the delay or abandonment of Sprint PCS's development and
expansion plans and expenditures, the failure to meet regulatory requirements
or other potential adverse consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998. Under the Sprint PCS partnership
agreement, if one of the Sprint PCS Partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS Partners
for resolution pursuant to specified procedures and the issue remains
unresolved, buy/sell provisions would be triggered, which may result in the
purchase by one or more of the Sprint PCS Partners of the interests of the
other Sprint PCS Partners, or, in certain circumstances, liquidation of Sprint
PCS. Discussions among the Sprint PCS Partners about restructuring their
interests in Sprint PCS in lieu of triggering such buy/sell procedures are
ongoing. However, there is no certainty the discussions will result in a
change to the partnership structure or will avert the triggering of the
resolution and buy/sell procedures referred to above or a liquidation of Sprint
PCS.
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Historically, the TCI Ventures Group's combined operating activities
have not provided sufficient funds to meet all of the TCI Ventures Group's
capital requirements. The TCI Ventures Group's ability to obtain sufficient
capital resources to make its expected additional capital contributions to the
Sprint PCS Partnerships and other entities in which it has investments are
limited. WTCI and NDTC are the only wholly-owned subsidiaries attributed to
the TCI Ventures Group that are operating companies and such entities are
currently the TCI Ventures Group's only source of cash provided by operating
activities. As a result, the TCI Ventures Group has limited ability to
generate funds internally to fund capital requirements and limited cash flow
from operating activities to support external financings. The other operating
companies attributed to the TCI Ventures Group have other investors, public or
private, and the payment of dividends, or the making of loans or advances by
any one of such TCI Ventures Group entities to any other of such TCI Ventures
Group entities would be subject to various business considerations, as well as
any legal restrictions, including pursuant to agreements among the investors.
At December 31, 1997, TCI Ventures Group had a revolving loan facility from the
TCI Group (the "Revolving Credit Facility") which had a five-year term
commencing on September 10, 1997 and which permitted aggregate borrowings at
any one time outstanding of up to $500 million (subject to reduction as
provided below), which borrowings 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 is 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 Sprint PCS Partnerships subsequent to the September
10, 1997 consummation of the Exchange Offers is less than $300 million. No
borrowings were outstanding pursuant to the Revolving Credit Facility at
December 31, 1997. In March 1998, TCI Ventures Group entered into a bank credit
facility with a term of one year which provides for aggregate borrowings of up
to $400 million. If the available borrowings under such bank 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. 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 common
stock or through issuance of debt securities or preferred equity securities
attributed to the TCI Ventures Group. It is anticipated, however that the TCI
Ventures Group may continue to be dependent upon funding from the TCI Group. The
TCI Ventures Group's failure to meet its contractual and other capital
requirements could have significant adverse consequences to a particular
operating company or affiliate and to the TCI Ventures Group.
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TINTA'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 TINTA believes
will require substantial additional funds. Although TINTA has, at December 31,
1997, (i) $88.7 million due from TCI Ventures Group pursuant to an unsecured
promissory note, (ii) a $200 million credit facility with the TCI Ventures
Group and (iii) the ability to access any excess cash and borrowing
availability from its Puerto Rico subsidiary (the "Puerto Rico Subsidiary"),
TINTA'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 TINTA does not conduct any operations directly.
Furthermore, because TINTA's assets consist primarily of ownership interests in
foreign subsidiaries and affiliates, the repatriation of any cash provided by
such subsidiaries' and affiliates' operating activities in the form of
dividends, loans or other payments is subject to, among other things, exchange
rate fluctuations, tax laws and other economic considerations, as well as
applicable statutory and contractual restrictions. Moreover, the liquidity
sources of TINTA's foreign subsidiaries and affiliates are generally intended
to be applied towards the respective liquidity requirements of such foreign
subsidiaries and affiliates, and accordingly, do not represent a direct source
of liquidity to TINTA. Accordingly, with the exception of any liquidity that
may be provided to TINTA by the Puerto Rico Subsidiary, no assurance can be
given that TINTA will have access to any cash generated by its foreign
operating subsidiaries and affiliates.
TINTA has invested in most of its subsidiaries and affiliates with
strategic and local partners. Financial and operational considerations, as
well as laws that limit foreign equity positions, will likely require TINTA to
continue to invest with 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 TINTA having diminished ability to
implement strategies that TINTA may favor, or cause dividends or distributions
@Home is investing significantly in the development of its network
infrastructure and hiring new personnel rapidly in anticipation of potential
growth in its business, which is in a very early state of development. As of
December 31, 1997 there were minimal subscribers to its @Home services. @Home
believes that the cash proceeds of approximately $100 million from its initial
public offering on July 11, 1997, together with existing cash, cash equivalents
and capital lease financing, will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months. @Home may,
however, require 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. Over
the longer term, it is likely that @Home will require substantial additional
funds to continue to fund its infrastructure investment, product development,
marketing, sales and customer support needs. There can be no assurance that
any such funds will be available at the time or times needed, or available on
terms acceptable to @Home. If adequate funds are not available, or are not
available on acceptable terms, @Home may not be able to continue its network
implementation, to develop new products and services or otherwise to respond to
competitive pressures. Such inability could have a material adverse effect on
@Home's business, operating results and financial condition.
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Because TCI's investment in @Home is attributed to the TCI Ventures
Group while the entity which will distribute the @Home service to customers of
TCI's cable systems is attributed to the TCI Group, certain conflicts of
interest between the TCI Group and the TCI Ventures Group may result in that
actions taken by the TCI Group, such as the speed at which TCI's cable
television systems are upgraded to the level necessary to support distribution
of the @Home service, will have a direct impact upon the value of the TCI
Ventures Group's interest in @Home. Similarly, the extent to which TCI elects
to use @Home as the provider of certain services which are not covered by TCI's
exclusivity obligations to @Home, rather than another third party, may have an
effect upon the business of @Home and therefore upon the value of the TCI
Ventures Group.
Effective October 2, 1997, @Home entered into an exclusive
distribution agreement with CSC and issued to CSC warrants to purchase an
aggregate of 10,946,936 shares of @Home's Series A common stock at an exercise
price of $.50 per share. Of these warrants 10,231,298 of such shares were
exercisable as of March 4, 1998, subject to the receipt of all necessary
governmental consents or approvals and the balance will become exercisable as
and to the extent certain Connecticut cable television systems are transferred
from TCI and its controlled affiliates to CSC, CSC's parent or their controlled
affiliates. Following the exercise of all of CSC's warrants, TCI Ventures
Group's equity interest and voting power in @Home will decrease to
approximately 36% and 69%, respectively.
During the period in which each of TCI, Cox, Comcast and CSC have
agreed (subject to certain exceptions and limitations) to use @Home as its
exclusive provider of high speed residential consumer Internet access services,
a stockholders agreement among such parties and @Home provides that in the event
the number of exclusive homes passed attributable to TCI decreases below 80% of
the number of homes passed of TCI and its controlled affiliates as of June 1996,
then TCI will be required to offer to sell a proportionate amount of its equity
in @Home to certain other stockholders of @Home at fair market value. TCI has
announced the proposed sale or transfer of certain cable systems that would
reduce TCI's number of base homes passed. In addition, TCI has announced that
it is considering various plans and proposals that may result in the disposition
of other of its cable systems. In the event that such cable systems continue to
be exclusive to @Home, such cable systems and their homes passed would continue
to be included in TCI's homes passed for purposes of determining whether or not
TCI is obligated to offer a portion of its equity interest in @Home to Cox,
Comcast and CSC, even through such cable systems are no longer owned or
controlled by TCI. If TCI does not require that such cable systems remain
exclusive to @Home, the TCI Ventures Group could be required to sell shares to
Cox, Comcast, CSC and Kleiner, Perkins, Caufield and Byers, at fair market
value. There can be no assurance that, if the TCI Ventures Group is required to
sell shares of @Home, the price paid to the TCI Ventures Group would represent
adequate consideration to the TCI Ventures Group because such fair market value
may not adequately reflect the TCI Ventures Group's expectation of the long term
value of such investments in @Home. In addition to the exceptions to the
general exclusivity obligations, Cox and Comcast have the right to terminate the
exclusivity provisions with respect to TCI, Cox and Comcast in the event TCI
does not attain certain customer penetration levels for the @Home service
relative to the customer penetration levels of Cox and Comcast, as of June 4,
1999, and each anniversary thereafter until 2002. Such termination could have a
material adverse effect on @Home and the value of the TCI Ventures Group's
interest in @Home.
In addition, although TCI, Cox, Comcast and CSC are subject to certain
exclusivity obligations to carry @Home's residential consumer Internet service
over their cable systems, such exclusivity obligations are subject to a number
of exceptions which allow them to compete with @Home in certain circumstances.
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The Satellite Home Viewer Act of 1988, as amended in 1994 (the "SHV
Act") 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 SHV Act, satellite carriers are
responsible for paying copyright fees to a federal copyright fee collection
agency for the sale of superstation signals. On October 27, 1997, the
Librarian finalized his decision to accept the Copyright Arbitration Rate
Panel's ("CARP") recommendation that copyright fees for direct-to-home
satellite carriage of superstations and distant network television broadcast
signals be raised to $0.27 per subscriber, per month. The CARP also
recommended that these increases be retroactive to July 1, 1997, however, the
Librarian ruled to effect the change January 1, 1998. Superstation copyright
fees previously ranged from $0.14 to $0.175 per subscriber, per month while
network affiliate fees approximated $0.06 per subscriber, per month. Several
programming packagers of home satellite services and distributors of
programming to C-band direct-to-home programming packagers have announced price
increases to cover the increase in the copyright fee. Accordingly, UVSG
anticipates that it may also be able to pass the increases on to both its
retail and its direct-to-home wholesale customers via price increases. Such
increases may cause a decrease in the number of subscribers to such services.
The increased overall cost of Superstations resulting from the increased
copyright could also impact the purchasing decisions made by program packagers
and marketers of programs to the direct-to-home industry. Various bills are
being considered by Congress which if enacted would amend and extend the
satellite license and/or potentially change the copyright royalty fee.
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. Because TCI's investment in UVSG is attributed to the TCI Ventures
Group, situations may arise where management of the entity attributed to one
Group may make a decision which adversely affects one of the other Groups.
Many of the TCI Ventures Group entities operate in industries,
primarily the telecommunications industry and the Internet services industry,
which have experienced and are expected to continue to experience (i) rapid and
significant changes in technology, (ii) ongoing improvements in the capacity
and quality of such services, (iii) frequent and new product and service
introductions, and (iv) enhancements and changes in end-user requirements and
preferences. 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. Neither PCS systems nor the
delivery of Internet services over the cable infrastructure 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. If markets fail to develop, develop more slowly than expected, or
become highly competitive, the TCI Ventures Group's operating results and
financial condition may be materially adversely affected.
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Certain of the countries in which TINTA has operating companies or in
which TINTA may operate in the future, may be subject to a substantially
greater degree of social, political and economic instability than is the case
in other countries. Risks associated with social, political and economic
instability in a particular country could materially adversely affect the
results of operations and financial condition of any subsidiary or affiliate of
TINTA located within such country or that has significant operations there (and
thereby have a potentially material adverse effect on the results of operations
or financial condition of TINTA) and could result in the loss of TINTA's
investment in such subsidiary or affiliate or the loss by such subsidiary or
affiliate of its assets in such country.
TINTA is exposed to foreign exchange risk caused by unfavorable and
potentially volatile fluctuations of the U.S. dollar (the functional currency
of TINTA) against the U.K. pound sterling, the Japanese yen, the Argentine peso
and various other foreign currencies that are the functional currencies of
certain of TINTA'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. Changes
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
TINTA to experience unrealized foreign currency translation losses or gains
with respect to amounts already invested in such foreign currencies. TINTA 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.
Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA 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, TINTA 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
TINTA monitors foreign currency exchange rates with the objective of mitigating
its exposure to unfavorable fluctuations in such rates, TINTA believes that,
given the nature of its business, it is not possible or practical to eliminate
TINTA's exposure to unfavorable fluctuations in foreign currency exchange
rates. As of December 31, 1997, TINTA was not exposed to material near-term
losses in future earnings, fair values or cash flows resulting from derivative
financial instruments.
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 had issued convertible non-preference shares ("Flextech
Non-Preference Shares") in connection with previous acquisition transactions
due to TINTA'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. TINTA had put obligations with respect to Flextech
Non-Preference Shares which were issued in connection with certain Flextech
acquisitions. Such put obligations were eliminated with the conversion of
Flextech Non-Preference Shares into Flextech Ordinary Shares.
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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 L.10 million ($17 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 TINTA assume all of
Flextech's funding obligations to the Principal Joint Venture (the "Standby
Commitment"). In addition to Flextech's April 1997 purchase of L.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 L.88 million ($145 million) and, subject to certain restrictions, a standby
credit facility of L.30 million ($50 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.
If BBC Worldwide requires TINTA to perform Flextech's funding
obligations pursuant to the Standby Commitment, then TINTA will acquire
Flextech's entire equity interest in the Principal Joint Venture for L.1.00,
and will replace Flextech's directors on the board of the Principal Joint
Venture with representatives of TINTA. Flextech will pay commitment and
standby fees to TINTA for its undertaking under the Standby Commitment. If
Flextech repays to TINTA all loans it makes to the Principal Joint Venture
(plus interest at TINTA's marginal cost of funds plus 2% per annum) within 180
days after TINTA first becomes obligated to perform Flextech's financial
obligations, it may reacquire its interest in the Principal Joint Venture for
L.1.00. TINTA 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.
TINTA has formed strategic partnerships with News Corp., Organizacoes
Globo and Grupo Televisa S.A. to develop and operate a direct-to-home satellite
service for Brazil, Mexico, and various Central and South American countries
(collectively, the "DTH Ventures"). Through December 31, 1997, TINTA had
contributed $24.9 million to the DTH Ventures. It is anticipated that TINTA
could be required to make additional cash contributions in connection with the
DTH Ventures.
As of December 31, 1997, TINTA had made cash contributions to Torneos
y Compentencias S.A. ("Torneos") on the behalf of Liberty/TINTA of $48
million and purchased a direct 5% interest in Torneos for $12 million. It is
anticipated that Liberty Media Group's portion of such cash contributions to
Torneos will be repaid to TINTA in cash or other economic consideration to be
determined at some future date.
TINTA 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, 1997, the U.S. dollar equivalent of
the amounts borrowed pursuant to the Guaranteed Obligations was $26 million.
Certain of the Guaranteed Obligations allow for additional borrowings in future
periods. TINTA 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 TINTA were to fail to fulfill its obligations
under the guarantees, the beneficiaries have the right to demand an aggregate
payment of approximately $46 million at December 31, 1997. Although TINTA has
not had to perform under such guarantee to date, TINTA cannot be certain that
it will not be required to perform under such guarantee in the future.
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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 December 31, 1997, UVSG had
repurchased 124,000 shares of stock for a total of $2 million.
In addition to the shares of TCI Ventures Group Stock issued in the
TCI Ventures Exchange, at December 31, 1997, 36,237,000 shares of TCI Ventures
Group Series A Stock were reserved for issuance upon exchange of certain
outstanding convertible notes issued by a subsidiary of TCI and upon exercise
of certain stock options.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to the 1998 Liberty Stock Dividend and the Ventures Stock
Dividend) that were subject to the Malone Call Agreement and the Magness Call
Agreement. Accordingly, TCI Ventures Group paid $76 million during the first
quarter of 1998 for its allocated share of the Call Payments. For additional
information see note 15 to the accompanying combined financial statements of
TCI Ventures Group.
During the fourth quarter of 1997, TCI entered into the Equity Swap
Facility. Pursuant to the Equity Swap Facility, TCI has the right to direct
the Counterparty to use the Equity Swap Facility to purchase Equity Swap Shares
of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million. TCI has the right, but not the
obligation, to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility. During such period, TCI is to
settle periodically any increase or decrease in the market value of the Equity
Swap Shares. If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from the other
Equity Swap Shares. If the market or value of Equity Swap Shares is less than
the Counterparty's cost, TCI, at its option, will settle such difference with
shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit. In addition,
TCI is required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI's ability to issue shares to settle periodic price fluctuation and
fees under the Equity Swap Facility, TCI records all amounts received or paid
under this arrangement as increases or decreases to equity. As of December 31,
1997, the Equity Swap Facility has acquired 345,000 shares of TCI Group Series
A Stock and 380,000 shares of TCI Ventures Group Series A Stock at an aggregate
cost that was approximately $3 million less than the fair value of such Equity
Swap Shares at December 31, 1997.
In September 1997, the Board authorized a stock repurchase program,
under which TCI may repurchase from time to time up to five percent of its TCI
Ventures Group Stock. As of December 31, 1997, 338,196 shares of TCI Ventures
Group Stock had been repurchased for $3.7 million.
On September 26, 1997, TINTA sold its interest in Sky for cash
proceeds of $53.0 million.
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During the third quarter of 1997, TCI Ventures Group sold certain
assets (the "SUMMITrak Assets") to CSG Systems, Inc. ("CSG") for cash
consideration of $106 million, plus five-year warrants to purchase up to 1.5
million shares of CSG common stock at $24 per share and $12 million in cash,
once certain numbers of TCI affiliated customers are being processed on a CSG
billing system. Under certain circumstances, TCI may also be eligible to
receive certain other contingent royalties. In connection with the sale of the
SUMMITrak Assets, TCI Group committed to purchase billing services from CSG
through 2012. In light of such commitment, TCI Ventures Group has reflected the
$47 million excess (before deducting deferred income taxes of $17 million) of
the cash received over the book value of the SUMMITrak Assets as an increase to
"Combined Equity." TCI Group, in turn, recorded an offsetting decrease to
"Combined Equity" and a $47 million deferred gain to be amortized over the
expected 15-year life of the CSG billing services commitment.
In January 1998, the TCI Ventures Group's interest in DigiVentures was
assigned to the TCI Group. In connection therewith the TCI Group assumed
DigiVentures' capital lease obligations totaling $176 million and paid $7
million in cash to the TCI Ventures Group.
On January 12, 1998, TCI purchased 12.4 million shares of UVSG Series A
common stock held by Lawrence Flinn, Jr., UVSG's Chairman Emeritus, in exchange
for 12.7 million shares of TCI Ventures Group Series A Stock and 7.3 million
shares of Liberty Group Series A Stock. As a result of such transaction TCI
increased its ownership in the equity of UVSG to approximately 73%, of which 56%
is attributed to the TCI Ventures Group and 17% is attributed to Liberty Media
Group. In addition, TCI's collective voting power increased to 93%.
On February 17, 1998, TCI, Liberty Media Group and UVSG announced that
UVSG agreed to acquire Liberty Media Group's interest in Superstar/Netlink and
Liberty Media Group's interest in Netlink in a tax free stock transaction. In
exchange for such assets, UVSG will issue 6.4 million shares of UVSG Series A
common stock to Liberty Media Group. As a result of such transaction, TCI's
collective interest in UVSG will increase to 77%, 48% of which is attributable
to TCI Ventures Group and 29% of which is attributable to Liberty Media Group.
No assurance can be given that such transaction will be consummated.
TCI Ventures Group sold its interest in Acclaim Entertainment, Inc. in
February 1998 for cash proceeds of approximately $17 million.
On February 12, 1998, the TCI Ventures Group sold its (i) 40% interest
in NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii) 79%
interest in New Jersey Fiber Technologies, L.P. to Hyperion Telecommunications,
Inc. for aggregate cash proceeds of $44 million.
TCI and the other partners of Kansas City Fiber Network, L.P. ("KC
Fiber") have signed an agreement to sell the assets of KC Fiber to TCG for cash
proceeds of $55 million. The TCI Ventures Group holds a 50% interest in KC
Fiber and the remaining 50% is held by Kansas City Cable Partners, a partnership
in which the TCI Group holds a 50% interest. The sale of KC Fiber is subject to
certain regulatory and other conditions, and there is no assurance that it will
be consummated. If consummated, TCI Ventures Group share of such proceeds will
be approximately $20 million.
II-69
<PAGE> 172
Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators, including HITS' affiliates, that may be designated from time
to time by NDTC, entered into an agreement with GI to purchase advanced digital
set-top devices. The hardware and software incorporated into these devices
will be designed and manufactured to be compatible and interoperable with the
OpenCable(TM) architecture specifications adopted by CableLabs, the cable
television industry's research and development consortium, in November 1997.
NDTC has agreed that Approved Purchasers will purchase, in the aggregate, a
minimum of 6.5 million set-top devices over the next three years at an average
price of $318 per set-top device. GI agreed to provide NDTC and its Approved
Purchasers the most favorable prices, terms and conditions made available by GI
to any customer purchasing advanced digital set-top devices. In connection
with NDTC's purchase commitment, GI agreed to grant warrants to purchase its
common stock proportional to the number of devices ordered by each
organization, which as of the effective date of the Digital Terminal Purchase
Agreement, would have represented at least a 10% equity interest in GI (on a
fully diluted basis). It is anticipated that the value associated with such
equity interest would be attributed to TCI Group upon purchase and deployment
of the digital set- top devices.
Also in December 1997, NDTC entered into a memorandum of understanding
(the "GI MOU") with GI which contemplates the sale to GI of certain of the
assets of NDTC's set-top authorization business, the license of certain related
technology to GI, and an additional cash payment in exchange for approximately
21.4 million shares of stock of GI. In connection therewith, NDTC would also
enter into a service agreement pursuant to which it will provide certain
services to GI's set-top authorization business. The transaction is subject to
the signing of definitive agreements; accordingly, there can be no assurance
that it will be consummated.
NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, the transactions related to the GI MOU are
not consummated or if GI fails to meet a material milestone designated in the
Digital Terminal Purchase Agreement with respect to the development, testing
and delivery of advanced digital set-top devices.
On September 23, 1997, TCI announced that it and ETC entered into a
letter of intent with Knowledge Universe, L.L.C. ("Knowledge Universe"). The
letter of intent contemplates that TCI, through ETC, will become a partner of
Knowledge Universe in a new venture into which Knowledge Universe would make a
substantial investment and ETC would contribute a significant portion of its
assets. As a result, Knowledge Universe would be the majority owner of the new
venture, with ETC retaining a significant minority interest. There can be no
assurance that the proposed transaction with Knowledge Universe will ultimately
be consummated or that the terms of the proposed transaction will not be
substantially modified.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of Tele-Communications, Inc. are
filed under this Item, beginning on Page II-71. The combined financial
statements of Liberty Media Group are filed under this Item, beginning on Page
II-211. The combined financial statements of the TCI Ventures Group are filed
under this Item, beginning on Page II-251. The combined financial statements
of TCI Group are filed under this Item, beginning at Page II-153. The
financial statement schedules required by Regulation S-X are filed under Item
14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-70
<PAGE> 173
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, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
II-71
<PAGE> 174
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996*
------- -------
Assets amounts in millions
- ------
<S> <C> <C>
Cash and cash equivalents $ 284 444
Trade and other receivables, net 529 448
Prepaid expenses 83 81
Prepaid program rights 104 61
Committed program rights 115 136
Investments in affiliates, accounted for under the equity method,
and related receivables (notes 5 and 13) 3,048 2,985
Investment in Time Warner, Inc. ("Time Warner") (note 6) 3,555 2,027
Property and equipment, at cost:
Land 96 77
Distribution systems 10,784 10,039
Support equipment and buildings 1,558 1,541
------- -------
12,438 11,657
Less accumulated depreciation 4,759 4,129
------- -------
7,679 7,528
------- -------
Franchise costs 17,910 17,875
Less accumulated amortization 2,763 2,439
------- -------
15,147 15,436
------- -------
Other assets, net of amortization 1,779 1,023
------- -------
$32,323 30,169
======= =======
</TABLE>
* Restated - see note 13.
(continued)
II-72
<PAGE> 175
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996*
-------- --------
Liabilities and Stockholders' Equity amounts in millions
- ------------------------------------
<S> <C> <C>
Accounts payable $ 169 266
Accrued interest 258 274
Accrued programming expense 399 347
Other accrued expenses 997 812
Deferred option premium (note 6) 306 --
Debt (note 9) 15,250 14,926
Deferred income taxes (note 15) 6,108 5,962
Other liabilities 664 253
-------- --------
Total liabilities 24,151 22,840
-------- --------
Minority interests in equity of consolidated subsidiaries 1,585 1,493
Redeemable securities:
Preferred stock (note 10) 655 658
Common stock (note 2) 5 --
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts ("Trust Preferred Securities") holding solely
subordinated debt securities of TCI Communications, Inc. ("TCIC")
(note 11) 1,500 1,000
Stockholders' equity (note 12):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock,
$.01 par value -- --
Common stock, $1 par value:
Series A TCI Group. Authorized 1,750,000,000 shares; issued
605,616,143 shares in 1997 and 696,325,478 shares in 1996 606 696
Series B TCI Group. Authorized 150,000,000 shares; issued
78,203,044 shares in 1997 and 84,647,065 shares in 1996 78 85
Series A Liberty Media Group. Authorized 750,000,000 shares;
issued 344,962,521 shares in 1997 and 341,766,655 shares in 1996 345 342
Series B Liberty Media Group. Authorized 75,000,000 shares; issued
35,180,385 shares in 1997 and 31,784,053 shares in 1996 35 32
Series A TCI Ventures Group. Authorized 750,000,000 shares; issued
377,386,032 shares in 1997 377 --
Series B TCI Ventures Group. Authorized 75,000,000 shares; issued
32,532,800 shares in 1997 33 --
Additional paid-in capital 5,043 3,547
Cumulative foreign currency translation adjustment, net of taxes 4 26
Unrealized holding gains for available-for-sale securities, net of
taxes 774 15
Accumulated deficit (877) (251)
-------- --------
6,418 4,492
Treasury stock and common stock held by subsidiaries, at cost (note 12) (1,991) (314)
-------- --------
Total stockholders' equity 4,427 4,178
-------- --------
Commitments and contingencies (note 16)
$ 32,323 30,169
======== ========
</TABLE>
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-73
<PAGE> 176
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
------- ------- -------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue:
Communications and programming services $ 7,570 7,038 5,586
Net sales from electronic retailing services -- 984 920
------- ------- -------
7,570 8,022 6,506
------- ------- -------
Operating costs and expenses:
Operating 2,850 2,917 2,161
Cost of sales from electronic retailing services -- 605 603
Selling, general and administrative 1,745 2,224 1,754
Stock compensation 488 (13) 57
Cost of distribution agreement (note 14) 173 -- --
Impairment of intangible assets 15 -- --
Restructuring charges -- 41 17
Depreciation 1,077 1,093 899
Amortization 537 523 473
------- ------- -------
6,885 7,390 5,964
------- ------- -------
Operating income 685 632 542
Other income (expense):
Interest expense (1,160) (1,096) (1,010)
Interest and dividend income 88 64 52
Share of losses of affiliates, net (note 5) (930) (450) (213)
Loss on early extinguishment of debt (note 9) (39) (71) (6)
Minority interests in losses (earnings) of consolidated
subsidiaries, net (55) (56) 17
Gain on sale of stock by subsidiaries and equity
investees (notes 5 and 14) 172 12 288
Gain on disposition of assets 401 1,593 49
Other, net (22) (65) (30)
------- ------- -------
(1,545) (69) (853)
------- ------- -------
Earnings (loss) before income taxes (860) 563 (311)
Income tax benefit (expense) (note 15) 234 (271) 128
------- ------- -------
Net earnings (loss) (626) 292 (183)
Dividend requirements on preferred stocks (42) (35) (34)
------- ------- -------
Net earnings (loss) attributable to common
stockholders $ (668) 257 (217)
======= ======= =======
</TABLE>
*Restated - see note 13.
(continued)
II-74
<PAGE> 177
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations, continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
------------ ------------ ------------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Net earnings (loss) attributable to common stockholders (note 3):
TCI Class A and Class B common stock $ -- -- (78)
TCI Group Series A and Series B common stock (537) (799) (112)
Liberty Media Group Series A and Series B common stock 125 1,056 (27)
TCI Ventures Group Series A and Series B common stock (256) -- --
------------ ------------ ------------
$ (668) 257 (217)
============ ============ ============
Basic earnings (loss) attributable to
common stockholders per common share
(note 3):
TCI Class A and Class B common stock $ -- -- (.12)
============ ============ ============
TCI Group Series A and Series B common stock $ (.85) (1.20) (.17)
============ ============ ============
Liberty Media Group Series A and Series B common stock $ .34 2.82 (.07)
============ ============ ============
TCI Ventures Group Series A and Series B common stock $ (.62) -- --
============ ============ ============
Diluted earnings (loss) attributable to
common stockholders per common and
potential common share (note 3):
TCI Class A and Class B common stock $ -- -- (.12)
============ ============ ============
TCI Group Series A and Series B common stock $ (.85) (1.20) (.17)
============ ============ ============
Liberty Media Group Series A and Series B common stock $ .31 2.58 (.07)
============ ============ ============
TCI Ventures Group Series A and Series B common stock $ (.62) -- --
============ ============ ============
</TABLE>
*Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-75
<PAGE> 178
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
<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
-------- --------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ -- 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 -- 59 -- -- -- -- --
Issuance of Class A common stock to
subsidiary of TCI in reorganization
of TCI -- -- -- -- -- -- --
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") -- (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 -- -- -- -- -- 337 32
Costs associated with Liberty
Distribution (see note 1) -- -- -- -- -- -- --
Redesignation of TCI common stock into
Series A and Series B TCI Group
common stock -- (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 -- -- -- -- -- -- --
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 85 337 32
------ ------ ------ ------ ------ ------ ------
<CAPTION>
Unrealized
holding Treasury
gains stock and
Cumulative (losses) for common
foreign available- stock held
Additional currency for-sale by Total
paid-in translation, securities, Accumulated subsidiaries, stockholders'
capital net of taxes net of taxes deficit* at cost equity*
--------- ------------ ------------ -------- -------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 2,791 (4) 94 (359) (610) 2,578
Net loss -- -- -- (183) -- (183)
Issuance of common stock in public
offering 381 -- -- -- -- 401
Issuance of common stock in private
offering 29 -- -- -- -- 30
Issuance of common stock for
acquisitions and investments 1,329 -- -- -- -- 1,388
Issuance of Class A common stock to
subsidiary of TCI in reorganization
of TCI (6) -- -- -- 6 --
Issuance of Class A common stock to
subsidiary in exchange for investment (1) -- -- -- 1 --
Retirement of Class A common stock
previously held by subsidiary 29 -- -- -- (29) --
Exchange of common stock held by
subsidiaries of TCI for Convertible
Redeemable Participating Preferred
Stock, Series F ("Series F Preferred
Stock") (542) -- -- -- 632 --
Conversion of Series F Preferred Stock
held by subsidiary for Series A TCI
Group common stock 213 -- -- -- (314) --
Distribution of Series A and Series B
Liberty Media Group common stock to
TCI common stockholders (369) -- -- -- -- --
Costs associated with Liberty
Distribution (see note 1) (8) -- -- -- -- (8)
Redesignation of TCI common stock into
Series A and Series B TCI Group
common stock -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock (34) -- -- -- -- (34)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 10 -- -- -- -- 10
Payment of preferred stock dividends (10) -- -- -- -- (10)
Issuance of common stock by subsidiary 51 -- -- -- -- 51
Foreign currency translation adjustment -- (5) -- -- -- (5)
Change in unrealized holding gains for
available-for-sale securities -- -- 244 -- -- 244
Adjustment to reflect elimination of
reporting delay with respect to
certain foreign subsidiaries -- -- -- (1) -- (1)
------ ------ ------ ------ ------ ------
Balance at December 31, 1995 3,863 (9) 338 (543) (314) 4,461
------ ------ ------ ------ ------ ------
</TABLE>
*Restated - see note 13.
(continued)
II-76
<PAGE> 179
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity, continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------------
Class B TCI Group Liberty Media Group
Preferred ---------------------------- ----------------------------
Stock Series A Series B Series A Series B
--------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- 672 85 337 32
Net earnings -- -- -- -- --
Issuance of common stock for
acquisition -- 11 -- 6 --
Issuance of common stock upon
conversion of notes -- 2 -- 2 --
Issuance of common stock upon
conversion of preferred stock -- 1 -- -- --
Exchange of cost investment for TCI
Group and Liberty Media Group common
stock -- (6) -- (3) --
Contribution of common stock to
subsidiary -- 16 -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. -- -- -- -- --
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 -- -- -- -- --
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 85 342 32
========== ========== ========== ========== ==========
<CAPTION>
Unrealized
holding Treasury
Cumulative gains stock and
foreign (losses) for common
currency available- stock
Additional translation for-sale held by Total
paid-in adjustment, securities, Accumulated subsidiaries, stockholders'
capital net of taxes net of taxes deficit* at cost equity*
---------- ------------ ------------- ----------- ------------ -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,863 (9) 338 (543) (314) 4,461
Net earnings -- -- -- 292 -- 292
Issuance of common stock for
acquisition 248 -- -- -- -- 265
Issuance of common stock upon
conversion of notes (2) -- -- -- -- 2
Issuance of common stock upon
conversion of preferred stock 15 -- -- -- -- 16
Exchange of cost investment for TCI
Group and Liberty Media Group common
stock (121) -- -- -- -- (130)
Contribution of common stock to
subsidiary (16) -- -- -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. (405) -- -- -- -- (405)
Accreted dividends on all classes of
preferred stock (35) -- -- -- -- (35)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 10 -- -- -- -- 10
Payment of preferred stock dividends (10) -- -- -- -- (10)
Foreign currency translation adjustment -- 35 -- -- -- 35
Recognition of unrealized holding
gains on available-for-sale securities -- -- (428) -- -- (428)
Recognition of unrealized holding
losses on available-for-sale securities -- -- 64 -- -- 64
Change in unrealized holding gains for
available-for-sale securities -- -- 41 -- -- 41
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 3,547 26 15 (251) (314) 4,178
======== ======== ======== ======== ======== ========
</TABLE>
*Restated - see note 13.
(continued)
II-77
<PAGE> 180
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity, continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------------------
Class B TCI Group Liberty Media Group TCI Ventures Group
Preferred --------------------- ------------------------ ----------------------
Stock Class A Class B Series A Series B Series A Series B
-------- ---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- 696 85 342 32 -- --
Net loss -- -- -- -- -- -- --
Issuance of TCI Ventures Group common
stock in exchange for TCI Group
common stock after giving effect to
stock split (note 1) -- (189) (16) -- -- 377 33
Costs associated with TCI Ventures
Exchange -- -- -- -- -- -- --
Exchange of common stock with an
officer/director (note 13) -- -- 7 -- 3 -- --
Issuance of common stock for
acquisitions and investment -- 63 2 2 -- -- --
Issuance of Series A TCI Group common
stock in exchange for Series B TCI
Group common stock (the "Exchange")
(note 13) -- 31 -- -- -- -- --
Recognition of fees related to
Exchange (note 13) -- -- -- -- -- -- --
Repurchase of common stock -- -- -- -- -- -- --
Cancellation of common stock -- -- -- -- -- -- --
Reclassification to redeemable
securities of redemption amount of
common stock subject to put
obligation -- -- -- -- -- -- --
Gain from issuance of equity by
equity investee -- -- -- -- -- -- --
Issuance of common stock upon
exercise of stock options -- -- -- -- -- -- --
Issuance of restricted stock granted
pursuant to stock incentive plan -- 1 -- -- -- -- --
Issuance of common stock upon
conversion of notes and preferred
stock -- 3 -- 1 -- -- --
Issuance of common stock to
Tele-Communications, Inc. Employee
Stock Purchase Plan -- 1 -- -- -- -- --
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 December 31, 1997 $ -- 606 78 345 35 377 33
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Unrealized
holding Treasury
Cumulative gains stock and
foreign (losses) for common
currency available- stock held
Additional translation for-sale by Total
paid-in adjustment, securities, Accumulated subsidiaries, stockholders'
capital net of taxes net of taxes deficit* at cost equity*
------- ------------ ------------ ----------- ------------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 3,547 26 15 (251) (314) 4,178
Net loss -- -- -- (626) -- (626)
Issuance of TCI Ventures Group common
stock in exchange for TCI Group
common stock after giving effect to
stock split (note 1) (205) -- -- -- -- --
Costs associated with TCI Ventures
Exchange (7) -- -- -- -- (7)
Exchange of common stock with an
officer/director (note 13) 160 -- -- -- (170) --
Issuance of common stock for
acquisitions and investment 1,058 -- -- -- (484) 641
Issuance of Series A TCI Group common
stock in exchange for Series B TCI
Group common stock (the "Exchange")
(note 13) 481 -- -- -- (512) --
Recognition of fees related to
Exchange (note 13) (11) -- -- -- -- (11)
Repurchase of common stock -- -- -- -- (529) (529)
Cancellation of common stock (18) -- -- -- 18 --
Reclassification to redeemable
securities of redemption amount of
common stock subject to put
obligation (4) -- -- -- -- (4)
Gain from issuance of equity by
equity investee 66 -- -- -- -- 66
Issuance of common stock upon
exercise of stock options 4 -- -- -- -- 4
Issuance of restricted stock granted
pursuant to stock incentive plan 3 -- -- -- -- 4
Issuance of common stock upon
conversion of notes and preferred
stock 3 -- -- -- -- 7
Issuance of common stock to
Tele-Communications, Inc. Employee
Stock Purchase Plan 8 -- -- -- -- 9
Accreted dividends on all classes of
preferred stock (42) -- -- -- -- (42)
Accreted dividends on all classes of
preferred stock not subject to
mandatory redemption requirements 10 -- -- -- -- 10
Payment of preferred stock dividends (10) -- -- -- -- (10)
Foreign currency translation
adjustment -- (22) -- -- -- (22)
Change in unrealized holding gains
for available-for-sale securities -- -- 759 -- -- 759
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 5,043 4 774 (877) (1,991) 4,427
======== ======== ======== ======== ======== ========
</TABLE>
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-78
<PAGE> 181
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
---------- ---------- ----------
amounts in millions
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (626) 292 (183)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Stock compensation 488 (13) 57
Payments of obligation relating to stock compensation (132) (3) (9)
Cost of distribution agreement 173 -- --
Impairment of intangible assets 15 -- --
Restructuring charges -- 41 17
Payments of restructuring charges (24) (8) (17)
Depreciation and amortization 1,614 1,616 1,372
Share of losses of affiliates, net 930 450 213
Loss on early extinguishment of debt 39 71 6
Minority interests in earnings (losses) of consolidated
subsidiaries, net 55 56 (17)
Gain on sale of stock by subsidiaries and equity investees (172) (12) (288)
Gain on disposition of assets (401) (1,593) (49)
Deferred income tax expense (benefit) (275) 233 (161)
Other noncash charges (credits) 10 11 (28)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (53) (115) (70)
Change in inventories -- (8) 16
Change in prepaids (77) (23) (86)
Change in accrued interest (23) 40 45
Change in other accruals and payables 169 243 139
---------- ---------- ----------
Net cash provided by operating activities 1,710 1,278 957
---------- ---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions (323) (664) (488)
Capital expended for property and equipment (709) (2,055) (1,782)
Proceeds from disposition of assets 541 341 166
Additional investments in and loans to affiliates (636) (778) (1,135)
Repayments of loans to affiliates 133 647 18
Cash received in exchanges 18 66 11
Other investing activities (179) (26) (134)
---------- ---------- ----------
Net cash used in investing activities (1,155) (2,469) (3,344)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings of debt 2,513 8,163 8,152
Repayments of debt (3,036) (7,969) (6,567)
Prepayment penalties (33) (60) --
Proceeds from issuance of subsidiary common stock and preferred stock 148 223 445
Proceeds from issuance of common stock 5 -- 431
Proceeds from issuance of Trust Preferred Securities 490 971 --
Contributions by minority shareholders of subsidiaries 6 319 --
Repurchase of common stock (529) -- --
Repurchase of subsidiary common stock (42) -- --
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (179) (95) (6)
Payment of preferred stock dividends (42) (35) (24)
Other financing activities (16) -- --
---------- ---------- ----------
Net cash provided (used) by financing activities (715) 1,517 2,431
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (160) 326 44
Cash and cash equivalents at beginning of year 444 118 74
---------- ---------- ----------
Cash and cash equivalents at end of year $ 284 444 118
========== ========== ==========
</TABLE>
*Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-79
<PAGE> 182
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Basis of Presentation
Nature of Business
Tele-Communications, Inc. ("TCI" or the "Company"), through its
subsidiaries and affiliates, is principally engaged in the
construction, acquisition, ownership, and operation of cable television
systems and the provision of satellite-delivered video entertainment,
information and home shopping programming services to various video
distribution media, principally cable television systems. The Company
also has investments in cable and telecommunications operations and
television programming in certain international markets as well as
investments in companies and joint ventures involved in developing and
providing programming for new television and telecommunications
technologies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of TCI and those of all majority-owned subsidiaries. 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 similar to treasury stock in consolidation.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share (the "TCI Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share (the "TCI Group Series B Stock", and together
with the TCI Group Series A Stock, the "TCI Group Stock"),
respectively. On August 10, 1995, TCI distributed, in the form of a
dividend, 2.25 shares of Liberty Group Stock (as adjusted for stock
dividends - see below) for each four shares of TCI Group Stock owned
(the "Liberty Distribution").
(continued)
II-80
<PAGE> 183
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share (the "TCI Ventures Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
Ventures Group Stock"). The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is
comprised of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series
A Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the Exchange Offers was two
shares (as adjusted) of the applicable series of TCI Ventures Group
Stock for each share of the corresponding series of TCI Group Stock
properly tendered up to the indicated maximum numbers. Upon the
September 10, 1997 consummation of the Exchange Offers, 188,661,300
shares of TCI Group Series A Stock and 16,266,400 shares of TCI Group
Series B Stock were exchanged for 377,322,600 shares of TCI Ventures
Group Series A Stock and 32,532,800 shares of TCI Ventures Group
Series B Stock (as adjusted for a stock dividend, see below) (the "TCI
Ventures Exchange").
As of December 31, 1997, the TCI Group Stock is intended to reflect the
separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such
subsidiaries and assets are referred to as "TCI Group" and are
comprised primarily of TCI's domestic cable and communications
business. 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 TCI Group Series A Stock,
TCI Ventures Group Series A Stock and the Liberty Group Series A Stock
are sometimes collectively referred to herein as the "Series A Stock,"
and the TCI Group Series B Stock, TCI Ventures Group Series B Stock and
Liberty Group Series B Stock are sometimes collectively referred to
herein as the "Series B Stock."
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, each such Group in the capital structure
of TCI, which encompasses the TCI Group Stock, Liberty Group Stock and
TCI Ventures Group Stock, does not affect the ownership or the
respective legal title to such 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, Liberty Group Stock and TCI Ventures Group Stock are
common stockholders of TCI and are subject to risks associated with an
investment in TCI and all of its businesses, assets and liabilities.
The redesignation of TCI Group Stock and the issuance of Liberty Group
Stock and TCI Ventures Group Stock does not affect the rights of
creditors of TCI.
(continued)
II-81
<PAGE> 184
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of the
separate Groups and the market prices of shares of TCI Group Stock,
Liberty Group Stock and TCI Ventures Group Stock. In addition, net
losses of any portion of TCI, dividends or distributions on, or
repurchases of, any series of common stock, and dividends on, or
certain repurchases of preferred stock would reduce funds of TCI
legally available for dividends on all series of common stock.
Accordingly, financial information of any one Group should be read in
conjunction with the financial information of TCI and the other Groups.
The common stockholders' equity value of TCI Ventures Group or Liberty
Media Group that, at any relevant time, is attributed to the TCI Group,
and accordingly not represented by outstanding TCI Ventures Group Stock
or Liberty Group Stock, respectively, is referred to as "Inter-Group
Interest." Prior to consummation of the Liberty Distribution and TCI
Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group and TCI Ventures Group, respectively. Following
consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
Group no longer has Inter-Group Interests in Liberty Media Group and
TCI Ventures Group, respectively. For periods in which an Inter-Group
Interest exists, TCI Group accounts for its Inter-Group Interest in a
manner similar to the equity method of accounting. Following
consummation of the Liberty Distribution and the TCI Ventures Exchange,
an Inter-Group Interest would be created with respect to Liberty Media
Group or TCI Ventures Group only if a subsequent transfer of cash or
other property from TCI Group to Liberty Media Group or TCI Ventures
Group is specifically designated by the Board as being made to create
an Inter-Group Interest or if outstanding shares of Liberty Group Stock
or TCI Ventures Stock, respectively, are purchased with funds
attributable to TCI Group. Management of TCI believes that generally
accepted accounting principles require that Liberty Media Group or TCI
Ventures Group be consolidated with TCI Group for all periods in which
TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
Ventures Group, respectively.
Dividends on TCI Group Stock, Liberty Group Stock or TCI Ventures Group
Stock are payable at the sole discretion of the Board out of the lesser
of assets of TCI legally available for dividends or the available
dividend amount with respect to each Group, as defined. Determinations
to pay dividends on TCI Group Stock, Liberty Group Stock or TCI
Ventures Group Stock are based primarily upon the financial condition,
results of operations and business requirements of the applicable Group
and TCI as a whole.
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) 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)
II-82
<PAGE> 185
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board, in the case of a transfer from TCI Group to either Liberty
Media Group or TCI Ventures Group, reflected as the creation of, or
increase in, TCI Group's Inter-Group Interest in such Group or, in the
case of a transfer from either Liberty Media Group or TCI Ventures
Group to TCI Group, reflected as a reduction in 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 TCI, 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.
Loans from one Group to another Group generally will 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 policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, 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 reflect its net loans or
advances to or loans or advances from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical combined financial statements,
net loans or advances between Groups have been and will continue to be
included as a component of each respective Group's combined equity.
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group or TCI Ventures Group resulting from an equity contribution
by the TCI Group to Liberty Media Group or TCI Ventures Group or any
decrease in such Inter-Group Interest resulting from a transfer of
funds from Liberty Media Group or TCI Ventures Group to the TCI Group
would be determined by reference to the market value of the Liberty
Group Series A Stock, or the TCI Ventures Group Series A Stock,
respectively, 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)
II-83
<PAGE> 186
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All financial impacts of issuances and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, the proceeds of
which are attributed to TCI Group, TCI Ventures Group or Liberty Media
Group, respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or Liberty Media Group, respectively) result in TCI
Group being credited, and TCI Ventures Group or Liberty Media 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 or Liberty Group Stock and a fraction of the numerator of which
is TCI Ventures Group or Liberty Media Group "Inter-Group Interest
Fraction" and the denominator of which is the TCI Ventures Group or the
Liberty Media Group "Outstanding Interest Fraction" (both as defined).
Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
Group Stock, the consideration for which is charged to TCI Group, will
be to such extent reflected in the combined financial statements of TCI
Group and will result in an increase in TCI Group's Inter-Group
Interest in TCI Ventures Group or Liberty Media Group, respectively.
Industry Segments
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). The
Company has restated its prior year segment disclosures to conform to
the requirements of SFAS 131. The Company has significant operations
principally in two industry segments: cable and communications services
and programming services. Substantially all of the Company's domestic
cable and communications businesses and assets ("cable") are attributed
to the TCI Group, and substantially all of the Company's programming
businesses and assets ("programming") are attributed to the Liberty
Media Group. The Company's principal international businesses and
assets and the Company's remaining non-cable and non-programming
domestic businesses and assets are included in TCI Ventures Group. No
individual business or asset within TCI Ventures Group constitutes a
reportable segment of the Company as contemplated by SFAS 131. See note
17 for additional segment information.
(continued)
II-84
<PAGE> 187
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock Dividends
Effective February 6, 1998, the Company issued stock dividends to
holders of Liberty Group Stock (the "1998 Liberty Stock Dividend") and
TCI Ventures Group Stock (the "Ventures Stock Dividend"). The 1998
Liberty Stock Dividend consisted of one share of Liberty Group Stock
for every two shares of Liberty Group Stock owned. The Ventures Stock
Dividend consisted of one share of TCI Venture Group Stock for every
one share of TCI Ventures Group Stock owned. The 1998 Liberty Stock
Dividend and the Ventures Stock Dividend have been treated as stock
splits, and accordingly, all share and per share amounts have been
restated to reflect the 1998 Liberty Stock Dividend and the Ventures
Stock Dividend.
(2) Summary of Significant Accounting Policies
Cash Equivalents
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, 1997 and 1996 was not significant.
Program Rights
Prepaid program rights are amortized on a film-by-film basis over the
specific number of exhibitions. Committed program rights and program
rights payable are recorded at the estimated costs of the programs when
the film is available for airing less prepayments. Such committed
amounts are amortized on a film-by-film basis over the anticipated
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.
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. The Company's share of losses are
generally 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.
(continued)
II-85
<PAGE> 188
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 1997, 1996 and 1995, interest capitalized was not significant.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for distribution systems and 3 to 40
years for support equipment and buildings.
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.
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.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amounts of property,
plant and equipment and its identifiable intangible assets to determine
whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such
loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary
to estimate the fair value of assets, accordingly, actual results could
vary significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or
fair value less costs to sell.
(continued)
II-86
<PAGE> 189
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Derivative Financial Instruments
The Company has entered into variable and fixed interest rate exchange
agreements ("Interest Rate Swaps") which it uses to manage interest
rate risk arising from the Company's financial liabilities. Such
Interest Rate Swaps are accounted for as hedges; and accordingly,
amounts receivable or payable under Interest Rate Swaps are recognized
as adjustments to interest expense. Gains and losses on early
terminations of Interest Rate Swaps are included in the carrying amount
of the related debt and amortized as yield adjustments over the
remaining term of the derivative financial instruments or the
remaining term of the related debt, whichever is shorter. The Company
does not use such instruments for trading purposes.
Derivative financial instruments that can be settled, at the Company's
option, in shares of the Company's common stock are accounted for as
equity instruments. Periodic settlements of amounts payable/receivable
pursuant to such financial instruments are included in additional
paid-in capital.
In conjunction with a stock repurchase program or similar transaction,
the Company may elect to sell put options on its own common stock.
Proceeds from any such sales are reflected as an increase to additional
paid-in capital and an amount equal to the maximum redemption amount
under unexpired put options is reflected as redeemable common stock.
From time to time, the Company uses certain derivative financial
instruments to manage its foreign currency risks. 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.
However, the Company may enter into forward contracts to reduce its
exposure to short-term (generally no more than one year) movements in
the exchange rates applicable to firm funding commitments that are
denominated in currencies other than the U.S. dollar. When high
correlation of changes in the market value of the forward contract and
changes in the fair value of the firm commitment is probable, the
forward contract is accounted for as a hedge. Changes in the market
value of a forward contract that qualifies as a hedge and any gains or
losses on early termination of such a forward contract are deferred and
included in the measurement of the item (generally an investment in, or
an advance to, a foreign affiliate) that results from the funding of
such commitment. Market value changes in derivative financial
instruments that do not qualify as hedges are recognized currently in
the consolidated statements of operations. To date, the Company's use
of forward contracts, as described above, has not had a material impact
on the Company's financial position or results of operations.
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)
II-87
<PAGE> 190
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Included in minority interests in equity of consolidated subsidiaries
is $927 million and $923 million in 1997 and 1996, respectively, of
preferred stocks (and accumulated dividends thereon) of certain
subsidiaries. The current dividend requirements on these preferred
stocks aggregate $49 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.
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. Such
realized and unrealized gains and losses were not material to the
accompanying consolidated financial statements.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized
in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the
extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are
expected to remain connected to the cable television system.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 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 SFAS
123, the Company continues to account for stock-based compensation
pursuant to Accounting Principles Board Opinion No. 25 ("APB Opinion
No. 25"). The Company has included the disclosures required by SFAS 123
in note 12.
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.
(continued)
II-88
<PAGE> 191
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Reclassifications
Certain amounts have been reclassified for comparability with the 1997
presentation.
(3) Earnings (Loss) Per Common and Potential Common Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128, Earnings Per Share, ("SFAS 128") in
February of 1997. SFAS 128 establishes new computation, presentation
and disclosure requirements for earnings per share ("EPS"). SFAS 128
requires companies with complex capital structures to present basic and
diluted EPS. Basic EPS is measured as the income or loss available to
common stockholders divided by the weighted average outstanding common
shares for the period. Diluted EPS is similar to basic EPS but presents
the dilutive effect on a per share basis of potential common shares
(e.g., convertible securities, options, etc.) as if they had been
converted at the beginning of the periods presented. Potential common
shares that have an anti-dilutive effect (i.e., those that increase
income per share or decrease loss per share) are excluded from diluted
EPS. The Company adopted SFAS 128 as of December 31, 1997 and has
restated all prior period EPS data, as required. SFAS 128 did not have
a material impact on EPS for any period presented.
(a) TCI Class A and B Common Stock
The basic and diluted loss attributable to common stockholders
per common share for the period from January 1, 1995 through
the Liberty Distribution was computed by dividing net loss
attributable to common stockholders by the weighted average
number of common shares outstanding (648 million). Potential
common shares were not included in the computation of weighted
average shares outstanding because their inclusion would be
anti-dilutive.
(b) TCI Group Stock
The basic and diluted loss attributable to TCI Group common
stockholders per common share for the years ended December 31,
1997, December 31, 1996 and the period from the Liberty
Distribution through December 31, 1995 was computed by
dividing net loss attributable to TCI Group common
stockholders ($537 million, $799 million and $112 million,
respectively) by the weighted average number of common shares
outstanding of TCI Group Stock during the period (632 million,
665 million and 656 million, respectively). Potential common
shares were not included in the computation of weighted
average shares outstanding because their inclusion would be
anti-dilutive. At December 31, 1997, 1996, and 1995, there
were 113 million, 126 million, and 74 million potential common
shares, respectively, consisting of fixed and nonvested
performance awards and convertible securities that could
potentially dilute future EPS calculations in periods of net
income. Such potential common share amounts do not take into
account the assumed number of shares that would be
repurchased by the Company upon the exercise of the fixed
and nonvested performance awards. No material changes in the
weighted average outstanding shares or potential common
shares occurred after December 31, 1997.
(continued)
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<PAGE> 192
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Liberty Group Stock
The basic earnings attributable to Liberty Media Group common
stockholders per common share for the years ended December 31,
1997 and 1996 was computed by dividing net earnings
attributable to Liberty Media Group 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 1998 Liberty Stock Dividend (366 million and 374
million, respectively).
The diluted earnings attributable to Liberty Media Group
common stockholders per common and potential common share for
the years ended December 31, 1997 and 1996 was computed by
dividing earnings attributable to Liberty Media Group common
stockholders by the weighted average number of common and
potential common shares outstanding of Liberty Group Stock
during the period, as adjusted for the effect of the 1998
Liberty Stock Dividend (403 million and 409 million,
respectively). Shares issuable upon conversion of the Series
C-Liberty Group Preferred Stock, the Convertible Preferred
Stock, Series D (the "Series D Preferred Stock"), the
Redeemable Convertible Liberty Media Group Preferred Stock,
Series H, convertible notes payable and other fixed and
nonvested performance awards have been included in the
computation of weighted average shares, as illustrated below.
Numerator adjustments for dividends and interest associated
with the convertible preferred shares and convertible notes
payable, respectively, were not made to the computation of
diluted earnings per share as such dividends and interest are
paid or payable by TCI Group. See notes 9 and 10 for
descriptions of the convertible notes payable and convertible
preferred shares, respectively. See note 12 for descriptions
of the dilutive stock options.
The basic and diluted loss attributable to Liberty Media Group
common stockholders per common share for the period from the
Liberty Distribution to December 31, 1995 was computed by
dividing net loss attributable to Liberty Media Group 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 1998 Liberty Stock Dividend
(369 million). Potential common shares were not included in
the computation of weighted average shares outstanding because
their inclusion would be anti-dilutive. After giving
consideration to the effect of the 1998 Liberty Stock
Dividend, no material changes in the weighted average
outstanding shares or potential common shares occurred after
December 31, 1997.
(continued)
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<PAGE> 193
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the reconciliation of basic EPS to dilutive EPS
with respect to Liberty Group Stock is presented below:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
amounts in millions, except per share amounts
<S> <C> <C> <C>
Basic EPS:
Earnings (loss) available to common
shareholders $ 125 1,056 (27)
========== ========== ==========
Weighted average common shares 366 374 369
========== ========== ==========
Basic earnings (loss) per share
attributable to common shareholders $ 0.34 2.82 (0.07)
Diluted EPS:
Earnings (loss) available to common
shareholders $ 125 1,056 (27)
========== ========== ==========
Weighted average common shares 366 374 369
Add dilutive potential common shares:
Employee and director options 4 3 --
Convertible notes payable 19 21 --
Series C Preferred Stock 4 4 --
Series D Preferred Stock 6 5 --
Series H Preferred Stock 4 2 --
---------- ---------- ----------
Dilutive potential common shares 37 35 --
---------- ---------- ----------
Diluted weighted average common shares 403 409 369
========== ========== ==========
Diluted earnings (loss) per share
attributable to common shareholders $ 0.31 2.58 (0.07)
========== ========== ==========
</TABLE>
(d) TCI Ventures Group Stock
The basic and diluted loss attributable to TCI Ventures Group
common stockholders per common share for the period from the
TCI Ventures Exchange to December 31, 1997 was computed by
dividing net loss attributable to TCI Ventures Group common
stockholders by the weighted average number of common shares
outstanding of TCI Ventures Group Stock during the period, as
adjusted for the effect of the Ventures Stock Dividend (410
million). Potential common shares were not included in the
computation of weighted average shares outstanding because
their inclusion would be anti-dilutive.
At December 31, 1997, there were 35 million potential common
shares consisting of fixed and nonvested performance awards
and convertible securities that could potentially dilute
future EPS calculations in periods of net income. Such
potential common share amount does not take into account the
assumed number of shares that would be repurchased by the
Company upon the exercise of the fixed and nonvested
performance awards. After giving consideration to the effect
of the Ventures Stock Dividend, no material changes in the
weighted average outstanding shares or potential common shares
occurred after December 31, 1997.
(continued)
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<PAGE> 194
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,183 million, $1,056 million and $965
million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash paid for income taxes was $141 million, $41 million,
and $63 million in 1997, 1996 and 1995, respectively. In addition, the
Company received income tax refunds amounting to $36 during the year
ended December 31, 1997.
Significant noncash investing and financing activities are reflected in
the following table. See also note 8 for the impact of the spin-off of
TCI Satellite Entertainment, Inc.
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ (1,857) (5,064) (3,582)
Liabilities assumed, net of current assets 720 1,811 445
Deferred tax liability recorded in acquisitions 145 1,379 1,083
Minority interests in equity of acquired entities 93 113 (49)
Common stock and preferred stock issued in acquisitions 1,060 457 1,615
Preferred stock of subsidiaries issued in acquisitions -- 640 --
TCI common stock and preferred stock held by acquired
company (484) -- --
---------- ---------- ----------
Cash paid for acquisitions $ (323) (664) (488)
========== ========== ==========
Cash received in exchanges:
Aggregate cost basis of assets acquired $ (392) (709) (10)
Historical cost of assets exchanged 399 754 13
Gain recorded on exchange of assets 11 21 8
---------- ---------- ----------
$ 18 66 11
========== ========== ==========
Exchange of consolidated subsidiaries for note receivable
and equity investments $ -- 894 --
========== ========== ==========
</TABLE>
The Company ceased to consolidate Flextech p.l.c. ("Flextech") and
Cablevision S.A. ("Cablevision") and began to account for Flextech and
Cablevision using the equity method of accounting, effective January 1,
1997 and October 1, 1997, respectively. The effects of changing the
method of accounting for the Company's ownership interest in Flextech
and Cablevision from the consolidation method to the equity method are
summarized below (amounts in millions):
<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to
equity investments $ 596
Liabilities reclassified to equity investments (484)
Minority interests in equity of subsidiaries reclassified to
equity investments (151)
--------------
Decrease in cash and cash equivalents $ (39)
==============
</TABLE>
(continued)
II-92
<PAGE> 195
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) 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, 1997.
<TABLE>
<CAPTION>
December 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% 607
Telewest Communications plc ("Telewest") 26.6% 324
Teleport Communications Group, Inc. ("TCG") 28% 295
InterMedia Capital Partners IV, L.P. ("InterMedia IV")
and InterMedia Capital Management IV, L.P. ("ICM IV") 48.7% 262
Flextech 36.8% 261
Cablevision 26.2% 239
BDTV INC. and BDTV II, INC 99% 229
Various foreign equity investments (other than
Telewest, Flextech and Cablevision) various 213
QVC, Inc. 42.6% 134
Home Shopping Network, Inc. ("HSN") 19.9% 119
</TABLE>
Summarized unaudited combined financial information for affiliates is
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
----------- -----------
Combined Financial Position amounts in millions
---------------------------
<S> <C> <C>
Property and equipment, net $ 6,478 4,920
Franchise costs, net 2,993 3,913
Other assets, net 17,658 13,362
----------- -----------
Total assets $ 27,129 22,195
=========== ===========
Debt $ 14,245 8,969
Other liabilities 5,496 5,787
Owners' equity 7,388 7,439
----------- -----------
Total liabilities and equity $ 27,129 22,195
=========== ===========
</TABLE>
(continued)
II-93
<PAGE> 196
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
Combined Operations amounts in millions
-------------------
<S> <C> <C> <C>
Revenue $ 8,207 6,088 4,619
Operating expenses (8,219) (5,576) (4,001)
Depreciation and
amortization (1,485) (1,070) (588)
---------- ---------- ----------
Operating income (loss) (1,497) (558) 30
Interest expense (857) (615) (373)
Other, net (447) (354) (153)
---------- ---------- ----------
Net loss $ (2,801) (1,527) (496)
========== ========== ==========
</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 Holding Company, L.P. ("Sprint Spectrum") 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, 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% interest as a partner in PhillieCo. During the
years ended December 31, 1997 and 1996, the PCS Ventures accounted for
$493 million and $167 million, respectively, of the Company's share of
affiliate losses. The 1996 amount includes $34 million related to prior
periods.
(continued)
II-94
<PAGE> 197
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
From inception through December 1997, the four partners have
contributed approximately $4 billion to the Sprint PCS Partnerships (of
which the Company contributed an aggregate of approximately $1.3
billion). The remaining capital that the Sprint PCS Partnerships will
require to fund the construction and operation of the PCS systems and
the commitments made to its affiliates 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 $200
million of such amount (of which the Company's share is approximately
$60 million) 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.
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.
Sprint PCS's business plan will require additional capital financing
prior to the end of 1998. Sources of funding for Sprint PCS's capital
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans
and/or capital contributions from the Sprint PCS partners. However,
there can be no assurance that any additional financing can be obtained
on a timely basis, on terms acceptable to Sprint PCS or the Sprint PCS
partners and within the limitations contained in the agreements
governing Sprint PCS's existing debt.
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized
management to operate Sprint PCS in accordance with such budget. The
Sprint PCS partners may mutually agree to make additional capital
contributions. However, the Sprint PCS partners have no such obligation
in the absence of an approved budget, and there can be no assurance the
Sprint PCS partners will reach such an agreement or approve the 1998
proposed budget. In addition, the failure by the Sprint PCS partners to
approve a business plan may impair the ability of Sprint PCS to obtain
required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the
delay or abandonment of Sprint PCS's development and expansion plans
and expenditures, the failure to meet regulatory requirements or other
potential adverse consequences.
(continued)
II-95
<PAGE> 198
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership
board has resulted in the occurrence of a "Deadlock Event" under the
Sprint PCS partnership agreement as of January 1, 1998. Under the
Sprint PCS partnership agreement, if one of the Sprint PCS partners
refers the budget issue to the chief executive officers of the
corporate parents of the Sprint PCS partners for resolution pursuant to
specified procedures and the issue remains unresolved, buy/sell
provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint
PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
Discussions among the Sprint PCS partners about restructuring their
interests in Sprint PCS in lieu of triggering such buy/sell procedures
are ongoing. However, there is no certainty the discussions will result
in a change to the partnership structure or will avert the triggering
of the resolution and buy/sell procedures referred to above or a
liquidation of Sprint PCS.
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).
During 1997, TCG issued approximately 6.6 million shares of its Class A
common stock for certain acquisitions. The total consideration paid by
TCG through the issuance of common stock for such acquisitions was
approximately $123 million. In addition, effective November 5, 1997,
TCG consummated a public offering of 17.2 million shares of its Class A
common stock. Of the 17.2 million shares, 7.3 million shares were
offered by TCG and 9.9 million shares were offered by MediaOne of
Delaware, Inc. (formerly Continental Cablevision, Inc., "MediaOne").
TCG did not receive any proceeds from the sale of shares by MediaOne,
which represented all of MediaOne's interest in TCG. TCG received net
proceeds from its sale of shares pursuant to the above offering of
$317.6 million (after deducting expenses and fees). As a result of the
above transactions, the Company's ownership interest in TCG decreased
from 31% to 28%. In connection with the dilution of the Company's
ownership interest in TCG, the Company recognized non-cash gains in
1997 aggregating $112 million (before deducting deferred income tax
expense of approximately $43 million).
In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T Corporation ("AT&T"). Upon
consummation of such merger, TCI would receive in exchange for all of
its interest in TCG, approximately 46.95 million shares of AT&T common
stock, which shares would be attributed to the TCI Ventures Group. The
transaction is subject to a number of regulatory and other conditions,
accordingly, there can be no assurance that such transaction will be
consummated on the terms contemplated by the parties, or at all.
(continued)
II-96
<PAGE> 199
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In July 1996, the Company completed a series of transactions that
resulted in the transfer of all or part of the Company's ownership
interests in certain cable television systems to InterMedia IV in
exchange for a 49% limited partnership interest in InterMedia IV and
assumed debt of $120 million. Simultaneously, the Company received a
cable television system and cash from InterMedia IV in exchange for a
cable television system that had been recently acquired by the Company.
The Company recognized no gain or loss in connection with the
above-described transactions. The $225 million excess of the Company's
investment in InterMedia IV over the Company's share of the partners'
capital of InterMedia IV is being amortized over an estimated useful
life of 20 years. Including such amortization, the Company's share of
InterMedia IV's losses was $46 million and $16 million during the years
ended December 31, 1997 and 1996, respectively.
ICM IV owns a 1.12% limited partnership interest in InterMedia IV. The
Company acquired its limited partnership interest in ICM IV in August
1997 pursuant to the transactions described in note 13.
As of April 29, 1996, Liberty Media Group, The News Corporation Limited
("News Corp.") and Tele-Communications International, Inc., a
majority-owned subsidiary of the Company ("TINTA"), formed two sports
programming ventures. In the United States, Liberty Media Group and
News Corp. formed Fox/Liberty Networks 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 a distribution of $350 million in cash. No
gain or loss was recognized as the cash distribution approximated the
carrying value of the assets contributed.
Internationally, News Corp. and a limited liability corporation owned
50% by Liberty Media Group and 50% by TINTA ("Liberty/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.
("Torneos"), 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 by the equity method.
During the third quarter of 1997, Fox Sports International distributed
(i) its 35% interest in Torneos to Liberty/TINTA and (ii) certain
Australian sports rights to News Corp.
(continued)
II-97
<PAGE> 200
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
"Silver King 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 Silver King 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 Silver King 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 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 are no longer
included in the combined 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. Subsequent to the HSN Merger, the surviving
corporation was renamed HSN, Inc. ("HSNI").
(continued)
II-98
<PAGE> 201
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1998, pursuant to an Investment Agreement among Universal
Studios, Inc. ("Universal"), HSNI, HSN and Liberty Media Group, dated
as of October 1997 and amended and restated as of December 1997 (the
"Investment Agreement"), HSNI consummated a transaction (the "Universal
Transaction") through which USA Networks Partners, Inc., a subsidiary
of Universal, sold its 50% interest in USA Networks, a New York general
partnership ("USA Networks") to HSNI and Universal contributed the
remaining 50% interest in USA Networks and its domestic television
production and distribution operations to HSNI. In connection with the
Universal Transaction, Universal, HSNI, HSN and Liberty Media Group
became parties to a number of other agreements relating to, among other
things, (i) the management of HSNI, (ii) the purchase and sale or other
transfer of voting securities of HSNI, including securities convertible
or exchangeable for voting securities of HSNI, and (iii) the voting of
such securities.
At the closing of the Universal Transaction, Universal (i) was issued
3,190,000 shares of HSNI's Class B Common Stock, 3,560,000 shares of
HSNI's Common Stock and 54,327,170 common equity shares ("LLC Shares")
of USANi LLC, a limited liability company ("USANi LLC") formed to hold
all of the businesses of HSNI and its subsidiaries, except for its
broadcasting business and its equity interest in Ticketmaster and (ii)
received a cash payment of $1.3 billion. Pursuant to an Exchange
Agreement relating to the LLC Shares (the "LLC Exchange Agreement"),
36,810,000 of the LLC Shares issued to Universal are each exchangeable
for one share of HSNI's Class B Common Stock and the remainder of the
LLC Shares issued to Universal are each exchangeable for one share of
HSNI's Common Stock.
At the closing of the Universal Transaction, Liberty Media Group was
issued 589,161 shares of HSNI's Class B Common Stock, representing all
of the remaining shares of HSNI's Class B Common Stock issuable
pursuant to Liberty Media Group's Contingent Right. Of such shares,
400,000 shares of Class B Common Stock were contributed to BDTV IV Inc.
("BDTV-IV"), a newly-formed entity having substantially the same terms
as BDTV-I and BDTV-II (with the exception of certain transfer
restrictions). In addition, Liberty Media Group purchased 5 LLC Shares
at the closing of the Universal Transaction for an aggregate purchase
price of $200. Liberty Media Group has also agreed to contribute $300
million in cash to USANI LLC by June 30, 1998 in exchange for an
aggregate of 7,500,000 LLC Shares and/or shares of HSNI's Common Stock.
Liberty Media Group's cash purchase price will increase at an annual
interest rate of 7.5% beginning from the date of the closing of the
Universal Transaction through the date of Liberty Media Group's
purchase of such securities (the "Liberty Closing"). Pursuant to the
LLC Exchange Agreement, each LLC Share issued or to be issued to
Liberty Media Group is exchangeable for one share of HSNI's Common
Stock.
(continued)
II-99
<PAGE> 202
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Universal Transaction, each of Universal and
Liberty Media Group has been granted a preemptive right with respect to
future issuances of HSNI's capital stock, subject to certain
limitations, to maintain their respective percentage ownership
interests in HSNI that they had immediately prior to such issuances. In
addition, with respect to issuances of HSNI's capital stock in certain
specified circumstances, Universal will be obligated to maintain the
percentage ownership interest in HSNI that it had immediately prior to
such issuances. In addition, HSNI, Universal and Liberty Media Group
have agreed that if the parties agree prior to June 30, 1998 (the date
of mandatory cash contributions) on the identity of assets owned by
Liberty Media Group that are to be contributed to the LLC and the form
and terms of such contributions, Liberty Media Group will contribute
those assets in exchange for LLC Shares valued at $40 per share. If
Liberty Media Group contributes such additional assets, Liberty Media
Group has the right to elect to reduce the number of LLC Shares it is
obligated to purchase for cash by an amount equal to 45% of the value
of the assets contributed by Liberty Media Group. If Liberty Media
Group exercises the option to contribute assets and thereby reduces its
cash contribution amount, Universal will be required to purchase a
number of additional LLC shares (valued at $40 per share) equal to the
value of Liberty Media Group's asset contribution, less the amount by
which Liberty Media Group's asset contribution is applied towards
reducing Liberty Media Group's cash contribution. In addition,
Universal may purchase an additional number of LLC shares (valued at
$40 per share), equal to the value of Liberty Media Group's asset
contribution which is not applied towards reducing Liberty Media
Group's cash contribution.
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 dilution of the Company's ownership
interest in Telewest that occurred in connection with the Telewest
Merger, the Company recognized a gain of approximately $165 million
(before deducting deferred income taxes of $58 million). Telewest
accounted for $145 million, $109 million and $70 million of the
Company's share of its affiliates' losses during the years ended
December 31, 1997, 1996 and 1995, respectively.
(continued)
II-100
<PAGE> 203
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In January 1997, the Company's voting interest in Flextech, a company
engaged in the distribution and production of programming for
multichannel video distribution systems in the United Kingdom ("UK"),
was reduced to 50% and the Company ceased to consolidate Flextech and
began to account for Flextech using the equity method of accounting. 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
the Company's economic ownership interest in Flextech from 46.2% to
36.8%. The Company continues to maintain a voting interest in Flextech
of approximately 50%. As a result of such dilution, the Company
recorded a $152 million increase to the carrying value of the Company's
investment in Flextech, a $53 million increase to deferred income tax
liability and a $66 million increase to equity and a $33 million
increase to minority interests in consolidated subsidiaries. No gain
was recognized in the statement of operations due primarily to certain
contingent obligations of the Company with respect to one of the BBC
Joint Ventures. Flextech accounted for $16 million of the Company's
share of its affiliates' losses during the year ended December 31,
1997.
On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision, an entity engaged in the multi-channel video distribution
business in Buenos Aires, Argentina, for an adjusted purchase price of
$282.0 million, before liabilities assumed. The purchase price was paid
with cash consideration of $195.2 million (including a previously paid
$20 million deposit) and TINTA's issuance of $86.8 million principal
amount of secured negotiable promissory notes payable to the selling
shareholders.
On October 9, 1997, TINTA sold a portion of its 51% interest in
Cablevision to unaffiliated third parties (the "Buyers") for cash
proceeds of $120 million. In addition, on October 9, 1997, Cablevision
issued 3,541,829 shares of stock in the aggregate to the Buyers for $80
million in cash and notes receivable with an aggregate principal amount
of $240 million, plus accrued interest at LIBOR, due within the earlier
of two years or at the request of Cablevision's board of directors. The
above transactions, (collectively, the "Cablevision Sale") reduced
TINTA's interest in Cablevision to 26.24%. TINTA recognized a gain of
$49 million on the Cablevision Sale. As a result of the Cablevision
Sale, effective October 1, 1997, TINTA ceased to consolidate
Cablevision and began to account for Cablevision using the equity
method of accounting. Cablevision accounted for $3 million of the
Company's share of its affiliates' losses during the year ended
December 31, 1997.
In addition to Telewest, Flextech and Cablevision, 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 foreign equity method investments accounted for
$84 million, $70 million and $54 million of the Company's share of its
affiliates' losses in 1997, 1996 and 1995, respectively.
(continued)
II-101
<PAGE> 204
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the year ended December 31, 1997, TSX Corporation ("TSX"), an
equity affiliate of the Company, and Antec Corporation ("Antec) entered
into a business combination with Antec being the surviving entity. In
connection with such transaction, the Company recognized a $29 million
gain (before deducting deferred income tax expense of approximately $12
million) representing the difference between the fair value of the
Antec shares received ($52 million) and the carrying value of the
Company's investment in TSX at the date of the transaction ($23
million). Upon completion of this transaction, the Company's ownership
interest decreased from an approximate 45% interest in TSX to an
approximate 16% ownership interest in Antec. The Company accounts for
its investment in Antec using the cost method.
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.
(6) Investment in Time Warner
On October 10, 1996, 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.
Time Warner, TBS, TCI and Liberty Media Group 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 Media Group 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.
(continued)
II-102
<PAGE> 205
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the TBS/Time Warner Merger, Liberty Media Group
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, Liberty Media Group recognized a pre-tax gain of approximately
$1.5 billion in the fourth quarter of 1996. Additionally, Liberty Media
Group 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 Satellite
Systems, Inc. ("Southern"), a wholly-owned subsidiary of Liberty Media
Group which distributes the TBS SuperStation ("WTBS") signal in the
United States and Canada, 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. On June
24, 1997, under the new agreement, Liberty Media Group granted Time
Warner an option, expiring October 10, 2002, to acquire the business of
Southern and certain of its subsidiaries (together with Southern, the
"Southern Business") through a purchase of assets (the "Southern
Option"). Liberty Media Group received 6.4 million shares of TW
Exchange Stock valued at $306 million in consideration for the grant.
Such amount has been reflected as a deferred option premium in the
accompanying December 31, 1997 consolidated balance sheet. In September
1997, Time Warner exercised the Southern Option. Pursuant to the
Southern Option, Time Warner acquired the Southern Business, effective
January 1, 1998, for $213.3 million, which was paid in cash together
with the assumption of certain liabilities on January 2, 1998.
As security for borrowings under one of its credit facilities, Liberty
Media Group has pledged a portion of its TW Exchange Stock. At December
31, 1997 such pledged portion had an aggregate fair value of
approximately $1.4 billion.
(7) Acquisitions and Dispositions
On March 4, 1998, the Company contributed to Cablevision Systems
Corporation ("CSC") certain of its cable television systems serving
approximately 830,000 basic customers to CSC in exchange for
approximately 12.2 million newly issued CSC Class A shares. Such shares
represent an approximate 33% equity interest in CSC's total outstanding
shares and an approximate 9% voting interest in CSC in all matters
except for the election of directors, in which case the Company has an
approximate 47% voting interest in the election of one fourth of CSC's
directors. CSC also assumed approximately $669 million of TCI's debt.
The Company has also entered into letters of intent with CSC which
provide for the Company to acquire a cable system in Michigan and an
additional 3% of CSC's Class A shares and for CSC to (i) acquire cable
systems serving approximately 250,000 customers in Connecticut and (ii)
assume $110 million of the Company's debt. The ability of the Company
to sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with
CSC. The Company will account for its approximate 33% interest in CSC
under the equity method.
(continued)
II-103
<PAGE> 206
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Including the above-described CSC transactions and another transaction
that closed in February 1998, the Company, as of February 28, 1998,
has, since January 1, 1997, contributed, or signed agreements or
letters of intent to contribute within the next twelve months, certain
cable television systems (the "Contributed Cable Systems") serving
approximately 3.8 million basic customers to joint ventures (the
"Contribution Transactions") in which the Company will retain
non-controlling ownership interests. Following the completion of the
Contribution Transactions, the Company will no longer consolidate the
Contributed Cable Systems. Accordingly, it is anticipated that the
completion of the Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1997 amounts)
to debt, annual revenue and annual operating income before
depreciation, amortization and stock compensation of $4.6 billion, $1.7
billion and $783 million, respectively. No assurance can be given that
any of the pending Contribution Transactions will be consummated.
On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of
Liberty Media Group, which held non-voting class C common stock of
International Family Entertainment, Inc. ("IFE") ("Class C Stock") and
$23 million of IFE 6% convertible secured notes due 2004, convertible
into Class C Stock, ("Convertible Notes"), contributed its Class C
Stock and Convertible Notes to Fox Kids Worldwide, Inc. ("FKW") in
exchange for a new series of 30 year non-convertible 9% preferred stock
of FKW with a stated value of $345 million (the "FKW Preferred Stock").
As a result of the exchange, Liberty Media Group recognized a pre-tax
gain of approximately $304 million.
Effective July 31, 1997, a wholly-owned subsidiary of TCI merged with
and into Kearns-Tribune Corporation ("Kearns-Tribune") . The merger was
valued at $808 million. TCI exchanged 47.2 million shares of TCI Group
Series A Stock for shares of Kearns-Tribune which held 17.9 million
shares of TCI Group Stock and 10.1 million shares of Liberty Group
Stock. The merger of Kearns-Tribune has been accounted for by the
purchase method. Accordingly, the results of operations of
Kearns-Tribune Corporation have been combined with those of the Company
since the date of acquisition, and the Company recorded
Kearns-Tribune's assets and liabilities at fair value. Assuming the
acquisition of Kearns-Tribune had occurred on January 1, 1996, the
Company's pro forma results of operations would not have been
materially different from the Company's historical results of
operations for the years ended December 31, 1997 and 1996.
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. Prior to the acquisition
date, the Company accounted for its 50% interest in TKR Cable under the
equity method. This acquisition has been treated as a step acquisition
for accounting purposes. Accordingly, the results of operations of TKR
Cable have been combined with those of TCI Group since the date of
acquisition and TCI Group's aggregate cost basis in TKR Cable has been
allocated to TKR Cable's assets and liabilities based on their fair
values. Assuming the acquisition of TKR Cable had occurred on January
1, 1996, the Company's pro forma results of operations would not have
been materially different from the Company's historical results of
operations for the years ended December 31, 1997 and 1996.
(continued)
II-104
<PAGE> 207
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 "Viacom 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 Viacom 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 Viacom 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 TCI Group Series A
Stock at an exchange rate of 5.447 shares of TCI Group Series A 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 TCI Group Series A Stock, or in
any combination of the foregoing. Upon completion of the Viacom
Acquisition, Cable Sub was renamed TCI Pacific Communications, Inc.
("TCI Pacific").
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of TCI Pacific have been
consolidated with those of the Company since the date of acquisition,
and the Company recorded TCI Pacific's assets and liabilities at fair
value. On a pro forma basis, the Company's revenue and TCI Group's net
loss and net loss per share would have been increased by $280 million,
$55 million and $.08, respectively, for the year ended December 31,
1996 if TCI Pacific had been consolidated with the Company since
January 1, 1996.
(continued)
II-105
<PAGE> 208
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 10).
(8) 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 by 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 TCI Group Series A Stock. See notes 9, 10 and 12.
Summarized financial information of Satellite as of December 4, 1996
and from January 1, 1996 through December 4, 1996 is as follows
(amounts in millions):
<TABLE>
<CAPTION>
Financial Position
------------------
<S> <C>
Cash, receivables and other assets $ 104
Investment in Primestar 32
Property and equipment, net 1,111
----------
$ 1,247
Accounts payable and accrued liabilities $ 60
Due to Primestar 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)
II-106
<PAGE> 209
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at -----------------------------
December 31, 1997 1997 1996
----------------- ------------ ------------
amounts in millions
<S> <C> <C> <C>
Debt of subsidiaries:
Notes payable (a) 8.0% $ 9,017 9,308
Bank credit facilities (b) 6.8% 5,233 4,813
Commercial paper 6.3% 533 638
Convertible notes (c) 9.5% 40 43
Other debt, at varying rates 427 124
------------ ------------
$ 15,250 14,926
============ ============
</TABLE>
(a) During the year ended December 31, 1997, the Company purchased
in the open market certain notes payable which had an
aggregate principal balance of $409 million and fixed interest
rates ranging from 8.75% to 10.13% (the "1997 Purchases"). In
connection with the 1997 Purchases, the Company recognized a
loss on early extinguishment of debt of $39 million. Such loss
related to prepayment penalties amounting to $33 million and
the retirement of deferred loan costs.
During the year ended December 31, 1996, the Company purchased
in the open market certain notes payable which had an
aggregate principle balance of $904 million and fixed interest
rates ranging from 7.88% to 10.44% (the "1996 Purchases"). In
connection with the 1996 Purchases, 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.
(b) At December 31, 1997, subsidiaries of the Company had
approximately $2.6 billion in unused lines of credit,
excluding amounts related to lines of credit which provide
availability to support commercial paper.
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.
(continued)
II-107
<PAGE> 210
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) The convertible notes, which are stated net of unamortized
discount of $166 million and $178 million at December 31, 1997
and 1996, respectively, mature on December 18, 2021. The notes
require, so long as conversion of the notes has not occurred,
an annual interest payment through 2003 equal to 1.85% of the
face amount of the notes. During the year ended December 31,
1997, certain of these notes were converted, pursuant to their
existing terms, into 2,533,116 shares of TCI Group Series A
Stock, 1,448,341 shares of Liberty Group Series A Stock and
256,484 shares of Series A Common Stock, $1.00 par value per
share, of Satellite ("Satellite Series A Common Stock") and
63,432 shares of TCI Ventures Group Series A Stock. At
December 31, 1997, the notes were convertible, at the option
of the holders, into an aggregate of 24,163,259 shares of TCI
Group Series A Stock, 19,416,889 shares of Liberty Group
Series A Stock, 20,711,364 shares of TCI Ventures Group Series
A Stock and 3,451,897 shares of Satellite Series A Common
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.
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 $1.4 billion.
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. At December 31, 1997, the fair value of the Company's debt
was $16,037 million, as compared to a carrying value of $15,250 million
on such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company has entered into various Interest Rate Swaps
pursuant to which it (i) paid fixed interest rates (the "Fixed Rate
Agreements") and received variable interest rates through December 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 $2,400 million at December 31, 1997. During the years ended
December 31, 1997, 1996 and 1995, the Company's net payments pursuant
to the Fixed Rate Agreements were $7 million, $14 million and $13
million, respectively; and the Company's net receipts (payments)
pursuant to the Variable Rate Agreements were (less than $1 million),
$15 million and (less than $1 million), respectively. At December 31,
1997, all of the Company's Fixed Rate Agreements had expired.
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 such termination settlement over the remainder of
the original terms of the terminated Variable Rate Agreements.
(continued)
II-108
<PAGE> 211
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the Company's Variable Rate Agreements at
December 31, 1997 is as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Amount to be paid
Expiration Interest rate Notional (received) upon
date to be received amount termination (a)
---------- -------------- -------- -----------------
<S> <C> <C> <C>
September 1998 4.8%-5.4% $ 450 $ 4
April 1999 7.4% 50 (1)
September 1999 6.4% 350 (1)
February 2000 5.8%-6.6% 300 (2)
March 2000 5.8%-6.0% 675 1
September 2000 5.1% 75 2
March 2027 9.7% 300 (15)
December 2036 9.7% 200 (6)
----------- -----------
$ 2,400 $ (18)
=========== ===========
</TABLE>
--------------------
(a) The estimated amount that the Company would pay or receive to
terminate the agreements at December 31, 1997, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
In addition to the Variable Rate Agreements, the Company entered into
an Interest Rate Swap in September 1997 pursuant to which it pays a
variable rate based on the London Interbank Offered Rate ("LIBOR")
(6.1% at December 31, 1997) and receives a variable rate based on the
Constant Maturity Treasury Index (6.4% at December 31, 1997) on a
notional amount of $400 million through September 2000. During the year
ended December 31, 1997, the Company's net receipts pursuant to such
agreement were less than $1 million. At December 31, 1997, the Company
would be required to pay an estimated $3 million to terminate such
Interest Rate Swap.
The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps 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. Further, the Company does not anticipate material
near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of December 31,
1997.
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)
II-109
<PAGE> 212
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Annual maturities of debt for each of the next five years are as
follows (amounts in millions):
<TABLE>
<S> <C>
1998 $ 976*
1999 1,001
2000 1,554
2001 1,329
2002 1,292
</TABLE>
* Includes $533 million of commercial paper.
(10) Redeemable Preferred Stocks
The conversion rates identified below for the redeemable preferred
stocks that are convertible into TCI Group Series A Stock were
adjusted, as applicable, on December 4, 1996 as a result of the
Satellite Spin-off. See note 8. The conversion rates for the redeemable
preferred stocks that are convertible into Liberty Group Series A Stock
and TCI Ventures Group Series A Stock have been adjusted to give effect
to the 1998 Liberty Stock Dividend and the Ventures Stock Dividend,
respectively. 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. All of the issued and outstanding shares of
Series C Preferred Stock were retired on December 31, 1997, with the
effect that such retired shares have been restored to the status of
authorized and unissued shares of Series Preferred Stock, and may be
reissued as shares of another series of Series Preferred Stock but may
not be reissued as Series C Preferred Stock.
Series C-TCI Group Preferred Stock. On December 31, 1997, TCI issued
70,575 shares designated as convertible preferred stock, Series C-TCI
Group (the "Series C-TCI Group Preferred Stock") as partial
consideration for retired Series C Preferred Stock. See also Series
C-Liberty Media Group Preferred Stock below. There were 70,575 shares
of Series C-TCI Group Preferred Stock authorized and outstanding at
December 31, 1997.
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-TCI Group 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 of the Series C-TCI
Group Preferred Stock. The Series C-TCI Group Preferred Stock ranks
senior to the TCI common stock and the Class B Preferred Stock and on a
parity with all other currently outstanding classes and series of TCI
preferred stock as to rights to receive assets upon liquidation,
dissolution or winding up of the affairs of TCI.
The Series C-TCI Group Preferred Stock is subject to optional
redemption by TCI at any time after August 8, 2001, in whole or in
part, at a redemption price, per share, equal to the liquidation value
of the Series C-TCI Group Preferred Stock of $2,208.35 per share. The
Series C-TCI Group Preferred Stock is required to be redeemed by TCI at
any time on or after August 8, 2001 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)
II-110
<PAGE> 213
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1997, subject to anti-dilution adjustments, each
share of Series C-TCI Group preferred Stock is currently convertible,
at the option of the holder, into 132.86 shares of TCI Group Series A
Stock. Subject to certain provisions, if the holders of Series C-TCI
Group Preferred Stock would be entitled to receive upon conversion
thereof any TCI capital stock that is redeemable or exchangeable at the
election of TCI ("Series C-TCI Group Redeemable Capital Stock"), and
all of the outstanding shares or other units of such Series C-TCI Group
Redeemable Capital Stock are redeemed, exchanged or otherwise acquired
in full, then, from and after such event (a "Series C-TCI Group
Redemption Event"), the holders of Series C-TCI Group Preferred Stock
then outstanding shall be entitled to receive upon conversion of such
shares, in lieu of shares of such Series C-TCI Group Redeemable Capital
Stock, the kind and amount of shares of stock and other securities and
property receivable upon such Series C-TCI Group Redemption Event by a
holder of the number of shares or units of Series C-TCI Group
Redeemable Capital Stock into which such shares of Series C-TCI Group
Preferred Stock could have been converted immediately prior to the
effectiveness of such Series C-TCI Group Redemption Event (assuming
that such holder failed to exercise any applicable right of election
with respect thereto and received per share or unit of such Series
C-TCI Group Redeemable Capital Stock the kind and amount of stock and
other securities and property received per share or unit by the holders
of a plurality of the non-electing shares or units thereof) and,
thereafter, the holders of the Series C-TCI Group Preferred Stock shall
have no other conversion rights with respect to such Series C-TCI Group
Redeemable Capital Stock.
If TCI distributes the stock of a subsidiary of TCI as a dividend to
all holders of TCI Group Series A Stock (a "TCI Group Spin Off"), TCI
shall make appropriate provision so the holders of the Series C-TCI
Preferred Stock have the right to exchange their shares of Series C-TCI
Group Preferred Stock on the effective date of the TCI Group Spin Off
for convertible preferred stock of TCI and convertible preferred stock
of such subsidiary that together have an aggregate liquidation
preference equal to the liquidation preference of a share of Series
C-TCI Group Preferred Stock on the effective date of the TCI Group Spin
Off and that otherwise each have terms, conditions, designations,
voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions applicable to such
convertible preferred stock that are identical, or as nearly so as is
practicable in the judgment of the Board, to those of the Series C-TCI
Group Preferred Stock for which such convertible preferred stock is to
be exchanged.
(continued)
II-111
<PAGE> 214
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In the event an "Exchange Offer" is made by TCI or a subsidiary of TCI
(the applicable of the foregoing being the "Series C-TCI Group
Offeror"), the Series C-TCI Group Offeror shall concurrently therewith
make an equivalent offer to the holders of Series C-TCI Group Preferred
Stock pursuant to which such holders may tender shares of Series C-TCI
Group Preferred Stock, based upon the number of shares of TCI Group
Series A Common Stock into which such tendered shares are then
convertible (and in lieu of tendering outstanding shares of TCI Group
Series A Common Stock), together with such other consideration as may
be required to be tendered pursuant to such Exchange Offer, and receive
in exchange therefor, in lieu of securities of the Series C-TCI Group
Offeror offered in such Exchange Offer ("Exchange Securities") (and
other property, if applicable), convertible preferred stock of the
issuer of the Exchange Securities with an aggregate liquidation
preference equal to the aggregate liquidation preference of the shares
of Series C-TCI Group Preferred Stock exchanged therefor and that
otherwise has terms, conditions, designations, voting powers, rights on
liquidation and other preferences and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions applicable to such convertible preferred stock that are
identical, or as nearly so as is practicable in the judgment of the
Board, to those of the Series C-TCI Group Preferred Stock for which
such convertible preferred stock is to be exchanged. For the purposes
of the foregoing, "Exchange Offer" means an issuer tender offer,
including, without limitation, one that is effected through the
distribution of rights or warrants, made to holders of TCI Group Series
A Stock (or to holders of other stock of TCI receivable by a holder of
Series C-TCI Group Preferred Stock upon conversion thereof), to issue
stock of TCI or of a subsidiary of TCI and/or other property to a
tendering stockholder in exchange for shares of TCI Group Series A
Stock (or such other stock).
The holders of Series C-TCI Group Preferred Stock are entitled to vote
on an as converted basis on all matters submitted to a vote of holders
of the capital stock of TCI entitled to vote generally on the election
of directors. Holders of Series C-TCI Group Preferred Stock are not
entitled to vote as a separate class except as otherwise may be
required by the Delaware General Corporation Law ("DGCL").
Series C-Liberty Media Group Preferred Stock. On December 31, 1997, TCI
issued 70,575 shares designated as convertible preferred stock, Series
C-Liberty Media Group (the "Series C-Liberty Media Group Preferred
Stock") as remaining consideration for retired Series C Preferred
Stock. There were 70,575 shares of Series C-Liberty Media Group
Preferred Stock authorized and outstanding at December 31, 1997.
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-Liberty Media Group 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 of the Series C-Liberty Media Group Preferred Stock. The Series
C-Liberty Media Group Preferred Stock ranks senior to the TCI common
stock and the Class B Preferred Stock and on a parity with all other
currently outstanding classes and series of TCI preferred stock as to
rights to receive assets upon liquidation, dissolution or winding up of
the affairs of TCI.
(continued)
II-112
<PAGE> 215
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Series C-Liberty Media Group Preferred Stock is subject to optional
redemption by TCI at any time after August 8, 2001, in whole or in
part, at a redemption price, per share, equal to the liquidation value
of the Series C-Liberty Media Group Preferred Stock of $579.31 per
share. The Series C-Liberty Media Group Preferred Stock is required to
be redeemed by TCI at any time on or after August 8, 2001 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.
As of December 31, 1997, subject to anti-dilution adjustments, each
share of Series C-Liberty Media Group Preferred Stock was convertible,
at the option of the holder, into 37.5 shares of Liberty Group Series A
Stock plus one additional share for every two such shares received upon
conversion. Subject to certain provisions, if (i) TCI redeems all the
outstanding shares of Liberty Group Series A Stock in accordance with
the terms thereof, or (ii) the holders of Series C-Liberty Media Group
Preferred Stock would be entitled to receive upon conversion thereof
any TCI capital stock that is redeemable or exchangeable at the
election of TCI ("Series C-Liberty Media Group Redeemable Capital
Stock"), and all of the outstanding shares or other units of such
Series C-Liberty Media Group Redeemable Capital Stock are redeemed,
exchanged or otherwise acquired in full, then, from and after either
such event (each event referred to in clause (i) and (ii) being a
"Series C-Liberty Media Group Redemption Event"), the holders of Series
C-Liberty Media Group Preferred Stock then outstanding shall be
entitled to receive upon conversion of such shares of Series C-Liberty
Media Group Preferred Stock, in lieu of shares of Liberty Group Series
A Stock or such Series C-Liberty Media Group Redeemable Capital Stock,
as the case may be, the kind and amount of shares of stock and other
securities and property receivable upon such Series C-Liberty Media
Group Redemption Event by a holder of the number of shares of Liberty
Group Series A Stock or shares or units of such Series C-Liberty Media
Group Redeemable Capital Stock, as the case may be, into which such
shares of Series C-Liberty Media Group Preferred Stock could have been
converted immediately prior to the effectiveness of such Series
C-Liberty Media Group Redemption Event (assuming that such holder
failed to exercise any applicable right of election with respect
thereto and received per share of Liberty Group Series A Common Stock
or per share or unit of such Series C-Liberty Media Group Redeemable
Capital Stock, as the case may be, the kind and amount of stock and
other securities and property received per share or unit by the holders
of a plurality of the non-electing shares or units thereof) and,
thereafter, the holders of the Series C-Liberty Media Group Preferred
Stock shall have no other conversion rights with respect to the Liberty
Group Series A Stock or such Series C-Liberty Media Group Redeemable
Capital Stock, as the case may be.
(continued)
II-113
<PAGE> 216
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If TCI distributes the stock of a subsidiary of TCI as a dividend to
all holders of Liberty Group Series A Stock (a "Liberty Media Group
Spin Off"), TCI shall make appropriate provision so the holders of the
Series C-Liberty Media Group Preferred Stock have the right to exchange
their shares of Series C-Liberty Media Group Preferred Stock on the
effective date of the Liberty Media Group Spin Off for convertible
preferred stock of TCI and convertible preferred stock of such
subsidiary that together have an aggregate liquidation preference equal
to the liquidation preference of a share of Series C-Liberty Media
Group Preferred Stock on the effective date of the Liberty Media Group
Spin Off and that otherwise each have terms, conditions, designations,
voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions applicable to such
convertible preferred stock that are identical, or as nearly so as is
practicable in the judgment of the Board, to those of the Series
C-Liberty Media Group Preferred Stock for which such convertible
preferred stock is to be exchanged.
In the event an "Exchange Offer" is made by TCI or a subsidiary of TCI
(the applicable of the foregoing being the "Series C-Liberty Media
Group Offeror"), the Series C-Liberty Media Group Offeror shall
concurrently therewith make an equivalent offer to the holders of
Series C-Liberty Media Group Preferred Stock pursuant to which such
holders may tender shares of Series C-Liberty Media Group Preferred
Stock, based upon the number of shares of Liberty Group Series A Stock
into which such tendered shares are then convertible (and in lieu of
tendering outstanding shares of Liberty Group Series A Stock), together
with such other consideration as may be required to be tendered
pursuant to such Exchange Offer, and receive in exchange therefor, in
lieu of securities of the Series C-Liberty Media Group Offeror offered
in such Exchange Offer ("Liberty Media Group Exchange Securities") (and
other property, if applicable), convertible preferred stock of the
issuer of such Liberty Media Group Exchange Securities with an
aggregate liquidation preference equal to the aggregate liquidation
preference of the shares of Series C-Liberty Media Group Preferred
Stock exchanged therefor and that otherwise has terms, conditions,
designations, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions applicable to
such convertible preferred stock that are identical, or as nearly so as
is practicable in the judgment of the Board, to those of the Series
C-Liberty Media Group Preferred Stock for which such convertible
preferred stock is to be exchanged. For purposes of the foregoing,
"Exchange Offer" means an issuer tender offer, including, without
limitation, one that is effected through the distribution of rights or
warrants, made to holders of Liberty Group Series A Stock (or to
holders of other stock of TCI receivable by a holder of Series
C-Liberty Media Group Preferred Stock upon conversion thereof), to
issue stock of TCI or of a subsidiary of TCI and/or other property to a
tendering stockholder in exchange for shares of Liberty Group Series A
Stock (or such other stock).
The holders of Series C-Liberty Media Group Preferred Stock are
entitled to vote on an as converted basis on all matters submitted to a
vote of holders of the capital stock of TCI entitled to vote generally
on the election of directors. Holders of Series C-Liberty Media Group
Preferred Stock are not entitled to vote as a separate class except as
otherwise may be required by the DGCL.
(continued)
II-114
<PAGE> 217
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Convertible Preferred Stock, Series D. The Company designated and
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 7). At December 31, 1997, there were 994,797 shares
of Series D Preferred Stock outstanding.
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, the TCI
Ventures 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-TCI Group Preferred
Stock, the Series C-Liberty Media Group Stock, the Series F Preferred
Stock, the Series G Preferred Stock and the Series H Preferred Stock.
Each share of Series D Preferred Stock is convertible, at the option of
the holder, into 10 shares of TCI Group Series A Stock and 2.5 shares
of Liberty Group Series A 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
receive (i) one share of Liberty Group Series A Stock for every two
such shares received upon conversion, (ii) one additional share of
Liberty Group Series A Stock for every two such shares issued,
including those issued pursuant to (i) above, and (iii) one share of
Satellite Series A Common Stock for each share of Series D Preferred
Stock converted. Such shares of Satellite Series A 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 Series A 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 Group Series A Stock at a conversion rate equal to 95% of the then
current market price of TCI Group Series A Common Stock, and upon
issuance of TCI Group Series A Common Stock to holders of Series D
Preferred Stock in respect of such deemed conversion, such dividend
will be deemed paid for all purposes.
Shares of Series D Preferred Stock are redeemable for cash at the
option of the holder at any time after the tenth anniversary of the
issue date at a price equal to the liquidation value in effect as of
the date of the redemption. Shares of Series D Preferred Stock may also
be redeemed for cash at the option of TCI after the fifth anniversary
of the issue date at such redemption price or after the third
anniversary of the issue date if the market value per share exceeds
certain defined levels for periods specified in the certificate of
designation.
(continued)
II-115
<PAGE> 218
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If TCI fails to effect any required redemption of Series D Preferred
Stock, the holders thereof will have the option to convert their shares
of Series D Preferred Stock into TCI Group Series A 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 the DGCL, holders of Series D Preferred Stock are
not entitled to vote on any matters submitted to a vote of the
stockholders of TCI.
On February 20, 1998, the Company issued a Notice of Redemption which
called for the redemption of all of its outstanding Convertible
Preferred Stock, Series D, on April 1, 1998, for a redemption price of
$304.0233 per share. The shares of Convertible Preferred Stock, Series
D, that are redeemed are to be retired and restored to the status of
authorized and unissued shares of Series Preferred Stock.
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 Liberty Distribution, the Company caused each
of its subsidiaries holding shares of equity securities of TCI
("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 TCI
Group Series A Stock.
Each holder of Series F Preferred Stock has the right to receive upon
conversion 1,496.65 shares of TCI Group Series A 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 TCI Group Series A Stock issuable
upon conversion in the event of any non-cash dividend or distribution
of the TCI Group Series A 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 TCI
Group Series A Stock, with respect to any cash dividends or
distribution declared and paid on the TCI Group Series A Stock.
Dividends or distribution on the TCI Group Series A 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 TCI Group Series A Stock in such
liquidation, dissolution or winding up multiplied by the applicable
conversion rate of a share of Series F Preferred Stock.
(continued)
II-116
<PAGE> 219
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Series F Preferred Stock is subject to optional redemption by the
Company at any time after its issuance, in whole or in part, 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 TCI Group Series A Stock equal to the aggregate redemption
price (or designated portion thereof) of the shares to be redeemed
divided by the average of the last sales prices of the TCI Group Series
A Stock for a period specified, and subject to the adjustments
described, in the certificate of designations establishing the Series F
Preferred Stock.
Redeemable Convertible TCI Group Preferred Stock, Series G ("Series G
Preferred Stock") and Redeemable Convertible Liberty Media Group
Preferred Stock, Series H ("Series H Preferred Stock"). In January,
1996, TCI designated and 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, 1997, there were 6,567,344 shares of Series G Preferred
Stock and 6,567,894 shares of 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 January 25,
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 Series A Stock.
Additional dividends will accrue on unpaid dividends initially at a
rate of 4% per annum. The dividend rate on dividends that remain unpaid
on the next succeeding dividend payment date 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 TCI Group Series A
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 (i) .2625 shares of Liberty Group Series A Stock, plus
(ii) one additional share of Liberty Group Series A Stock for every two
such shares received upon such conversion, plus (iii) one additional
share of Liberty Group Series A Stock for every two shares of such
stock held after calculating the shares pursuant to (i) and (ii) above.
The conversion rights of Series G and Series H Preferred Stock are
subject to adjustment in certain circumstances.
(continued)
II-117
<PAGE> 220
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Among other such adjustments, if the Liberty Group Series A 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.
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 on a parity with all
other currently outstanding classes and series of TCI preferred stock
as to rights to receive assets upon liquidation, dissolution or winding
up of the affairs of the Company.
(continued)
II-118
<PAGE> 221
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(11) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
The Company, through certain subsidiary trusts, (the "Trusts"), had
preferred securities outstanding at December 31, 1997 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 aggregated $132 million and $71 million for the years ended
December 31, 1997 and 1996, respectively, and are included in minority
interests in earnings of consolidated subsidiaries in the accompanying
consolidated financial statements.
(continued)
II-119
<PAGE> 222
\
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stockholders' Equity
Common Stock
The Series A Stock each have one vote per share, and the Series B Stock
each have ten votes per share. Each share of Series B Stock is
convertible, at the option of the holder, into one share of Series A
Stock of the applicable Group. See note 1.
The rights of holders of the TCI Group Stock, Liberty Media Group Stock
and TCI Ventures Group Stock upon liquidation of TCI are based upon the
ratio of the aggregate market capitalization, as defined, of each of
the TCI Group Stock, Liberty Group Stock and TCI Ventures Group Stock
to the aggregate market capitalization, as defined, of the TCI Group
Stock, Liberty Group Stock, and TCI Ventures Group Stock.
Stock Repurchases
During the year ended December 31, 1997, pursuant to a stock repurchase
program approved by the Board, Liberty Media Group repurchased 916,500
shares of Liberty Group Series A Stock in open market transactions and
219,937 shares of Liberty Group Series A Stock from the spouse of an
officer and director of TCI at an aggregate cost of approximately $18
million. Such shares were canceled and returned to an authorized but
unissued status.
In addition, pursuant to the stock repurchase program, 4,000,000 shares
of TCI Group Series A Stock, 330,902 shares of TCI Group Series B Stock
and 338,196 shares of TCI Ventures Group Series B Stock were
repurchased at an aggregate cost of $77 million. Such shares are
reflected as treasury stock in the accompanying consolidated financial
statements.
Effective July 31, 1997, TCI merged Kearns-Tribune into a wholly-owned
TCI subsidiary attributed to TCI Group. TCI exchanged 47.2 million
shares of TCI Group Series A Stock for shares of Kearns-Tribune which
held 17.9 million shares of TCI Group Stock and 10.1 million shares of
Liberty Group Stock. Such shares are reflected as common stock held by
subsidiaries in the accompanying consolidated financial statements.
During the third quarter of 1997, Liberty Media Group commenced a
tender offer (the "Liberty Tender Offer") to purchase up to an
aggregate of 22.5 million shares of Liberty Group Stock at a price of
$20 per share through October 3, 1997. During the fourth quarter of
1997, Liberty Media Group repurchased 21.7 million shares of Liberty
Group Series A Stock and 82,074 shares of Liberty Group Series B Stock
at an aggregate cost of approximately $435 million pursuant to the
Liberty Tender Offer. Such purchases are reflected as treasury stock in
the accompanying consolidated financial statements.
(continued)
II-120
<PAGE> 223
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Employee Benefit Plans
The Company has several employee stock purchase plans to provide
employees an opportunity to create a retirement fund including
ownership interests in TCI. The primary employee stock purchase plan
provides for employees to contribute up to 10% of their compensation to
a trust for investment in several diversified investment choices,
including investment in Company common stock. The Company, by annual
resolution of the Board, generally contributes up to 100% of the amount
contributed by employees. Such TCI contribution is invested in TCI
Group Stock, Liberty Group Stock and TCI Ventures Group Stock. Certain
of the Company's subsidiaries have their own employee benefit plans.
Contributions to all plans aggregated $38 million, $35 million and $28
million for 1997, 1996 and 1995, 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 previously held all of the issued 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 Liberty
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 1,552,490 of such shares are issued and
outstanding, net of shares held by a TCI subsidiary.
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 TCI Group Series A Stock or in any combination of
the foregoing. Accrued dividends not paid as provided above on any
dividend payment date will accumulate and such accumulated unpaid
dividends may be declared and paid in cash, shares of TCI Group Series
A 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)
II-121
<PAGE> 224
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 TCI Group Series A Stock, the number
of such shares to be issued and delivered will be determined by
dividing the amount of the dividend to be paid in shares of TCI Group
Series A Stock by the Average Market Price of the TCI Group Series A
Stock. For this purpose, "Average Market Price" means the average of
the daily last reported sale prices (or, if no sale price is reported
on any day, the average of the high and low bid prices on such day) of
a share of TCI Group Series A 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)
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<PAGE> 225
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)
II-123
<PAGE> 226
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 per share. Subsidiaries of TCI
previously 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 Liberty Distribution.
See note 1.
Stock-Based Compensation
As of December 31, 1997, the Company and its subsidiaries had several
stock-based compensation plans for certain employees, officers,
directors and other persons. Such plans are described below.
Tele-Communications, Inc. Stock Incentive Plans. 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.
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.
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 Series A Stock or issued shares reacquired by the Company, including
shares purchased in the open market. Shares of Series A 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)
II-124
<PAGE> 227
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Liberty Distribution, each holder of an
outstanding option or SAR received an additional option or stock
appreciation right, as applicable, covering a number of shares of
Liberty Group Series A Stock equal to 56% (as adjusted) 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 TCI Group Series A 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
of TCI. The following descriptions of stock options and/or stock
appreciation rights have been adjusted to reflect such change.
As a result of the TCI Ventures Exchange, the Compensation Committee of
TCI elected to adjust the options in tandem with SARs to purchase TCI
Group Series A Stock to reflect the expected shift of attributable
value from TCI Group to the newly created TCI Ventures Group. The
options in tandem with SARs to purchase TCI Group Series A Stock
outstanding immediately prior to the TCI Ventures Exchange were
canceled and reissued as two separately exercisable options in tandem
with SARS: (i) with 70% of the options in tandem with SARs allocated to
an option in tandem with SARs to purchase TCI Group Series A Stock, and
(ii) with 30% of the options in tandem with SARs allocated to an option
in tandem with SARs to purchase TCI Ventures Group Series A Stock. The
terms of these adjusted options in tandem with SARs, including the
exercise price and the date of grant, are in all material respects the
same as the terms of the original options in tandem with SARs. The
following descriptions of stock options and/or stock appreciation
rights have been adjusted to reflect such change.
Awards granted subsequent to the Liberty Distribution may include
Awards relating to TCI Group Series A Stock or Liberty Group Series A
Stock and Awards granted subsequent to the TCI Ventures Exchange may
include Awards relating to TCI Group Series A Stock, Liberty Group
Series A Stock or TCI Ventures Group Series A Stock in such amounts and
types as the Compensation Committee of TCI determines in accordance
with the terms of the Incentive Plans.
Awards of TCI Group Series A Stock made under the Incentive Plans prior
to the Satellite Spin-off 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 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 TCI Group Series A 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 TCI Group Series A Stock (an
"Adjusted TCI Option"), exercisable for the same number of shares of
TCI Group Series A 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.
(continued)
II-125
<PAGE> 228
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 TCI Group Series A Stock and Satellite Series A common
stock, respectively, as necessary to satisfy their respective
obligations under such securities.
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, TCI Group Series A Stock, Liberty Group Series A Stock
and TCI Ventures Group Series A Stock pursuant to the Incentive Plans.
The number of options to purchase Liberty Group Series A Stock and TCI
Ventures Group Series A Stock, and the WAEP thereof, has been adjusted
to give effect to the 1998 Liberty Stock Dividend and the TCI Ventures
Dividend, respectively.
(continued)
II-126
<PAGE> 229
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
TCI
Liberty Ventures
Class A TCI Group Group Group
common Series A Series A Series A
stock WAEP Stock WAEP Stock WAEP Stock WAEP
--------- -------- ----------- ------- --------- ------- ------- ------
amounts in thousands, except for WAEP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1995 11,321 $ 18.13 -- -- --
Converted from
Class A options (11,219) 18.15 11,219 $ 13.58 -- --
Adjustment for
Liberty
Distribution -- -- 6,311 $ 8.07 --
Granted -- 7,508 16.99 5,819 10.63 --
Exercised (92) 16.07 (934) 12.45 (511) 7.41 --
Canceled (10) 17.25 (91) 13.07 (51) 7.77 --
------- ------- ------- -------
Outstanding at
December 31, 1995 -- 17,702 15.08 11,568 9.39 --
Exercised -- (196) 12.70 (132) 7.93 --
Canceled -- (132) 15.35 (42) 8.45 --
------- ------- ------- -------
Outstanding at
December 31, 1996 -- 17,374 12.97 11,394 9.41 --
Adjustment for TCI
Ventures Exchange -- (7,874) 14.21 -- 15,748 $ 7.11
Granted -- 12,314 15.26 3,514 15.91 --
Exercised -- (5,621) 11.95 (2,502) 8.41 (1,035) 6.77
Canceled -- (72) 14.31 (47) 10.21 (2) 7.10
------- ------- ------- -------
Outstanding at
December 31, 1997 -- 16,121 14.47 12,359 11.45 14,711 7.13
======= ======= ======= =======
Exercisable at
December 31, 1997 -- 4,363 12.82 5,156 9.09 4,723 6.31
======= ======= ======= =======
Vesting Period -- 5 yrs 5 yrs 5 yrs
======= ======= ======= =======
</TABLE>
(Continued)
II-127
<PAGE> 230
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On December 13, 1995, pursuant to the 1994 Plan, the Company awarded
330,000 restricted shares of TCI Group Series A Stock and 67,500
restricted shares of Liberty Group Series A Stock to certain officers
and other key employees of the Company. Based on the terms at the date
of grant, such restricted shares vest as to 50% in December 1999 and as
to the remaining 50% in December 2000. Such restricted shares had a
fair value of $20.625 and $11.67, respectively, on the date of grant.
On July 23, 1997, pursuant to the 1996 Plan, the Company awarded
400,000 restricted shares of TCI Group Series A Stock to an officer and
a director of the Company. Such restricted shares vest as to 50% in
July 2001 and as to the remaining 50% in July 2002. Such restricted
shares had a fair value of $15.81 on the date of grant.
On December 16, 1997, the Company granted, subject to shareholder
approval, options in tandem with stock appreciation rights to acquire
2,800,000 shares of TCI Ventures Group Series B Stock to an officer and
director of the Company. The options in tandem with stock appreciation
rights have an exercise price of $10.37 and vest ratably over five
years with such vesting period beginning December 16, 1997, first
become exercisable on December 16, 1998 and expire on December 16,
2007.
SARs with respect to 508,350 shares of TCI Group Series A Stock,
569,553 shares of Liberty Group Series A Stock and 814,726 shares of
TCI Ventures Group Series A Stock were outstanding at December 31,
1997. These rights have an adjusted strike price of $.52, $.36 and $.26
per share, respectively. All such SARs are 100% vested at December 31,
1997 and expire on March 28, 2001. The Company has the option of paying
the holder in stock or cash. During the year ended December 31, 1997,
SARs with respect to 442,162 shares of TCI Group Series A Stock,
231,163 shares of Liberty Group Series A Stock and 237,200 shares of
TCI Ventures Group Series A Stock were exercised.
Tele-Communications, Inc. Director Stock Option Plan. 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 TCI Group Series A Stock and options to
purchase 28,125 shares of Liberty Group Series A Stock were canceled.
During the year ended December 31, 1996, options to purchase 150,000
shares of TCI Group Series A Stock and options to purchase 84,375
shares of Liberty Group Series A Stock with a WAEP of $14.75 and
$11.52, respectively, were issued pursuant to the DSOP. Such options
had a weighted average fair value of $9.83 and $7.67, respectively, on
the date of grant.
(continued)
II-128
<PAGE> 231
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, 370,000 options with respect to TCI Group Stock
granted pursuant to the DSOP were outstanding, 162,000 of which were
exercisable. Such options had a range of exercise prices of $12.25 to
$16.99, with a WAEP of $14.04, and a weighted average remaining
contractual life of 7.68 years.
At December 31, 1997, 225,000 options with respect to Liberty Group
Stock granted pursuant to the DSOP were outstanding, 101,250 of which
were exercisable. Such options had a range of exercise prices of $9.78
to $11.67, with a WAEP of $10.43, and a weighted average remaining
contractual life of 7.63 years.
Tele-Communications International, Inc. Stock Incentive Plan. In 1995,
TINTA adopted the Tele-Communications International, Inc. 1995 Stock
Incentive Plan (the "TINTA 1995 Plan"). The TINTA 1995 Plan provides
for Awards to be made in respect of a maximum of 3,000,000 shares of
TINTA Series A common stock ("TINTA Series A Stock") (subject to
certain anti-dilution adjustments). Shares of TINTA Series A Stock that
are subject to Awards that expire, terminate or are annulled for any
reason without having been exercised (or deemed exercised, by virtue of
the exercise of a related stock appreciation right), or are forfeited
prior to becoming vested will return to the pool of such shares
available for grant under the TINTA 1995 Plan.
On December 13, 1995, stock options in tandem with SARs to purchase
1,302,000 shares of TINTA Series A Stock were granted pursuant to the
TINTA 1995 Plan. Of such grant, 1,252,000 options in tandem with SARs
were granted to employees of TINTA. Additionally, on December 13, 1995
TCI granted to one of its officers 50,000 options in tandem with SARs
to acquire TINTA Series A Stock owned by it. Such options vest evenly
over five years, first became exercisable August 4, 1996 and expire on
August 4, 2005. During 1997, TINTA granted stock options in tandem with
SARs to purchase 1,130,000 shares of TINTA Series A Stock. Such options
vest evenly over five years, first become exercisable one year after
date of grant, and expire ten years after date of grant.
The following table presents the number and WAEP of certain options in
tandem with SARs to purchase TINTA Series A Stock pursuant to the TINTA
1995 Plan (amounts in thousands, except for WAEP).
<TABLE>
<CAPTION>
TINTA
Series A Stock WAEP
-------------- --------------
<S> <C> <C>
Outstanding at January 1, 1995 --
Granted 1,302 $ 16.00
------------
Outstanding at December 31, 1995 and 1996 1,302 16.00
Granted 1,130 14.69
------------
Outstanding at December 31, 1997 2,432 15.39
============
Exercisable at December 31, 1997 521 16.00
============
Vesting Period 5 yrs
============
</TABLE>
(continued)
II-129
<PAGE> 232
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On December 13, 1995, pursuant to the TINTA 1995 Plan, 40,000
restricted shares of TINTA Series A Stock were awarded to certain
officers and directors of TINTA. Such restricted shares vest as to 50%
in December 1999 and as to the remaining 50% in December 2000. Such
restricted shares had a fair value of $25.375 on the date of grant.
On July 23, 1997, pursuant to the TINTA 1995 Plan, 150,000 restricted
shares of TINTA Series A Stock were awarded to a director of TINTA.
Such restricted shares vest as to 50% in July 2001 and as to the
remaining 50% in July 2002. Such restricted shares had a fair value of
$14.625 on the date of grant.
Tele-Communications International, Inc. Nonemployee Director Stock
Option Plan. On April 11, 1996, TINTA adopted the Tele-Communications
International, Inc. 1996 Nonemployee Director Stock Option Plan (the
"TINTA Director Plan"). The TINTA Director Plan provides for grants to
be made to nonemployee directors of TINTA of options to purchase a
maximum of 1,000,000 shares of TINTA Series A Stock (subject to certain
anti-dilution adjustments). Shares that are subject to such options
that expire or terminate for any reason without having been exercised
will return to the pool of shares underlying options available to grant
under the TINTA Director Plan. Pursuant to the TINTA Director Plan,
options to purchase 200,000 shares of TINTA Series A Stock were granted
in April 1996 at an exercise price of $16.00 per share. Such options
had a weighted average fair value of $14.01 on the date of grant.
Options issued pursuant to the TINTA Director Plan vest and become
exercisable over a five-year period from the date of grant and expire
10 years from the date of grant.
At December 31, 1997, 200,000 options with respect to TINTA Series A
Stock granted pursuant to the TINTA Director Plan were outstanding,
40,000 of which were exercisable. Such options had a weighted average
remaining contractual life of 9 years.
(continued)
II-130
<PAGE> 233
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Founders Options. Effective December 1, 1996, certain officers and key
employees of the Company were each granted options (the "Telephony
Option") 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 was 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. Such options had a fair value of
$1,347,700 per option on the date of grant. Each such option was
replaced during 1997 with a separate SAR with respect to each of
Telephony Services' two direct wholly-owned subsidiaries, TCI Teleport
Holdings, Inc. ("TCI Teleport") and TCI Wireless Holdings, Inc. ("TCI
Wireless"). Each of the SAR with respect to TCI Teleport (the "CLEC
SAR") and the SAR with respect to TCI Wireless (the "Wireless SAR")
entitles the holder to the excess of the value of the shares subject to
the SAR (based on the percentage that such shares represent of the
total value of the common equity of TCI Teleport or TCI Wireless, as
applicable, as of the exercise date) over the "strike price" (i.e., 1%
of TCI's cumulative investment in TCI Teleport or TCI Wireless, as
applicable, and their respective subsidiaries at December 1, 1996, plus
a 6% per annum interest factor from the date when each such investment
was made to the date of exercise). The material terms of the CLEC SAR
and the Wireless SAR are the same as those of the Telephony Option,
except that the strike price for each such SAR is an allocated portion
of the exercise price under the Telephony Option based on TCI's
cumulative investment in TCI Teleport and TCI Wireless. All such SARs
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. Any exercise by one of such executive
officers of all or part of the CLEC SAR would need to be accompanied by
the exercise by such executive officer of a pro rata portion of
Wireline Option described below.
Each such officer and key employee was also granted a similar option
(the "Wireline 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. All of such options vest 20% per annum beginning
February 1, 1997 and expire on February 1, 2006. Such options had a
fair value of $4,400 per option on the date of grant. Such options must
be exercised on a pro rata basis with the CLEC SARs discussed above.
(continued)
II-131
<PAGE> 234
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective December 1, 1996, certain officers and key employees of the
Company were each granted options (the "Internet Option") representing
1% of the Company's common equity in TCI Internet Services, Inc. ("TCI
Internet"), a consolidated subsidiary of the Company. The aggregate
exercise price for each Internet Option was equal to 1.0% of the
Company's cumulative investment in TCI Internet 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 price. Such options
vest 20% per annum beginning February 1, 1997 and expire on February 1,
2006. Such options had a fair value of $346,800 on the date of grant.
In anticipation of the transfer to TCI.NET, Inc. ("TCI.NET") of the
Internet services distribution business conducted through subsidiaries
of TCI Internet, each such option was replaced during 1997 with an
option to acquire a number of shares equal to 1.0% of TCI's common
equity in TCI.NET at December 1, 1996 and a SAR with respect to a
number of shares equal to 1.0% of TCI's common equity in TCI Internet
at December 1, 1996. The material terms of the option to acquire shares
of TCI.NET are the same as those of the Internet Option, except that
the exercise price, which will be payable to TCI. NET, is an allocated
portion of the exercise price under the Internet Option based on TCI's
cumulative investment in the Internet services distribution business
relative to the balance of its cumulative investment in TCI Internet at
December 1, 1996. The SAR entitles the holder to the excess of the
value of the shares subject to the SAR (based on the percentage that
such shares represent of the total value of the common equity of TCI
Internet as of the exercise date) over 1% of TCI's cumulative
investment in TCI Internet at December 1, 1996, plus a 6% per annum
interest factor from the date when each such investment was made to the
date of exercise. Any exercise by the holder of all or part of the
TCI.NET option must be accompanied by the exercise by such holder of a
pro rata portion of the TCI Internet SAR, and vice versa.
At December 31, 1997, 14 CLEC SARs and 20 Wireless SARs were
outstanding, none and 4, respectively, of which were exercisable. Such
SARs had exercise prices of $452,243 and $985,446, respectively, and an
average remaining contractual life of 9 years.
At December 31, 1997, 14 Wireline Options were outstanding, none of
which were exercisable. Such options had an exercise price of $13,314
and an average remaining contractual life of 9 years.
At December 31, 1997, 22 TCI Internet SARs and 22 TCI.NET options were
outstanding, none of which were exercisable. Such SARs and options had
exercise prices of $35,048 and $22,025, respectively, and an average
remaining contractual life of 9 years.
United Video Satellite Group, Inc. Equity Incentive Plan and United
Video Satellite Group, Inc. Stock Option Plan for Non-Employee
Directors. United Video Satellite Group, Inc., a subsidiary of the
Company, ("UVSG") sponsors the United Video Satellite Group, Inc.
Equity Incentive Plan under which 4.0 million shares of UVSG's Class A
Common Stock are authorized to be issued in connection with the
exercise of awards of stock options, stock appreciation rights and
restricted stock granted under the plan. UVSG's Equity Incentive Plan
provides that the price at which each share of stock covered by an
option may be acquired shall in no event be less than 100% of the fair
market value of the stock on the date the option is granted, except in
certain limited circumstances. Additionally, UVSG sponsors the United
Video Satellite Group, Inc. Stock Option Plan for Non-Employee
Directors under which 165,000 shares of UVSG's Class A Common Stock are
authorized to be issued in connection with the exercise of stock
options granted thereunder.
(continued)
II-132
<PAGE> 235
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, 3.2 million shares of UVSG's Class A Common Stock
were reserved for issuance under the stock option plans. The options
granted under the stock option plans expire ten years from the date of
grant. Options outstanding are as follows (amounts in thousands, except
for WAEP):
<TABLE>
<CAPTION>
UVSG
Class A Common
Stock WAEP
--------------- ----------
<S> <C> <C>
At January 1, 1995 2,739 $ 6.78
Exercised (674) 1.46
Canceled (5) 12.62
----------
At December 31, 1995 2,060 8.51
Granted 638 22.22
Exercised (407) 8.08
Canceled (402) 18.42
----------
At December 31, 1996 1,889 11.12
Granted 458 17.09
Exercised (1,045) 8.09
Canceled (126) 11.76
----------
At December 31, 1997 1,176 16.07
==========
Exercisable at December 31, 1997 354
==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged
from $8 to $27. The weighted-average remaining contractual life of such
options is 8.1 years.
At Home Corporation Stock Option Plans. At Home Corporation, a
subsidiary of the Company, ("@ Home") adopted certain stock option
plans (the "@ Home Plans") during 1996 and 1997. The @ Home Plans
provide for the grant of incentive stock options, nonqualified stock
options, restricted stock awards and stock bonuses to employees,
directors and consultants of @ Home. Options under the @ Home Plans
generally vest at the rate of 25% after one year and ratably on a
monthly basis for three years thereafter.
Options outstanding are as follows ( amounts in thousands, except for
WAEP):
<TABLE>
<CAPTION>
@ Home
Series A Common
Stock WAEP
--------------- ----------
<S> <C> <C>
At January 1, 1996 -- $ --
Granted 5,296 .06
Exercised (4,875) .06
Canceled (198) .05
----------
At December 31, 1996 223 .06
Granted 5,158 6.30
Exercised (2,170) .25
Canceled (153) 3.78
----------
At December 31, 1997 3,058 10.26
==========
Exercisable at December 31, 1997 1,642
==========
</TABLE>
(continued)
II-133
<PAGE> 236
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Exercise prices for options outstanding as of December 31, 1997 ranged
from $.05 to $24.50. The weighted-average remaining contractual life of
such options is 9.29 to 9.90 years. The weighted-average fair value of
options granted during 1997 and 1996 was $3.29 and $.01, respectively
The estimated fair values of the Options 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 generally 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.
Estimated compensation relating to restricted stock awards, options
with tandem SARs and SARs has been recorded through December 31, 1997
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 SFAS 123, the Company's net earnings (loss) and net earnings
(loss) per share would have changed to the pro forma amounts indicated
below (amounts in millions, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Pro forma net earnings (loss) attributable to common
stockholders $ (673) 256
Pro forma basic net earnings (loss) attributable to
common stockholders per common share
TCI Group Series A and Series B $ (.86) (1.20)
Liberty Media Group Series A and Series B $ .34 2.82
TCI Ventures Group Series A and Series B $ (.63) --
Pro forma diluted net earnings (loss) attributable to common
stockholders per common and potential common share
TCI Group Series A and Series B $ (.86) (1.20)
Liberty Media Group Series A and Series B $ .31 2.58
TCI Ventures Group Series A and Series B $ (.63) --
</TABLE>
(continued)
II-134
<PAGE> 237
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Treasury Stock and Common Stock Held by Subsidiaries, at Cost
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------- ------------------------------
Number of Number of
shares Cost basis shares Cost basis
-------------- --------------- ------------ ---------------
(dollar amounts in millions)
<S> <C> <C> <C> <C>
Treasury stock is summarized as follows:
Series A TCI Group Stock 11,296,324 $ 180 -- $ --
Series B TCI Group Stock 30,876,766 518 -- --
Series A Liberty Group Stock 25,082,172 489 -- --
Series B Liberty Group Stock 82,074 2 -- --
Series B TCI Ventures Group
Stock 338,196 4 -- --
Common stock held by subsidiaries is
summarized as follows:
Series A TCI Group Stock 125,645,656 464 116,853,196 314
Series B TCI Group Stock 9,112,500 160 -- --
Series A Liberty Group Stock 6,654,367 113 -- --
Series B Liberty Group Stock 3,417,187 61 -- --
--------------- ---------------
$ 1,991 $ 314
=============== ===============
</TABLE>
General
During the fourth quarter of 1997, the Company entered into a Total
Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
the Equity Swap Facility, the Company has the right to direct the
counterparty (the "Counterparty") to use the Equity Swap Facility to
purchase shares ("Equity Swap Shares") of TCI Group Series A Common
Stock and TCI Ventures Group Series A Stock with an aggregate purchase
price of up to $300 million. The Company has the right, but not the
obligation, to purchase Equity Swap Shares through the September 30,
2000 termination date of the Equity Swap Facility. During such period,
the Company is to settle periodically any increase or decrease in the
market value of the Equity Swap Shares. If the market value of the
Equity Swap Shares exceeds the Counterparty's cost, Equity Swap Shares
with a fair value equal to the difference between the market value and
cost will be segregated from the other Equity Swap Shares. If the
market value of Equity Swap Shares is less than the Counterparty's
cost, the Company, at its option, will settle such difference with
shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
or, subject to certain conditions, with cash or letters of credit. In
addition, the Company is required to periodically pay the Counterparty
a fee equal to a LIBOR-based rate on the Counterparty's cost to acquire
the Equity Swap Shares. Due to the Company's ability to issue shares to
settle periodic price fluctuations and fees under the Equity Swap
Facility, the Company records all amounts received (paid) under this
arrangement as increases (decreases) to equity. As of December 31,
1997, the Equity Swap Facility had acquired 345,000 shares of TCI Group
Series A Stock and 380,000 shares of TCI Ventures Group Series A Stock
at an aggregate cost that was approximately $3 million less than the
fair value of such Equity Swap Shares at December 31, 1997.
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.
(continued)
II-135
<PAGE> 238
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, there were 113,221,305 shares of TCI Group Series
A Stock, 46,015,274 shares of Liberty Group Series A Stock, 36,237,250
shares of TCI Ventures Group Series A Stock, and 2,800,000 shares of
TCI Ventures Group Series B Stock reserved for issuance under exercise
privileges related to options, convertible debt securities and
convertible preferred stock, and upon vesting of restricted stock
awards described in this note 12 and in notes 9 and 10. In addition,
one share of Series A Stock of each Group is reserved for each
outstanding share of Series B Stock of each Group.
Effective January 13, 1997, the Company issued a stock dividend to
holders of Liberty Group Stock consisting of one share of Liberty Group
Series A Stock for every two shares of Liberty Group Series A Stock and
one share of Liberty Group Series A Stock for every two shares of
Liberty Group Series B Stock. Such stock dividend was treated as a
stock split.
(continued)
II-136
<PAGE> 239
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Transactions with Officers and Directors
On June 16, 1997, the Company consummated the Exchange whereby
30,545,864 shares of TCI Group Series A Stock were exchanged for the
same number of shares of TCI Group Series B Stock owned by the Estate
of Bob Magness (the "Magness Estate"), the late founder and former
Chairman of the Board of TCI. Subsequent to the Exchange, the Magness
Estate sold (the "Sale") the shares of TCI Group Series A Stock
received in the Exchange, together with approximately 1.5 million
shares of TCI Group Series A Stock that the Magness Estate previously
owned (collectively, the "Option Shares"), to two investment banking
firms (the "Investment Bankers") for approximately $530 million (the
"Sale Price"). Subsequent to the Sale, TCI entered into an agreement
with the Investment Bankers whereby TCI has the option, but not the
obligation, to purchase the Option Shares at any time within two years
(the "Option Period") from the date of the Sale. During the Option
Period, the Company and the Investment Bankers are to settle quarterly
any increase or decrease in the market value of the Option Shares in an
account at the Investment Bankers. If the market value of the Option
Shares exceeds the Investment Bankers' cost, Option Shares with a fair
value equal to the difference between the market value and cost will be
segregated from the other Option Shares in an account at the Investment
Bankers. If the market value of the Option Shares is less than the
Investment Bankers' cost, the Company, at its option, will settle such
difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, the Company is required to pay the
Investment Bankers a quarterly fee equal to the LIBOR rate plus 1% on
the Sale Price, as adjusted for payments made by the Company pursuant
to any quarterly settlement with the Investment Bankers. Due to the
Company's ability to settle quarterly price fluctuations and fees with
shares of TCI Group Series A Stock or TCI Ventures Group Series A
Stock, the Company records all amounts received or paid under this
arrangement as increases or decreases, respectively, to equity. During
the fourth quarter of 1997, the Company repurchased 4,000,000 shares of
TCI Group Series A Stock from one of the Investment Bankers for an
aggregate cash purchase price of $66 million. Additionally, as a result
of the Exchange Offers and certain open market transactions, the
Investment Bankers disposed of 4,210,308 shares of TCI Group Series A
Stock and acquired 23,407,118 shares (as adjusted for the Ventures
Stock Dividend) of TCI Ventures Group Series A Stock during the last
half of 1997 such that the Option Shares were comprised of 16,402,082
shares of TCI Group Series A Stock and 23,407,118 shares (as adjusted
for the Ventures Stock Dividend) of TCI Ventures Series A Stock at
December 31, 1997. At December 31, 1997, the market value of the Option
Shares exceeded the Investment Bankers' cost by $325 million. In
connection with the Exchange and Sale, Dr. Malone agreed to forego the
exercise of certain option rights, and in consideration, TCI granted to
Dr. Malone the right (the "Malone Right") to acquire 30,545,864 shares
of TCI Group Series B Stock.
On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought
against it and other parties in connection with the administration of
the Magness Estate.
(continued)
II-137
<PAGE> 240
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A
Stock and 11,666,506 shares (as adjusted for the Ventures Stock
Dividend) of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares. TCI then issued to the Magness Estate
10,017,145 shares of TCI Group Series B Stock and 12,034,298 shares (as
adjusted for the Ventures Stock Dividend) of TCI Ventures Group Series
B Stock.
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr.
John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI the right to acquire the Malones'
high-voting shares (the "High-Voting Shares"), currently consisting of
an aggregate of approximately 60 million shares (as adjusted for stock
dividends) of Series B Stock upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal
amount) to third persons. In either such event, TCI has the right to
acquire the shares at a maximum price equal to the then relevant market
price of shares of "low-voting" Series A Stock plus a ten percent
premium. The Malones also agreed that if TCI were ever to be sold to
another entity, then the maximum premium that the Malones would receive
on their High-Voting Shares would be no greater than a ten percent
premium over the price paid for the relevant shares of Series A Stock.
TCI paid $150 million to the Malones for agreeing to the terms of the
Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually, and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for
entering into the Magness Call Agreement. Additionally, on February 9,
1998, the Magness Family entered into a shareholders' agreement (the
"Shareholders' Agreement") with the Malones and TCI under which (i) the
Magness Family and the Malones agree to consult with each other in
connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree
on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for TCI's Board of Directors and Dr.
Malone has agreed to vote his High Voting Shares for such nominee and
(iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in
favor of the Malones. In addition, the Malone Right granted by TCI to
Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock has
been reduced to an option to acquire 14,511,570 shares of TCI Group
Series B Stock. Pursuant to the terms of the Shareholders' Agreement,
the Magness Family has the right to participate in the reduced Malone
Right on a proportionate basis with respect to 12,406,238 shares of the
14,511,570 shares subject to the Malone Right.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement will be reflected as a $274 million
reduction of additional paid-in capital during the first quarter of
1998.
(continued)
II-138
<PAGE> 241
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On September 25, 1997, certain subsidiaries of the Company entered into
an Asset Contribution Agreement with, among others, Fisher
Communications Associates, L.L.C., which is controlled by a director of
the Company. On January 15, 1998, pursuant to the agreement, the cable
television assets of the applicable cable systems of the Company were
contributed to Peak Cablevision in exchange for a 66.7% partnership
interest in Peak Cablevision. Additionally, cable television assets of
Fisher Communications, L.L.C. were contributed in 1998 in exchange of a
33.3% interest in Peak Cablevision.
On July 23, 1997, an executive officer who is also a director of the
Company acquired from the Company an aggregate of 7,296,324 shares of
TCI Group Series B Stock and 3,417,187 shares of Liberty Group Series B
Stock, in exchange for a like number of shares of TCI Group Series A
Stock and Liberty Group Series A Stock, respectively, held by such
executive officer and director.
On July 24, 1997, the Company repurchased 219,937 shares of Liberty
Group Series A Stock from the spouse of an executive officer who is
also a director of the Company at an aggregate cost of approximately $4
million.
On June 10, 1997 (the "IP Phase I Closing Date"), the Company issued
139,513 shares of TCI Group Series B Stock (the "IP I Shares") to the
IP Series B Trust I ("Trust"). An executive officer who is also a
director of the Company is the trustee of the Trust. The IP I Shares
were issued in connection with a partial closing under two Partnership
Interest Purchase Agreements both dated as of June 10, 1997 (the "IP-I
and IP-III Purchase Agreements"), pursuant to which the Company
acquired on the IP Phase I Closing Date (a) a 99.998% limited
partnership interest in InterMedia Capital Management III, L.P., (b) a
75% limited partnership interest in InterMedia CM - LP, and (c) a
99.998% limited partnership interest in InterMedia Capital Management,
L.P. in exchange for total consideration of the IP I Shares and cash
and assumption of current liabilities in an aggregate amount of $6
million. As a result of such transactions the Company adopted the
equity method of accounting for its investment in Intermedia Partners,
a California limited partnership, and restated its financial
statements. Such restatement resulted in a $125 million decrease to its
investment in Intermedia Partners, a $50 million decrease to its
deferred tax liability, and a $75 million increase to its accumulated
deficit at December 31, 1996. In addition, such restatement resulted in
a $14 million increase to its net earnings in 1996 and a $12 million
increase to its net loss in 1995.
On August 5, 1997 (the "IP Phase II Closing Date"), the Company issued
2,405,942 shares of TCI Group Series B Stock (the "IP II Shares") to
the IP Series B Trust II ("Trust II"). An executive officer who is also
a director of the Company is the trustee of the Trust II. The IP II
Shares were issued in connection with the closing under the Partnership
Interest Purchase Agreement dated as of August 5, 1997, and a partial
and final closing under the IP-I and IP-III Purchase Agreements,
pursuant to which the Company acquired on the IP Phase II Closing Date
a 99.997% limited partnership interest in ICM IV and an additional
.001% limited partnership interest in InterMedia Capital Management,
L.P. in exchange for total consideration of the IP II Shares and cash
and assumption of liabilities in an aggregate amount of $18 million.
See note 5.
(continued)
II-139
<PAGE> 242
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the three Partnership Interest Purchase Agreements,
a director of the Company received a consulting fee in the amount of
$400,000 in cash and 31,030 shares of TCI Group Series B Stock and the
son of a director of the Company received an advisory fee in the amount
of 36,364 shares of TCI Group Series B Stock.
In connection with the Kearns-Tribune merger (see note 7), the former
Chairman of the Board of Kearns-Tribune who is also a director of TCI
(the "Former Kearns-Tribune Chairman") received (i) a cash payment of
$1.6 million and (ii) an assignment of all of Kearns-Tribune right,
title and interest in and to all patented mining claims owned by
Kearns-Tribune, including but not limited to royalties, buildings,
fixtures, surface rights, licenses and contracts related thereto, which
patented mining claims are valued at $438,000. With respect to the
assignment of the mining claims, the Former Kearns-Tribune Chairman
agreed to assume all liabilities with respect thereto and agreed to
indemnify Kearns-Tribune for any and all liabilities of Kearns-Tribune,
if any, relating to the mining claims, including those arising from
past operations. As of December 31, 1997, Kearns-Tribune had made the
cash payment to the Former Kearns-Tribune Chairman and was in process
of completing the transfers of the mining claims to a corporation
designated by the Former Kearns-Tribune Chairman. The parties
anticipate the remaining mining claim transfers will be completed in
fiscal 1998.
On March 4, 1997, an executive officer who is also a director of the
Company received an advance from a wholly-owned subsidiary of the
Company in the amount of $6 million. On March 5, 1997, such individual
received a second advance from a wholly-owned subsidiary of the Company
in the amount of $6 million. The terms of the advances were
memorialized by a promissory note. The interest rate on such loans is
1% over the one-month LIBOR rate compounded annually. Principal
outstanding on the note is due March 31, 1999 and interest is payable
annually on March 1 of each year. The loan is unsecured.
On the date of the Satellite Spin-off, the Company granted options to
two of its executive officers and a key employee of TCIC to acquire an
aggregate of 1,660,190 shares of Satellite Series A Common Stock. The
exercise price for each such option is equal to $8.86 per share. Such
options vest 20% per annum beginning February 1, 1997 and expire on
February 1, 2006.
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 were exercised during the first quarter of 1998. The aggregate
exercise price of $3,000,000 was satisfied with five non-interest
bearing promissory notes that are due and payable to the Company in
2008.
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)
II-140
<PAGE> 243
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Sale of Subsidiary Stock
In April 1997, @Home issued 240,000 shares of convertible preferred
stock, resulting in cash proceeds of $48 million, less issuance costs.
On July 11, 1997, @Home completed its initial public offering (the
"@Home IPO"), in which 10,350,000 shares of @Home common stock were
sold for cash proceeds of approximately $100 million. As a result of
the @Home IPO, the Company's economic interest in @Home decreased from
43% to 39% which economic interest represents an approximate 72% voting
interest. In connection with the associated dilution of the Company's
ownership interest of @Home, the Company recognized a gain of $60
million.
Effective October 2, 1997, @Home entered into a Letter Agreement and
Term Sheet with CSC, and it's parent, CSC Parent Corporation ("CSC
Parent"), Comcast Corporation ("Comcast"), Cox Enterprises, Inc.
("Cox"), Kleiner, Perkins, Caufield & Byers and TCI (the "CSC
Agreement"). In accordance with the provisions of the CSC Agreement,
CSC has entered into a Master Distribution Agreement for the
distribution of @Home's high speed residential consumer Internet access
services on substantially the same terms and conditions as agreements
previously entered into with TCI, Comcast and Cox. In connection with
the CSC Agreement, @Home issued to CSC warrants to purchase an
aggregate of 10,946,936 shares of @Home's Series A Common Stock at an
exercise price of $.50 per share. Of these warrants, warrants to
purchase 10,231,298 of such shares were exercisable as of March 4,
1998, subject to the receipt of all necessary governmental consents or
approvals, and the balance will become exercisable as and to the extent
certain Connecticut cable television systems are transferred from TCI
and its controlled affiliates to CSC, CSC's parent or their controlled
affiliates. During the fourth quarter of 1997, @Home recorded a
non-cash, non-recurring charge of $173 million to operations based on
the fair value of 7,875,784 shares which were underlying the then
exercisable warrants. An additional charge to operations of
approximately $74 million will be recorded in March 1998 when warrants
with respect to 2,353,514 shares became exercisable. The 1997 charge is
included in cost of distribution agreement in the accompanying
consolidated statements of operations. Following the exercise of all of
CSC's warrants, the Company's equity interest and voting power in @Home
will decrease to approximately 36% and 69%, respectively.
On July 18, 1995, TINTA completed an initial public offering (the
"TINTA 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 (the "TYC
Acquisition"). As a result of the TINTA 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.
(continued)
II-141
<PAGE> 244
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) 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, 1997,
1996 and 1995 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal $ (10) 264 254
State and local (31) 11 (20)
---------- ---------- ----------
$ (41) 275 234
========== ========== ==========
Year ended December 31, 1996:
Federal $ (25) (184) (209)
State and local (13) (49) (62)
---------- ---------- ----------
$ (38) (233) (271)
========== ========== ==========
Year ended December 31, 1995:
Federal $ (23) 138 115
State and local (10) 23 13
---------- ---------- ----------
$ (33) 161 128
========== ========== ==========
</TABLE>
Income tax benefit (expense) differs from the amounts computed by
applying the federal income tax rate of 35% as a result of the
following:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1997 1996 1995
------------ ---------- ----------
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit (expense) $ 301 (197) 109
Amortization not deductible for tax purposes (27) (22) (25)
Minority interest in losses (earnings) of
consolidated subsidiaries 64 (3) 9
Gain on sale of subsidiary stock 21 -- 43
State and local income taxes, net of federal
income tax benefit (5) (50) (3)
Increase in valuation allowance (86) (24) --
Other (34) 25 (5)
---------- ---------- ----------
$ 234 (271) 128
========== ========== ==========
</TABLE>
(continued)
II-142
<PAGE> 245
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
--------------- ---------------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 917 721
Less - valuation allowance (250) (150)
Investment tax credit carryforwards 117 118
Less - valuation allowance (41) (41)
Cost of distribution agreement 70 --
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 175 282
Future deductible amount attributable to accrued
stock appreciation rights and deferred compensation 132 24
Future deductible amounts principally due to
non-deductible accruals 150 55
Other 5 --
--------------- ---------------
Net deferred tax assets 1,370 1,104
--------------- ---------------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 1,295 1,193
Franchise costs, principally due to differences in
amortization 4,354 4,676
Investment in affiliates, due principally to
undistributed earnings of affiliates 1,552 917
Intangible assets, principally due to differences in
amortization 9 36
Leases capitalized for tax purposes 4 90
Other 264 154
--------------- ---------------
Total gross deferred tax liabilities 7,478 7,066
--------------- ---------------
Net deferred tax liability $ 6,108 5,962
=============== ===============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997
and 1996 was $291 million and $191 million, respectively.
At December 31, 1997, the Company had net operating loss carryforwards
for income tax purposes aggregating approximately $2,021 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, $285
million in 2011 and $535 million in 2012. Certain subsidiaries of the
Company had additional net operating loss carryforwards for income tax
purposes aggregating approximately $233 million and these net operating
losses are subject to certain rules limiting their usage.
At December 31, 1997, the Company had remaining available investment
tax credits of approximately $62 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.
(continued)
II-143
<PAGE> 246
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Certain of the federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under examination
by the Internal Revenue Service (the "IRS") for the years 1993 through
1995 (the "IRS Examinations"). In the opinion of management, any
additional tax liability, not previously provided for, resulting from
the IRS Examinations ultimately determined to be payable, should not
have a material adverse effect on the consolidated financial position
of the Company.
(16) Commitments and Contingencies
On October 5, 1992, the United States Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). In 1993 and 1994, the Federal Communications Commission
(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.
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 by a
customer, or the appropriate franchise authority, if such authority has
been certified by the FCC to regulate rates. 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 2017 (the "Film
Licensing Obligations"). Based on customer levels at December 31, 1997,
these agreements require minimum payments aggregating approximately
$695 million. The aggregate amount of the Film Licensing Obligations
under these 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.
(continued)
II-144
<PAGE> 247
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is a party to affiliation agreements with several of its
programming suppliers. Pursuant to these agreements, the Company is
committed to carry such suppliers programming on its cable systems.
Several of these agreements provide for penalties and charges in the
event the programming is not carried or not delivered to a
contractually specified number of customers.
During the third quarter of 1997, the Company committed to purchase
billing services from an unaffiliated third party pursuant to three
successive five year agreements. Pursuant to such arrangement, the
Company is obligated to make minimum payments aggregating approximately
$1.6 billion through 2012. Such minimum payments are subject to
inflation and other adjustments pursuant to the terms of the underlying
agreements.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $469 million at December 31, 1997. With respect to the
Company's guarantees of $166 million of such obligations, the Company
has been indemnified for any loss, claim or liability that the Company
may incur, by reason of such guarantees. 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.
On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
Following such merger (the "DMX Merger"), the Company owned 89.6% of
the common equity and 98.7% of the voting power of TCI Music. In
December 1997, TCI Music issued convertible preferred stock and common
stock in connection with two acquisitions. After giving effect to such
issuances and assuming the conversion of the TCI Music convertible
preferred stock, TCI, at December 31, 1997, owned TCI Music securities
representing 81.1% of TCI Music's common stock and 97.5% of the voting
power attributable to such TCI Music common stock. In connection with
the DMX Merger, the Company assumed a contingent obligation to purchase
14,896,648 shares (6,812,393 of which are owned by subsidiaries of the
Company) of TCI Music common stock at a price of $8.00 per share. Such
obligation may be settled, at the Company's option, with shares of TCI
Group Series A Stock or with cash. The Company has recorded its
contingent obligation to purchase such shares as a component of
minority interest in equity of consolidated subsidiaries the
accompanying consolidated financial statements.
The Company leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and
uses certain equipment under lease arrangements. Rental expense under
such arrangements amounted to $212 million, $187 million and $142
million in 1997, 1996 and 1995, 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>
Years ending
December 31,
------------
<S> <C>
1998 $ 215
1999 181
2000 151
2001 118
2002 100
Thereafter 439
</TABLE>
(continued)
II-145
<PAGE> 248
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 1998.
Effective as of December 16, 1997, National Digital Television Center,
Inc. ("NDTC"), a subsidiary of TCI and a member of the TCI Ventures
Group, on behalf of TCIC and other cable operators that may be
designated from time to time by NDTC ("Approved Purchasers"), entered
into an agreement (the "Digital Terminal Purchase Agreement") with
General Instrument Corporation (formerly NextLevel Systems, Inc.,
"GI") to purchase advanced digital set-top devices. The hardware and
software incorporated into these devices will be designed and
manufactured to be compatible and interoperable with the OpenCable(TM)
architecture specifications adopted by CableLabs, the cable television
industry's research and development consortium, in November 1997. NDTC
has agreed that Approved Purchasers will purchase, in the aggregate, a
minimum of 6.5 million set-top devices over the next three years at an
average price of $318 per set-top device. GI agreed to provide NDTC
and its Approved Purchasers the most favorable prices, terms and
conditions made available by GI to any customer purchasing advanced
digital set-top devices. In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization,
which as of the effective date of the Digital Terminal Purchase
Agreement, would have represented at least a 10% equity interest in GI
(on a fully diluted basis). It is anticipated that the value
associated with such equity interest would be attributed to TCI Group
upon purchase and deployment of the digital set-top devices.
Also in December 1997, NDTC entered into a memorandum of understanding
(the "GI MOU") with GI which contemplates the sale to GI of certain of
the assets of NDTC's set-top authorization business, the license of
certain related technology to GI, and an additional cash payment in
exchange for approximately 21.4 million shares of stock of GI. In
connection therewith, NDTC would also enter into a services agreement
pursuant to which it will provide certain services to GI's set-top
authorization business. The transaction is subject to the signing of
definitive agreements; accordingly, there can be no assurance that it
will be consummated.
Certain key employees of the Company and members of the Board hold
restricted stock awards, options and options with tandem SARs to
acquire shares of certain subsidiaries' common stock. Estimates of the
compensation related to 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.
(continued)
II-146
<PAGE> 249
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to 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 are
subject to future adjustment based upon a valuation model derived from
such subsidiary's cash flow, working capital and debt.
During 1997, the Company began an enterprise-wide comprehensive review
of its computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information.
The systems being evaluated include all internal use software and
devices and those systems and devices that manage the distribution of
the Company's, as well as third parties' products. Additionally, the
Company has initiated a program of communications with its significant
suppliers, customers and affiliated companies to determine the
readiness of these third parties and the impact on the Company if those
third parties fail to remediate their own year 2000 issues.
Over the past three years, the Company began an effort to convert a
substantial portion of its financial applications to commercial
products, which are anticipated to be year 2000 ready or to outsource
portions of its financial applications to third party vendors who are
expected to be year 2000 ready. Notwithstanding such effort, the
Company is in the process of finalizing its assessment of the impact of
year 2000. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test systems for year
2000 readiness. To date, the Company has inventoried substantially all
of its cable systems and is currently evaluating the results of such
inventory. The Company expects that it will have to modify or replace
certain portions of its cable distribution plant, although the Company
has not yet completed its assessment. Confirmations have been received
from certain primary suppliers indicating that they are either year
2000 ready or have plans in place to ensure readiness. As part of the
Company's assessment of its year 2000 issue, it is evaluating the level
of validation it will require of third parties to ensure their year
2000 readiness. The Company's manual assessment of the impact of the
year 2000 date change should be complete by mid-1998.
Management of the Company has not yet determined the cost associated
with its year 2000 readiness efforts and the related potential impact
on the Company's results of operations. Amounts expended to date have
not been material, although there can be no assurance that costs
ultimately required to be paid to ensure the Company's year 2000
readiness will not have an adverse effect on the Company's financial
position. Additionally, there can be no assurance that the systems of
other companies on which the Company relies will be converted in time
or that any such failure to convert by another company will not have
an adverse effect on the Company's financial condition or position.
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)
II-147
<PAGE> 250
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Information about the Company's Segments
The Company has two reportable segments: domestic cable and
communications services and domestic programming services. Domestic
cable and communications services receive video, audio and data signals
from various sources, and amplify and distribute the signals by coaxial
cable and optical fiber to the premises of customers who pay a fee for
the service. Domestic programming services produces, acquires, and
distributes, through all available formats and media, branded
entertainment and informational programming and software, including
multimedia products, delivered in both analog and digital form. The
Company's domestic cable and communications services business and
assets are included in TCI Group, and the Company's domestic
programming business and assets are included in Liberty Media Group.
The Company's principal international businesses and assets and the
Company's remaining non-cable and non-programming domestic businesses
and assets are included in TCI Ventures Group.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company
evaluates performance based on a measure of operating cash flow
(defined as operating income before depreciation, amortization,
stock compensation and other non-cash charges). The Company generally
accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each segment requires different technology and marketing
strategies.
(continued)
II-148
<PAGE> 251
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company utilizes the following information for purposes of making
decisions about allocating resources to a segment and assessing a
segment's performance:
<TABLE>
<CAPTION>
Domestic cable Domestic
& communications programming All
services services other Total
---------------- ----------- ------- --------
amounts in millions
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
-----------------------------
Revenues from external customers
including intersegment revenue $ 6,429 374 969 7,772
Intersegment revenue -- 173 29 202
Segment operating cash flow 2,766 55 154 2,975
Year ended December 31, 1996:
-----------------------------
Revenues from external customers
including intersegment revenue $ 5,881 1,339 926 8,146
Intersegment revenue -- 107 17 124
Segment operating cash flow 2,016 164 96 2,276
Year ended December 31, 1995:
-----------------------------
Revenues from external customers
including intersegment revenue $ 4,827 1,441 326 6,594
Intersegment revenue -- 80 8 88
Segment operating cash flow 1,925 16 47 1,988
As of December 31, 1997
-----------------------
Segment assets $ 23,578 5,039 3,780 32,397
Investment in equity method investees 414 524 2,098 3,036
Expenditures for segment assets 538 4 167 709
As of December 31, 1996
-----------------------
Segment assets $ 22,819 3,059 4,260 30,138
Investment in equity method investees 361 545 2,069 2,975
Expenditures for segment assets 1,834 12 209 2,055
</TABLE>
(continued)
II-149
<PAGE> 252
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of reportable segment amounts to the Company's
consolidated balances is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
amounts in millions
<S> <C> <C> <C>
Revenue
-------
Total revenue for reportable segments $ 6,803 7,220 6,268
Other revenue 969 926 326
Elimination of intersegment revenue (202) (124) (88)
---------- ---------- ----------
Total consolidated revenue $ 7,570 8,022 6,506
========== ========== ==========
Operating Cash Flow to Earnings (Loss) Before
---------------------------------------------
Income Tax
----------
Total operating cash flow for reportable segments $ 2,821 2,180 1,941
Other operating cash flow 154 96 47
Other items excluded from operating cash flow:
Depreciation (1,077) (1,093) (899)
Amortization (537) (523) (473)
Stock compensation (488) 13 (57)
Cost of distribution agreement (173) -- --
Impairment of intangible assets (15) -- --
Restructuring charges -- (41) (17)
Interest expense (1,160) (1,096) (1,010)
Interest and dividend income 88 64 52
Share of losses of affiliates, net (930) (450) (213)
Loss on early extinguishment of debt (39) (71) (6)
Minority interest in losses (earnings) (55) (56) 17
Gain on sale of stock by subsidiary and
equity investee 172 12 288
Gain on disposition of assets 401 1,593 49
Other, net (22) (65) (30)
---------- ---------- ----------
Earnings (loss) before income taxes $ (860) 563 (311)
========== ========== ==========
</TABLE>
(continued)
II-150
<PAGE> 253
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1997 1996
---------- ----------
amounts in millions
<S> <C> <C>
Assets
------
Total assets for reportable segments $ 28,617 25,878
Other segment assets 3,780 4,260
Consolidating and eliminating adjustments (74) 31
---------- ----------
Consolidated total $ 32,323 30,169
---------- ==========
Other Significant Items
-----------------------
Equity method investments for reportable segments $ 938 906
Other equity method investments 2,098 2,069
Consolidating and eliminating adjustments 12 10
---------- ----------
Consolidated equity method investments $ 3,048 2,985
========== ==========
Expenditures for reportable segment assets $ 542 1,846
Other asset expenditures 167 209
---------- ----------
Consolidated total asset expenditures $ 709 2,055
========== ==========
</TABLE>
Substantially all revenue and assets of TCI's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents
10 percent or more of its consolidated revenues.
(continued)
II-151
<PAGE> 254
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
except per share data
<S> <C> <C> <C> <C>
1997:
-----
Revenue $ 1,827 1,887 1,934 1,922
======== ======== ======== ========
Operating income (loss) $ 349 253 222 (139)
======== ======== ======== ========
Net loss $ (58) (154) (22) (392)
======== ======== ======== ========
Basic earnings (loss) attributable to common
stockholders per common share:
TCI Group Stock $ (.12) (.25) (.34) (.11)
======== ======== ======== ========
Liberty Group Stock (a) $ .04 .02 .44 (.17)
======== ======== ======== ========
TCI Ventures Group Stock (b) $ -- -- .07 (.69)
======== ======== ======== ========
Diluted earnings (loss) attributable to common
stockholders per common and potential common share:
TCI Group Stock $ (.12) (.25) (.34) (.11)
======== ======== ======== ========
Liberty Group Stock (a) $ .04 .01 .40 (.17)
======== ======== ======== ========
TCI Ventures Group Stock(b) $ -- -- .07 (.69)
======== ======== ======== ========
1996:
-----
Revenue $ 1,861 1,948 2,058 2,155
======== ======== ======== ========
Operating income $ 172 169 220 71
======== ======== ======== ========
Net earnings (loss):
As previously reported $ (121) (187) (138) 724
Adjustment to adopt equity method of
accounting for investee (2) (2) 20 (2)
-------- -------- -------- --------
As adjusted $ (123) (189) (118) 722
======== ======== ======== ========
Basic earnings (loss) attributable to common
stockholders per common share:
TCI Group Stock:
As previously reported $ (.22) (.30) (.25) (.46)
Adjustment to adopt equity method of accounting
for investee -- -- .03 --
-------- -------- -------- --------
As adjusted $ (.22) (.30) (.22) (.46)
======== ======== ======== ========
Liberty Group Stock (a) $ .04 .01 .05 2.73
======== ======== ======== ========
Diluted earnings (loss) attributable to common
stockholders per common and potential common share:
TCI Group Stock:
As previously reported $ (.22) (.30) (.25) (.46)
Adjustment to adopt equity method of accounting
for investee -- -- .03 --
-------- -------- -------- --------
As adjusted $ (.22) (.30) (.22) (.46)
======== ======== ======== ========
Liberty Group Stock (a) $ .04 .01 .04 2.49
======== ======== ======== ========
</TABLE>
------------------
(a) Adjusted to give effect to the 1998 Liberty Stock Dividend.
(b) Adjusted to give effect to the Ventures Stock Dividend.
II-152
<PAGE> 255
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, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997.
We have audited the accompanying combined balance sheets of TCI Group (a
combination of certain assets of Tele-Communications, Inc., as defined in note
1) as of December 31, 1997 and 1996, and the related combined statements of
operations, equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1997. 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 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 Group are intended to reflect the
performance of the businesses of Tele-Communications, Inc., which have not been
attributed to the Liberty Media Group or the TCI Ventures Group. The Liberty
Media Group includes the businesses of Tele-Communications, Inc. which produce
and distribute programming services. The TCI Ventures Group includes
Tele-Communications, Inc.'s principal international assets and businesses and
substantially all of Tele-Communications, Inc.'s non-cable and non-programming
assets. The combined financial statements of TCI Group should be read in
conjunction with the consolidated financial statements of Tele-Communications,
Inc. and subsidiaries.
As more fully described in note 1 to the combined financial statements, TCI has
accounted for its interest in the Liberty Media Group and the TCI Ventures Group
in a manner similar to the equity method of accounting for all periods that TCI
Group had an interest in the Liberty Media Group and the TCI Ventures Group
that, in our opinion, should be consolidated with TCI Group to conform to
generally accepted accounting principles. If TCI Group's interest in the Liberty
Media Group and the TCI Ventures Group were consolidated with TCI Group, the
combined financial position, combined results of operations, and combined cash
flows of TCI Group would equal the consolidated financial position, consolidated
results of operations, and consolidated cash flows of Tele-Communications, Inc.
and subsidiaries, which financial statements are included herein.
In our opinion, except for the effects of not consolidating TCI Group's interest
in the Liberty Media Group and the TCI Ventures Group as discussed in the
preceding paragraph, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial position
of TCI Group as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
II-153
<PAGE> 256
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996 *
------- -------
Assets amounts in millions
<S> <C> <C>
Cash and cash equivalents $ 56 --
Trade and other receivables, net 394 308
Prepaid expenses 75 77
Committed program rights -- 50
Investments in affiliates, accounted for under
the equity method, and related receivables
(notes 5 and 12) 414 361
Property and equipment, at cost:
Land 77 69
Distribution systems 9,933 9,311
Support equipment and buildings 1,411 1,321
------- -------
11,421 10,701
Less accumulated depreciation 4,479 3,920
------- -------
6,942 6,781
------- -------
Franchise costs 17,802 17,153
Less accumulated amortization 2,725 2,360
------- -------
15,077 14,793
------- -------
Other assets, net of amortization 620 449
------- -------
$23,578 22,819
======= =======
</TABLE>
* Restated - see notes 1 and 12.
(continued)
II-154
<PAGE> 257
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996 *
-------- --------
Liabilities and Combined Deficit amounts in millions
<S> <C> <C>
Accounts payable $ 137 194
Accrued interest 250 266
Accrued programming expense 243 313
Other accrued expenses 726 376
Debt (note 8) 14,106 14,319
Deferred income taxes (note 13) 5,147 5,160
Other liabilities 563 214
-------- --------
Total liabilities 21,172 20,842
-------- --------
Minority interests in equity of attributed
subsidiaries 1,048 1,083
Redeemable securities:
Preferred stock (note 9) 655 658
Common stock (note 2) 5 --
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts ("Trust Preferred Securities")
holding solely subordinated debt
securities of TCI Communications, Inc.
("TCIC") (note 10) 1,500 1,000
Combined deficit (note 11):
Combined equity (deficit), including preferred
stocks of Tele-Communications, Inc. ("TCI") (276) 1,789
Unrealized holding gains for available-for-sale
securities, net of taxes 4 --
TCI Ventures Group cumulative foreign currency
translation adjustment, net of taxes -- 26
TCI Ventures Group unrealized holding gains for
available-for-sale securities, net of taxes -- 15
Interest in TCI Ventures Group -- (2,729)
-------- --------
(272) (899)
Due to (from) related parties (note 14) (530) 135
-------- --------
Total combined deficit (802) (764)
-------- --------
Commitments and contingencies (note 15)
$ 23,578 22,819
======== ========
</TABLE>
* Restated - see notes 1 and 12.
See accompanying notes to combined financial statements.
II-155
<PAGE> 258
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 * 1995 *
------- ------- -------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue $ 6,429 5,881 4,827
Operating costs and expenses:
Operating (note 14) 2,293 2,230 1,686
Selling, general and administrative (note 14) 1,370 1,635 1,216
Stock compensation (note 11) 192 (23) 40
Restructuring charges -- 37 --
Depreciation 950 987 825
Amortization 477 419 374
------- ------- -------
5,282 5,285 4,141
------- ------- -------
Operating income 1,147 596 686
Other income (expense):
Interest expense (1,105) (1,029) (969)
Interest income 27 26 26
Intercompany interest 16 (14) 20
Share of losses of affiliates, net (note 5) (90) (79) (3)
Gain (loss) on disposition of assets, net (20) 29 2
Loss on early extinguishment of debt (note 8) (39) (71) (6)
Minority interests in earnings of attributed
subsidiaries, net (note 10) (168) (82) (3)
Other, net (22) (69) (12)
------- ------- -------
(1,401) (1,289) (945)
------- ------- -------
Loss before income taxes (254) (693) (259)
Income tax benefit (note 13) 104 187 72
------- ------- -------
Loss before earnings (loss) of Liberty
Media Group and TCI Ventures
Group (note 1) (150) (506) (187)
Loss of Liberty Media Group through the date
of the Liberty Distribution (note 1) -- -- (29)
Earnings (loss) of TCI Ventures Group through
the date of the TCI Ventures Exchange
(note 1) (345) (258) 60
------- ------- -------
Net loss (495) (764) (156)
Dividend requirements on preferred stocks (42) (35) (34)
------- ------- -------
Net loss attributable to common
stockholders $ (537) (799) (190)
======= ======= =======
Basic and diluted loss attributable to common
stockholders per common share (notes 1
and 3): $ (.85) (1.20) (.17)
======= ======= =======
</TABLE>
* Restated - see notes 1 and 12.
See accompanying notes to combined financial statements.
II-156
<PAGE> 259
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
TCI
TCI VENTURES
VENTURES GROUP
UNREALIZED GROUP UNREALIZED
COMBINED HOLDING CUMULATIVE HOLDING
EQUITY, GAINS FOR FOREIGN GAINS FOR
INCLUDING AVAILABLE- CURRENCY AVAILABLE-
PREFERRED FOR-SALE TRANSLATION FOR-SALE
STOCKS SECURITIES, ADJUSTMENT, SECURITIES,
OF TCI* NET OF TAXES NET OF TAXES NET OF TAXES
------- -------------- ------------ ------------
amounts in millions
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 2,488 (5) (4) 1
Net loss (156) -- -- --
Purchases of services from related parties -- -- -- --
Cost allocations to Liberty Media Group and TCI Ventures
Group -- -- -- --
Cable distribution fees received from Home Shopping
Network, Inc. ("HSN") -- -- -- --
Allocation of compensation relating to stock appreciation
rights -- -- -- --
Interest income from Liberty Media Group -- -- -- --
Deferred tax assets transferred from Liberty Media Group -- -- -- --
Turner Broadcasting System, Inc. ("TBS") stock received in
acquisition transferred to Liberty Media Group -- -- -- --
Intergroup tax allocation -- -- -- --
Other intercompany transfers -- -- -- --
Change in unrealized gains for available-for-sale securities -- 12 -- 60
Foreign currency translation adjustment -- -- (5) --
Issuance of common stock by Tele-Communications
International, Inc. ("TINTA") -- -- -- --
Issuance of common stock by subsidiary 51 -- -- --
Adjustment to reflect elimination of reporting delay with
respect to certain foreign subsidiaries (1) -- -- --
Accreted dividends on TCI preferred stock subject to
mandatory redemption requirements (24) -- -- --
Payment of TCI preferred stock dividends (10) -- -- --
Issuance of TCI Class A common stock for acquisitions and
investments 1,378 -- -- --
Issuance of TCI Class A common stock for acquisition by
Liberty Media Group 10 -- -- --
Cash paid by TCI Group for investment by Liberty Media
Group contributed to Liberty Media Group combined equity -- -- -- --
Proceeds from issuances of TCI Class A common stock in
public and private offerings 431 -- -- --
Distribution of TCI Series A and Series B Liberty Media
Group common stock to TCI common stockholders (1,364) -- -- --
Costs associated with Liberty Distribution to stockholders (8) -- -- --
Deferred tax assets transferred from Liberty Media Group
upon implementation of tax sharing agreement -- -- -- --
------- ------- ------- -------
Balance at December 31, 1995 $ 2,795 7 (9) 61
------- ------- ------- -------
<CAPTION>
LIBERTY
MEDIA
GROUP
UNREALIZED
HOLDING
INTEREST GAINS FOR INTEREST
IN AVAILABLE- IN DUE TO TOTAL
TCI FOR-SALE LIBERTY (FROM) COMBINED
VENTURES SECURITIES, MEDIA RELATED EQUITY
GROUP NET OF TAXES GROUP PARTIES (DEFICIT)*
-------- ------------ ----- ------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (1,169) 98 (1,489) (29) (109)
Net loss (60) -- 29 -- (187)
Purchases of services from related parties (4) -- 43 37 76
Cost allocations to Liberty Media Group and TCI Ventures
Group 17 -- (15) (9) (7)
Cable distribution fees received from Home Shopping
Network, Inc. ("HSN") -- -- -- 27 27
Allocation of compensation relating to stock appreciation
rights (5) -- (7) (3) (15)
Interest income from Liberty Media Group -- -- (2) -- (2)
Deferred tax assets transferred from Liberty Media Group -- -- 14 -- 14
Turner Broadcasting System, Inc. ("TBS") stock received in
acquisition transferred to Liberty Media Group -- -- (7) -- (7)
Intergroup tax allocation 56 -- -- -- 56
Other intercompany transfers (796) -- (18) (30) (844)
Change in unrealized gains for available-for-sale securities (60) 108 (108) -- 12
Foreign currency translation adjustment 5 -- -- -- --
Issuance of common stock by Tele-Communications
International, Inc. ("TINTA") (313) -- -- -- (313)
Issuance of common stock by subsidiary (51) -- -- -- --
Adjustment to reflect elimination of reporting delay with
respect to certain foreign subsidiaries 1 -- -- -- --
Accreted dividends on TCI preferred stock subject to
mandatory redemption requirements -- -- -- -- (24)
Payment of TCI preferred stock dividends -- -- -- -- (10)
Issuance of TCI Class A common stock for acquisitions and
investments -- -- -- -- 1,378
Issuance of TCI Class A common stock for acquisition by
Liberty Media Group -- -- (10) -- --
Cash paid by TCI Group for investment by Liberty Media
Group contributed to Liberty Media Group combined equity -- -- (2) -- (2)
Proceeds from issuances of TCI Class A common stock in
public and private offerings -- -- -- -- 431
Distribution of TCI Series A and Series B Liberty Media
Group common stock to TCI common stockholders -- (206) 1,570 -- --
Costs associated with Liberty Distribution to stockholders -- -- -- -- (8)
Deferred tax assets transferred from Liberty Media Group
upon implementation of tax sharing agreement -- -- 2 -- 2
------ ------- ------- ------- -------
Balance at December 31, 1995 (2,379) -- -- (7) 468
------ ------- ------- ------- -------
</TABLE>
* Restated - see notes 1 and 12. (continued)
II-157
<PAGE> 260
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
TCI
TCI VENTURES
VENTURES GROUP
UNREALIZED GROUP UNREALIZED
COMBINED HOLDING CUMULATIVE HOLDING
EQUITY, GAINS FOR FOREIGN GAINS FOR
INCLUDING AVAILABLE- CURRENCY AVAILABLE-
PREFERRED FOR-SALE TRANSLATION FOR-SALE
STOCKS SECURITIES, ADJUSTMENT, SECURITIES,
OF TCI* NET OF TAXES NET OF TAXES NET OF TAXES
------- -------------- ------------ -------------
amounts in millions
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 2,795 7 (9) 61
Net loss (764) -- -- --
Purchases of services from related parties -- -- -- --
Cost allocations to Liberty Media Group and TCI Ventures
Group -- -- -- --
Cable distribution fees received from HSN -- -- -- --
Allocation of compensation relating to stock appreciation
rights -- -- -- --
Allocation of payment of compensation relating to stock
appreciation rights -- -- -- --
Intergroup tax allocation -- -- -- --
Interest expense to TCI Ventures Group -- -- -- --
TCI Ventures Group note payable -- -- -- --
Repayment on TCI Ventures Group note payable -- -- -- --
Other intercompany transfers -- -- -- --
Recognition of unrealized holding gains on
available-for-sale securities -- -- -- (8)
Change in unrealized gains for available-for-sale securities -- (7) -- (38)
Foreign currency translation adjustment -- -- 35 --
Issuance of TINTA common stock -- -- -- --
Minority interest deficit in joint venture at formation -- -- -- --
Excess of earnings over distributions to minority interest
in joint venture -- -- -- --
Accreted dividends on TCI preferred stock subject to
mandatory redemption requirements (25) -- -- --
Payment of TCI preferred stock dividends (10) -- -- --
Issuance of TCI common stock for acquisition 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 common stock (85) -- -- --
Spin-off of TCI Satellite Entertainment, Inc. (note 7) (405) -- -- --
------- ------- ------- ----------
Balance at December 31, 1996 $ 1,789 -- 26 15
------- ------- ------- ----------
<CAPTION>
LIBERTY
MEDIA
GROUP
UNREALIZED
HOLDING
INTEREST GAINS FOR INTEREST
IN AVAILABLE- IN DUE TO TOTAL
TCI FOR-SALE LIBERTY (FROM) COMBINED
VENTURES SECURITIES, MEDIA RELATED EQUITY
GROUP NET OF TAXES GROUP PARTIES (DEFICIT)*
-------- ------------ ----- ------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (2,379) -- -- (7) 468
Net loss 258 -- -- -- (506)
Purchases of services from related parties (38) -- -- 107 69
Cost allocations to Liberty Media Group and TCI Ventures
Group 30 -- -- (22) 8
Cable distribution fees received from HSN -- -- -- (3) (3)
Allocation of compensation relating to stock appreciation
rights 7 -- -- 3 10
Allocation of payment of compensation relating to stock
appreciation rights -- -- -- 1 1
Intergroup tax allocation 53 -- -- (32) 21
Interest expense to TCI Ventures Group 14 -- -- -- 14
TCI Ventures Group note payable -- -- -- 337 337
Repayment on TCI Ventures Group note payable -- -- -- (160) (160)
Other intercompany transfers (716) -- -- (89) (805)
Recognition of unrealized holding gains on
available-for-sale securities 8 -- -- -- --
Change in unrealized gains for available-for-sale securities 38 -- -- -- (7)
Foreign currency translation adjustment (35) -- -- -- --
Issuance of TINTA common stock (10) -- -- -- (10)
Minority interest deficit in joint venture at formation 49 -- -- -- 49
Excess of earnings over distributions to minority interest
in joint venture (8) -- -- -- (8)
Accreted dividends on TCI preferred stock subject to
mandatory redemption requirements -- -- -- -- (25)
Payment of TCI preferred stock dividends -- -- -- -- (10)
Issuance of TCI common stock for acquisition -- -- -- -- 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 common stock -- -- -- -- (85)
Spin-off of TCI Satellite Entertainment, Inc. (note 7) -- -- -- -- (405)
------- ------- ------- ------- -------
Balance at December 31, 1996 (2,729) -- -- 135 (764)
------- ------- ------- ------- -------
</TABLE>
* Restated - see notes 1 and 12.
(continued)
II-158
<PAGE> 261
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
TCI
TCI VENTURES
VENTURES GROUP
UNREALIZED GROUP UNREALIZED
COMBINED HOLDING CUMULATIVE HOLDING
EQUITY, GAINS FOR FOREIGN GAINS FOR
INCLUDING AVAILABLE- CURRENCY AVAILABLE-
PREFERRED FOR-SALE TRANSLATION FOR-SALE
STOCKS SECURITIES, ADJUSTMENT, SECURITIES,
OF TCI* NET OF TAXES NET OF TAXES NET OF TAXES
------- -------------- ------------ ------------
amounts in millions
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1,789 -- 26 15
Net loss (495) -- -- --
Purchases of services from related parties -- -- -- --
Cost allocations to Liberty Media Group and TCI Ventures Group -- -- -- --
Allocation of compensation relating to stock appreciation rights -- -- -- --
Allocation of payment of compensation relating to stock appreciation
rights 32 -- -- --
Intergroup tax allocation -- -- -- --
Issuance of notes from related parties, net -- -- -- --
Payments of notes from related parties, net -- -- -- --
Interest income from related parties -- -- -- --
Excess consideration received over carryover basis of net assets
transferred to related party 219 -- -- --
Gain in connection with the issuance of shares by subsidiary 66 -- -- --
Adjustment to reflect deferred gain on sale by related party,
net of tax (note 14) (30) -- -- --
Foreign currency translation adjustment -- -- (19) --
Distribution of TCI Series A and Series B TCI Ventures Group common
stock (2,433) -- (7) (19)
Intergroup transfers (88) -- -- --
Sale of Liberty Group Stock to related party (note 6) 168 -- -- --
Repurchase of common stock (73) -- -- --
Costs associated with TCI Ventures Exchange (7) -- -- --
Recognition of fees related to the Exchange (note 12) (11) -- -- --
Change in unrealized gains for available-for-sale securities -- 4 -- 4
Reclassification of redemption amount of common stock subject to put
obligation (4) -- -- --
Accreted dividends on all classes of TCI preferred stock (42) -- -- --
Accreted dividends on all classes of TCI preferred stock not subject to
mandatory redemption requirements 10 -- -- --
Payment of TCI preferred stock dividends (10) -- -- --
Issuance of common stock for acquisitions and investment 611 -- -- --
Issuance of common stock upon conversion of notes and preferred stock 7 -- -- --
Issuance of restricted stock granted pursuant to stock incentive plan 4 -- -- --
Issuance of common stock to TCI Employee Stock Purchase Plan 7 -- -- --
Issuance of common stock upon exercise of stock options 4 -- -- --
------- ------- ------- -------
Balance at December 31, 1997 $ (276) 4 -- --
======= ======= ======= =======
<CAPTION>
LIBERTY
MEDIA
GROUP
UNREALIZED
HOLDING
INTEREST GAINS FOR INTEREST
IN AVAILABLE- IN DUE TO TOTAL
TCI FOR-SALE LIBERTY (FROM) COMBINED
VENTURES SECURITIES, MEDIA RELATED EQUITY
GROUP NET OF TAXES GROUP PARTIES (DEFICIT)*
-------- ------------ ----- ------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 (2,729) -- -- 135 (764)
Net loss 345 -- -- -- (150)
Purchases of services from related parties (23) -- -- 153 130
Cost allocations to Liberty Media Group and TCI Ventures Group 19 -- -- 1 20
Allocation of compensation relating to stock appreciation rights (68) -- -- (167) (235)
Allocation of payment of compensation relating to stock appreciation
rights -- -- -- 34 66
Intergroup tax allocation 193 -- -- (25) 168
Issuance of notes from related parties, net -- -- -- (437) (437)
Payments of notes from related parties, net -- -- -- (14) (14)
Interest income from related parties -- -- -- (10) (10)
Excess consideration received over carryover basis of net assets
transferred to related party -- -- -- -- 219
Gain in connection with the issuance of shares by subsidiary (66) -- -- -- --
Adjustment to reflect deferred gain on sale by related party,
net of tax (note 14) -- -- -- -- (30)
Foreign currency translation adjustment 19 -- -- -- --
Distribution of TCI Series A and Series B TCI Ventures Group common
stock 2,459 -- -- -- --
Intergroup transfers (145) -- -- (200) (433)
Sale of Liberty Group Stock to related party (note 6) -- -- -- -- 168
Repurchase of common stock -- -- -- -- (73)
Costs associated with TCI Ventures Exchange -- -- -- -- (7)
Recognition of fees related to the Exchange (note 12) -- -- -- -- (11)
Change in unrealized gains for available-for-sale securities (4) -- -- -- 4
Reclassification of redemption amount of common stock subject to put
obligation -- -- -- -- (4)
Accreted dividends on all classes of TCI preferred stock -- -- -- -- (42)
Accreted dividends on all classes of TCI preferred stock not subject to
mandatory redemption requirements -- -- -- -- 10
Payment of TCI preferred stock dividends -- -- -- -- (10)
Issuance of common stock for acquisitions and investment -- -- -- -- 611
Issuance of common stock upon conversion of notes and preferred stock -- -- -- -- 7
Issuance of restricted stock granted pursuant to stock incentive plan -- -- -- -- 4
Issuance of common stock to TCI Employee Stock Purchase Plan -- -- -- -- 7
Issuance of common stock upon exercise of stock options -- -- -- -- 4
------- ------ ----- ------- -------
Balance at December 31, 1997 -- -- -- (530) (802)
======= ====== ===== ======= =======
</TABLE>
* Restated - see notes 1 and 12.
See accompanying notes to combined financial statements.
II-159
<PAGE> 262
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 * 1995 *
------- ------- -------
<S> <C> <C> <C>
amounts in millions
Cash flows from operating activities: (see note 4)
Loss before earnings or loss of Liberty Media Group and TCI Ventures
Group** $ (150) (506) (187)
Adjustments to reconcile loss before earnings or loss of Liberty Media
Group and TCI Ventures Group to net cash provided by operating
activities:
Depreciation and amortization 1,427 1,406 1,199
Stock compensation 192 (23) 40
Payments of obligation relating to stock compensation (56) (2) (6)
Restructuring charges -- 37 --
Payments of restructuring charges (24) (8) --
Share of losses of affiliates, net 90 79 3
Loss (gain) on disposition of assets 20 (29) (2)
Loss on early extinguishment of debt 39 71 6
Minority interests in earnings of consolidated subsidiaries, net 168 82 3
Intergroup tax allocation 168 42 72
Deferred income tax benefit (292) (238) (152)
Other noncash charges (credits) 4 (11) (16)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (56) (62) (54)
Change in prepaids (96) (6) (25)
Change in accruals and payables 184 127 108
Change in accrued interest (23) 45 40
------- ------- -------
Net cash provided by operating activities 1,595 1,004 1,029
------- ------- -------
Cash flows from investing activities:
Cash paid for acquisitions (244) (500) (261)
Capital expended for property and equipment (538) (1,834) (1,591)
Proceeds from disposition of assets 241 170 49
Additional investments in and loans to affiliates (49) (294) (24)
Repayment of loans to affiliates 16 624 6
Cash received in exchanges 18 66 11
Sale of Liberty Media Group common stock to related party 168 38 --
Change in interest in Liberty Media Group -- -- 13
Change in interest in TCI Ventures Group (210) (458) (1,082)
Other investing activities (39) 24 35
------- ------- -------
Net cash used in investing activities (637) (2,164) (2,844)
------- ------- -------
Cash flows from financing activities:
Borrowings of debt 1,846 7,348 7,614
Repayments of debt (2,727) (7,341) (6,201)
Net change in due to (from) related parties (82) (27) 6
Prepayment penalties (33) (60) --
Loan from Tele-Communications International, Inc. ("TINTA") 102 336 --
Repayments of loan from TINTA (191) (160) --
Proceeds from issuance of subsidiary preferred stock -- 223 --
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (179) (95) (6)
Payment of preferred stock dividends (42) (35) (24)
Proceeds from issuance of common stock 4 -- 431
Proceeds from issuance of Trust Preferred Securities 490 971 --
Repurchase of common stock (73) -- --
Other financing activities (17) -- (8)
------- ------- -------
Net cash provided (used) by financing activities (902) 1,160 1,812
------- ------- -------
Net increase (decrease) in cash and cash equivalents 56 -- (3)
Cash and cash equivalents at beginning of year -- -- 3
------- ------- -------
Cash and cash equivalents at end of year $ 56 -- --
======= ======= =======
</TABLE>
* Restated - see notes 1 and 12.
** Net earnings or loss of Liberty Media Group and TCI Ventures Group do not
provide or use funds.
See accompanying notes to combined financial statements.
II-160
<PAGE> 263
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
December 31, 1997, 1996 and 1995
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of TCI that are attributed to TCI Group, as
defined below. All significant intercompany accounts and transactions
have been eliminated. Preferred stock of TCI, which is owned by
subsidiaries of TCI, eliminates in combination. Common stock of TCI
held by subsidiaries is included in combined equity.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share ("TCI Group Series A Stock")
and Tele-Communications, Inc. Series B TCI Group Common Stock, par
value $1.00 per share ("TCI Group Series B Stock", and together with
the TCI Group Series A Stock, the "TCI Group Stock"), respectively. On
August 10, 1995, TCI distributed, in the form of a dividend, 2.25
shares of Liberty Group Stock (as adjusted for stock dividends - see
below) for each four shares of TCI Group Stock owned (the "Liberty
Distribution").
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share ("TCI Ventures Group Series A Stock")
and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
par value $1.00 per share ("TCI Ventures Group Series B Stock," and
together with the TCI Ventures Group Series A Stock, the "TCI Ventures
Group Stock"). The TCI Ventures Group Stock is intended to reflect the
separate performance of the "TCI Ventures Group," which is comprised of
TCI's principal international assets and businesses and substantially
all of TCI's non-cable and non-programming assets.
(continued)
II-161
<PAGE> 264
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the Exchange Offers was two shares
(as adjusted for a stock dividend - see below) of the applicable series
of TCI Ventures Group Stock for each share of the corresponding series
of TCI Group Stock properly tendered, up to the indicated maximum
numbers. Upon the September 10, 1997 consummation of the Exchange
Offers, 188,661,300 shares of TCI Group Series A Stock and 16,266,400
shares of TCI Group Series B Stock were exchanged for 377,322,600
shares of TCI Ventures Group Series A Stock and 32,532,800 shares of
TCI Ventures Group Series B Stock, respectively (as adjusted for a
stock dividend - see below) (the "TCI Ventures Exchange").
As of December 31, 1997, the TCI Group Stock is intended to reflect the
separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such
subsidiaries and assets are referred to as "TCI Group" and are
comprised primarily of TCI's domestic cable and communications
business. Collectively, TCI Group, Liberty Media Group and TCI Ventures
Group are referred to as the "Groups" and individually, may be referred
to herein as a "Group." The TCI Group Series A Stock, TCI Ventures
Group Series A Stock and Liberty Group Series A Stock are sometimes
collectively referred to herein as "Series A Stock," and the TCI Group
Series B Stock, TCI Ventures Group Series B Stock and Liberty Group
Series B Stock are sometimes collectively referred to herein as the
"Series B Stock."
As a result of the TCI Ventures Exchange, the combined financial
statements of TCI Group were restated to exclude those assets and
related liabilities which, prior to being attributed to TCI Ventures
Group in connection with the issuance of the TCI Ventures Group Stock,
had been attributed to TCI Group.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock 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, Liberty Group Stock and TCI Ventures Group
Stock are common stockholders of TCI and are subject to risks
associated with an investment in TCI and all of its businesses, assets
and liabilities. The redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock did not affect the
rights of creditors of TCI.
(continued)
II-162
<PAGE> 265
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of the
separate Groups and the market prices of shares of TCI Group Stock,
Liberty Group Stock and TCI Ventures Group Stock. In addition, net
losses of any portion of TCI, dividends or distributions on, or
repurchases of, any series of common stock, and dividends on or certain
repurchases of preferred stock, would reduce funds of TCI legally
available for dividends on all series of common stock. Accordingly,
financial information of any one Group should be read in conjunction
with the financial information of TCI and the other Groups.
The common stockholders' equity value of TCI Ventures Group or Liberty
Media Group that, at any relevant time, is attributed to the TCI Group,
and accordingly not represented by outstanding TCI Ventures Group Stock
or Liberty Group Stock, respectively, is referred to as "Inter-Group
Interest." Prior to consummation of the Liberty Distribution and TCI
Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group and TCI Ventures Group, respectively. Following
consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
Group no longer has Inter-Group Interests in Liberty Media Group and
TCI Ventures Group, respectively. For periods in which an Inter-Group
Interest exists, TCI Group accounts for its Inter-Group Interest in a
manner similar to the equity method of accounting. Following
consummation of the Liberty Distribution and the TCI Ventures Exchange,
an Inter-Group Interest would be created with respect to Liberty Media
Group or TCI Ventures Group only if a subsequent transfer of cash or
other property from TCI Group to Liberty Media Group or TCI Ventures
Group is specifically designated by the Board as being made to create
an Inter-Group Interest or if outstanding shares of Liberty Group Stock
or TCI Ventures Stock, respectively, are purchased with funds
attributable to TCI Group. Management of TCI believes that generally
accepted accounting principles require that Liberty Media Group or TCI
Ventures Group be consolidated with TCI Group for all periods in which
TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
Ventures Group, respectively.
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 or the available dividend amount with respect to TCI Group,
as defined. Determinations to pay dividends on TCI Group Stock are
based primarily upon the financial condition, results of operations and
business requirements of TCI Group and TCI as a whole.
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) 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)
II-163
<PAGE> 266
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board, in the case of a transfer from TCI Group to either Liberty
Media Group or TCI Ventures Group, reflected as the creation of, or
increase in, TCI Group's Inter-Group Interest in such Group or, in the
case of a transfer from either Liberty Media Group or TCI Ventures
Group to TCI Group, reflected as a reduction in 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 TCI, 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.
Loans from one Group to another Group generally will 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 policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, 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 reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical combined financial statements,
net loans or advances between Groups have been, and will continue to
be, included as a component of each respective Group's equity.
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group or TCI Ventures Group resulting from an equity contribution
by TCI Group to Liberty Media Group or TCI Ventures Group or any
decrease in such Inter-Group Interest resulting from a transfer of
funds from Liberty Media Group or TCI Ventures Group to TCI Group would
be determined by reference to the market value of the Liberty Group
Series A Stock or the TCI Ventures Group Series A Stock, respectively,
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)
II-164
<PAGE> 267
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
All financial impacts of issuances and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, the proceeds of
which are attributed to TCI Group, TCI Ventures Group or Liberty Media
Group, respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or the Liberty Media Group, respectively) result in
TCI Group being credited, and TCI Ventures Group or Liberty Media 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 or Liberty Group Stock and a fraction of the numerator of which
is TCI Ventures Group or Liberty Media Group Inter-Group Interest
Fraction and the denominator of which is TCI Ventures Group or Liberty
Media Group Outstanding Interest Fraction (both as defined). Financial
impacts of repurchases of TCI Ventures Group Stock or Liberty Group
Stock, the consideration for which is charged to TCI Group, will be to
such extent reflected in the combined financial statements of the TCI
Group and will result in an increase in TCI Group's Inter-Group
Interest in TCI Ventures Group or Liberty Media Group, respectively.
Stock Dividend
Effective February 6, 1998, TCI issued stock dividends to holders of
Liberty Group Stock (the "1998 Liberty Stock Dividend") and TCI
Ventures Group Stock (the "Ventures Stock Dividend"). The 1998 Liberty
Stock Dividend consisted of one share of Liberty Group Stock for every
two shares of Liberty Group Stock owned. The Ventures Stock Dividend
consisted of one share of TCI Ventures Group Stock for every one share
of TCI Ventures Group Stock owned. The 1998 Liberty Stock Dividend and
the Ventures Stock Dividend have been treated as stock splits, and
accordingly, all share and per share amounts have been restated to
reflect the 1998 Liberty Stock Dividend and the Ventures Stock
Dividend.
(continued)
II-165
<PAGE> 268
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Summary of Significant Accounting Policies
Cash Equivalents
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, 1997 and 1996 was not material.
Investments
All marketable equity securities held by TCI Group 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 combined deficit.
Realized gains and losses are determined on a specific-identification
basis.
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 TCI 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 TCI Group'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 TCI Group's
investment in, advances to and commitments for the investee. TCI
Group's share of net earnings or losses of affiliates includes the
amortization of the difference between TCI Group'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 TCI Group's ownership interest in such
affiliates.
Changes in TCI Group's proportionate share of the underlying equity of
an attributed subsidiary or equity method investee, which result from
the issuance of additional equity securities by such attributed
subsidiary or equity investee, generally are recognized as gains or
losses in TCI Group's combined statements of operations.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1997, 1996 and 1995, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for distribution systems and 3 to 40
years for support equipment and buildings.
(continued)
II-166
<PAGE> 269
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto. Gains or losses are only
recognized in connection with the sales of properties in their
entirety.
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 TCI Group in negotiating and renewing
franchise agreements are amortized on a straight-line basis over the
life of the franchise, generally 10 to 20 years.
Impairment of Long-Lived Assets
TCI Group periodically reviews the carrying amounts of property, plant
and equipment and its identifiable intangible assets to determine
whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such
loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary
to estimate the fair value of assets, accordingly, actual results could
vary significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or
fair value less costs to sell.
Derivative Financial Instruments
TCI Group has entered into variable and fixed interest rate exchange
agreements ("Interest Rate Swaps") which it uses to manage interest
rate risk arising from TCI Group's financial liabilities. Such Interest
Rate Swaps are accounted for as hedges; and accordingly, amounts
receivable or payable under Interest Rate Swaps are recognized as
adjustments to interest expense. Gains and losses on early terminations
of Interest Rate Swaps are included in the carrying amount of the
related debt and amortized as yield adjustments over the remaining term
of the derivative financial instruments or the remaining term of the
related debt, whichever is shorter. TCI Group does not use such
instruments for trading purposes.
Derivative financial instruments that can be settled, at TCI Group's
option, in shares of TCI Group's common stock are accounted for as
equity instruments. Periodic settlements of amounts payable/receivable
pursuant to such financial instruments are included in additional
paid-in capital.
In connection with a stock repurchase program or similar transaction,
TCI Group may elect to sell put options on its own common stock.
Proceeds from any such sales are reflected as an increase to additional
paid-in capital and an amount equal to the maximum redemption amount
under unexpired put options is reflected as redeemable common stock.
(continued)
II-167
<PAGE> 270
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Minority Interests
Recognition of minority interests' share of losses of attributed
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those attributed
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of attributed
subsidiaries have the right to cause TCI Group to repurchase such
holders' common equity.
Included in minority interests in equity of attributed subsidiaries is
$908 million in both 1997 and 1996, of preferred stocks (and
accumulated dividends thereon) of certain attributed 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 combined statements of
operations.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized
in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the
extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are
expected to remain connected to the cable television system.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 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 SFAS
123, TCI Group continues to account for stock-based compensation
pursuant to Accounting Principles Board Opinion No. 25 ("APB Opinion
No. 25"). See note 11.
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 1997
presentation.
(continued)
II-168
<PAGE> 271
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(3) Earnings (Loss) Per Common Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128, Earnings Per Share ("SFAS 128"), in
February of 1997. SFAS 128 establishes new computation, presentation
and disclosure requirements for earnings per share ("EPS"). SFAS 128
requires companies with complex capital structures to present basic and
diluted EPS. Basic EPS is measured as the income or loss available to
common stockholders divided by the weighted average outstanding common
shares for the period. Diluted EPS is similar to basic EPS, but
presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, etc.) as if they had
been converted at the beginning of the periods presented. Potential
common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from
diluted EPS. TCI Group adopted SFAS 128 as of December 31, 1997 and has
restated all prior period EPS data, as required. SFAS 128 did not have
a material impact on EPS for any period presented.
The basic and diluted loss attributable to TCI Group stockholders per
common share for the years ended December 31, 1997, December 31, 1996
and the period from the Liberty Distribution through December 31, 1995
was computed by dividing net loss attributable to TCI Group Stock ($537
million, $799 million and $112 million, respectively) by the weighted
average number of shares outstanding of TCI Group Stock during the
period (632 million, 665 million and 656 million, respectively).
Potential common shares were not included in the computation of
weighted average shares outstanding because their inclusion would be
anti-dilutive.
Earnings or loss per common share are omitted from the combined
statements of operations for the period from January 1, 1995 through
the Liberty Distribution as TCI Group Stock was not part of the capital
structure of TCI until August 10, 1995, the date of the Liberty
Distribution.
At December 31, 1997, 1996 and 1995, there were 113 million, 126
million and 74 million potential common shares, respectively,
consisting of fixed and nonvested performance awards and convertible
securities that could potentially dilute future EPS calculations in
periods of net income. Such potential common share amounts do not take
into account the assumed number of shares that would be repurchased by
TCI Group upon exercise of the fixed and nonvested performance awards.
No material changes in the weighted average outstanding shares or
potential common shares occurred after December 31, 1997.
(4) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $1,128 million, $999 million and $933
million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash paid for income taxes was $106 million, $11 million
and $61 million in 1997, 1996 and 1995, respectively. In addition, TCI
Group received income tax refunds of $36 million during the year ended
December 31, 1997.
(continued)
II-169
<PAGE> 272
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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,
---------------------------------
1997 1996 1995
------- ------- -------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $(1,624) (4,376) (2,962)
Liabilities assumed, net of current assets 690 1,645 238
Deferred tax liability recorded in
acquisitions 141 1,342 905
Minority interests in equity of acquired
entities (27) (12) (45)
Common stock and preferred stock issued in
acquisitions 1,060 457 1,603
Preferred stock of attributed subsidiaries
issued in acquisitions -- 640 --
TCI common stock and preferred stock held
by acquired company (484) -- --
Issuance of redeemable preferred
stock in connection with acquisition by
TCI Ventures Group -- (196) --
------- ------- -------
Cash paid for acquisitions $ (244) (500) (261)
======= ======= =======
Cash received in exchanges:
Aggregate cost basis of assets acquired $ (392) (709) (10)
Historical cost of assets exchanged 399 754 13
Gain recorded on exchange of assets 11 21 8
------- ------- -------
Cash received in exchanges $ 18 66 11
======= ======= =======
Exchange of attributed subsidiaries for equity
investment $ -- 274 --
======= ======= =======
</TABLE>
(continued)
II-170
<PAGE> 273
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Investments in Affiliates
TCI Group's investments in affiliates are comprised of limited
partnerships and other entities that are primarily engaged in the
domestic cable business. The most significant of such cable television
limited partnerships is InterMedia Capital Partners IV, L.P.
("InterMedia IV"). In July 1996, TCI Group completed a series of
transactions that resulted in the transfer of all or part of TCI
Group's ownership interests in certain cable television systems to
InterMedia IV in exchange for a 49% limited partnership interest in
InterMedia IV and assumed debt of approximately $120 million.
Simultaneously, TCI Group received a cable television system and cash
from InterMedia IV in exchange for a cable television system that had
been recently acquired by TCI Group. TCI Group recognized no gain or
loss in connection with the above-described transactions. The $225
million excess of TCI Group's investment in InterMedia IV over TCI
Group's share of the partners' capital of InterMedia IV is being
amortized over an estimated useful life of 20 years. Including such
amortization, TCI Group's share of Intermedia IV's losses was $46
million and $16 million during the years ended December 31, 1997 and
1996, respectively. InterMedia Capital Management IV, L.P. ("ICM IV")
owns a 1.12% limited partnership interest in InterMedia IV. TCI Group
acquired its limited partnership interest in ICM IV in August 1997
pursuant to the transactions described in note 12. Summarized
unaudited combined financial information for affiliates accounted for
by the equity method is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
------- -------
Combined Financial Position amounts in millions
<S> <C> <C>
Property and equipment, net $ 1,074 1,643
Franchise costs, net 1,414 2,544
Other assets, net 372 626
------- -------
Total assets $ 2,860 4,813
======= =======
Debt $ 2,713 3,514
Other liabilities 206 1,588
Owners' deficit (59) (289)
------- -------
Total liabilities and deficit $ 2,860 4,813
======= =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
amounts in millions
<S> <C> <C> <C>
Combined Operations
Revenue $ 1,256 1,638 1,095
Operating expenses (830) (1,153) (758)
Depreciation and amortization (337) (525) (254)
------- ------- -------
Operating income (loss) 89 (40) 83
Interest expense (245) (267) (158)
Other, net 37 (80) 48
------- ------- -------
Net loss $ (119) (387) (27)
======= ======= =======
</TABLE>
(continued)
II-171
<PAGE> 274
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain of TCI Group's affiliates are general partnerships and any
subsidiary of TCI attributable to TCI Group 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.
(6) Acquisitions
On March 4, 1998, TCI Group contributed to Cablevision Systems
Corporation ("CSC") certain of its cable television systems serving
approximately 830,000 basic customers in exchange for approximately
12.2 million newly issued CSC Class A shares. Such shares represent an
approximate 33% equity interest in CSC's total outstanding shares and
an approximate 9% voting interest in CSC in all matters except for the
election of directors, in which case TCI has an approximate 47% voting
interest in the election of one-fourth of CSC's directors. CSC also
assumed approximately $669 million of TCI Group's debt. TCI Group has
also entered into letters of intent with CSC which provide for TCI
Group to acquire a cable system in Michigan and an additional 3% of
CSC's Class A shares and for CSC to (i) acquire cable systems serving
approximately 250,000 basic customers in Connecticut and (ii) assume
$110 million of TCI Group's debt. The ability of TCI Group to sell or
increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC. TCI Group
will account for its approximate 33% interest in CSC under the equity
method.
Including the above-described CSC transactions and another transaction
that closed in February 1998, TCI Group, as of February 28, 1998, has,
since January 1, 1997, contributed, or signed agreements or letters of
intent to contribute within the next twelve months, certain cable
television systems (the "Contributed Cable Systems") serving
approximately 3.8 million basic customers to joint ventures in which
TCI Group will retain non-controlling ownership interests (the
"Contribution Transactions"). Following the completion of the
Contribution Transactions, TCI Group will no longer consolidate the
Contributed Cable Systems. Accordingly, it is anticipated that the
completion of the Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1997 amounts)
to TCI Group's debt, annual revenue and annual operating income before
depreciation, amortization and stock compensation of approximately $4.6
billion, $1.7 billion and $783 million, respectively. No assurance can
be given that any of the pending Contribution Transactions will be
consummated.
(continued)
II-172
<PAGE> 275
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In January 1997, TCI Group acquired the 50% ownership interest in TKR
Cable Company ("TKR Cable") that TCI Group did not previously own and
certain additional assets for aggregate consideration of approximately
$970 million. TCI Group issued approximately 16 million shares of TCI
Group Series A Stock, assumed $584 million of TKR Cable's debt and paid
cash of $88 million and shares of Time Warner, Inc. common stock valued
at $41 million upon consummation of such acquisition. Prior to the
acquisition date, TCI Group accounted for its 50% interest in TKR Cable
under the equity method. This acquisition has been treated as a step
acquisition for accounting purposes. Accordingly, the results of
operations of TKR Cable have been combined with those of TCI Group
since the date of acquisition and TCI Group's aggregate cost basis in
TKR Cable has been allocated to TKR Cable's assets and liabilities
based on their fair values. Assuming the acquisition of TKR Cable had
occurred on January 1, 1996, TCI Group's pro forma results of
operations would not have been materially different from TCI Group's
historical results of operations for the years ended December 31, 1997
and 1996.
Effective July 31, 1997, a wholly-owned subsidiary of TCI, and a
member of the TCI Group, merged with and into Kearns-Tribune
Corporation ("Kearns-Tribune"). The merger was valued at approximately
$808 million. TCI exchanged 47.2 million shares of TCI Group Series A
Stock for shares of Kearns-Tribune which held 17.9 million shares of
TCI Group Stock and 10.1 million shares of Liberty Group Stock.
Immediately following the merger, Liberty Media Group purchased from
TCI Group the 10.1 million shares of Liberty Group Stock that were
acquired in such transaction for $168 million in cash. The merger of
Kearns-Tribune has been accounted for by the purchase method.
Accordingly, the results of operations of Kearns-Tribune have been
combined with those of TCI Group since the date of acquisition, and
TCI Group recorded Kearns-Tribune's assets and liabilities at fair
value. Assuming the acquisition of Kearns-Tribune had occurred on
January 1, 1996, TCI Group's pro forma results of operations would not
have been materially different from TCI Group's historical results of
operations for the years ended December 31, 1997 and 1996.
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, a subsidiary of TCI and a member of the TCI Group, 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").
(continued)
II-173
<PAGE> 276
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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.
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 "Viacom 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 Viacom 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 Viacom 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 TCI Group Series A
Stock at an exchange rate of 5.447 shares of TCI Group Series A 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 TCI Group Series A Stock, or in
any combination of the foregoing. Upon completion of the Viacom
Acquisition, Cable Sub was renamed TCI Pacific Communications, Inc.
("TCI Pacific").
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of TCI Pacific have been
combined with those of TCI Group since the date of acquisition, and TCI
Group recorded TCI Pacific's assets and liabilities at fair value. On a
pro forma basis, TCI Group's revenue, net loss and net loss per share
would have been increased by $280 million, $55 million and $.08,
respectively, for the year ended December 31, 1996 if TCI Pacific had
been combined with TCI Group since January 1, 1996.
(continued)
II-174
<PAGE> 277
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As of January 26, 1995, TCI Group and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged
into TCI Group. The aggregate $1.6 billion purchase price was satisfied
by TCI Group's assumption of approximately $300 million of TeleCable's
net liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1
million shares of TCI Convertible Preferred Stock, Series D (the
"Series D Preferred Stock") with an aggregate initial liquidation value
of $300 million (see note 9).
(7) Spin-Off of TCI Satellite Entertainment, Inc.
Through December 4, 1996, TCI Group had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar"),
which TCI Group 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, TCI Group 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 TCI Group's interest in Primestar, TCI
Group's business of distributing Primestar programming and two
communications satellites. As a result of the Satellite Spin-off,
Satellite's operations are no longer combined with TCI Group's. In
addition, the Satellite Spin-off effected a change in the conversion
rate for each of TCI Group's equity and debt securities that are
convertible into TCI Group Series A Stock. See notes 8, 9 and 11.
Summarized financial information of Satellite as of December 4, 1996
and from January 1, 1996 through December 4, 1996 is as follows
(amounts in millions):
<TABLE>
<S> <C>
Financial Position
Cash, receivables and other assets $ 104
Investment in Primestar 32
Property and equipment, net 1,111
-------
$ 1,247
=======
Accounts payable and accrued liabilities $ 60
Due to Primestar 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)
II-175
<PAGE> 278
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at -------------------
December 31, 1997 1997 1996
----------------- ------- -------
amounts in millions
<S> <C> <C> <C>
Notes payable (a) 8.1% $ 8,672 8,799
Bank credit facilities (b) 6.8% 4,842 4,810
Commercial paper 6.3% 533 638
Convertible notes (c) 9.5% 40 43
Other debt, at varying rates 19 29
------- -------
$14,106 14,319
======= =======
</TABLE>
(a) During the year ended December 31, 1997, TCI Group purchased
in the open market certain notes payable which had an
aggregate principal balance of $409 million and fixed interest
rates ranging from 8.75% to 10.13% (the "1997 Purchases"). In
connection with the 1997 Purchases, TCI Group recognized a
loss on early extinguishment of debt of $39 million. Such loss
related to prepayment penalties amounting to $33 million and
the retirement of deferred loan costs.
During the year ended December 31, 1996, TCI Group purchased
in the open market certain notes payable which had an
aggregate principle balance of $904 million and fixed interest
rates ranging from 7.88% to 10.44% (the "1996 Purchases"). In
connection with the 1996 Purchases, TCI Group 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.
(b) At December 31, 1997, TCI Group had approximately $1.6 billion
of availability in unused lines of credit, excluding amounts
related to lines of credit which provide availability to
support commercial paper.
During the year ended December 31, 1996, certain attributed
subsidiaries of TCI Group terminated, at such attributed
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, TCI Group recognized a
loss on early extinguishment of debt of $9 million related to
the retirement of deferred loan costs.
(continued)
II-176
<PAGE> 279
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) The convertible notes, which are stated net of unamortized
discount of $166 million and $178 million at December 31, 1997
and 1996, respectively, mature on December 18, 2021. The notes
require, so long as conversion of the notes has not occurred,
an annual interest payment through 2003 equal to 1.85% of the
face amount of the notes. During the year ended December 31,
1997, certain of these notes were converted, pursuant to their
existing terms, into 2,533,116 shares of TCI Group Series A
Stock, 1,448,341 shares of Liberty Group Series A Stock,
63,432 shares of TCI Ventures Group Series A Stock and 256,484
shares of Series A Common Stock, $1.00 par value per share, of
Satellite ("Satellite Series A Common Stock"). At December 31,
1997, the notes were convertible, at the option of the
holders, into an aggregate of 24,163,259 shares of TCI Group
Series A Stock, 19,416,889 shares of Liberty Group Series A
Stock, 20,711,364 shares of TCI Ventures Group Series A Stock
and 3,451,897 shares of Satellite Series A Common Stock.
The bank credit facilities and various other debt instruments
attributable to TCI Group 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.
The fair value of the debt attributable to TCI Group is estimated based
on the quoted market prices for the same or similar issues or on the
current rates offered to TCI Group for debt of the same remaining
maturities. At December 31, 1997, the fair value of TCI Group's debt
was $14,943 million, as compared to a carrying value of $14,106 million
on such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCI Group has entered into various Interest Rate Swaps
pursuant to which it (i) paid fixed interest rates and received
variable interest rates through December 1997 (the "Fixed Rate
Agreements") and (ii) pays variable interest rates and receives fixed
interest rates ranging from 4.8% to 9.7% on notional amounts of $2,400
million at December 31, 1997 (the "Variable Rate Agreements"). During
the years ended December 31, 1997, 1996 and 1995, TCI Group's net
payments pursuant to the Fixed Rate Agreements were $7 million, $14
million and $13 million, respectively; and TCI Group's net receipts
(payments) pursuant to the Variable Rate Agreements were (less than $1
million), $15 million, and (less than $1 million), respectively. At
December 31, 1997 all of TCI Group's Fixed Rate Agreements had expired.
During the year ended December 31, 1996, TCI Group terminated certain
Variable Rate Agreements with an aggregate notional amount of $700
million. TCI Group received $16 million upon such terminations. TCI
Group will amortize such termination settlement over the remainder of
the original terms of such Variable Rate Agreements.
(continued)
II-177
<PAGE> 280
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Information concerning TCI Group's Variable Rate Agreements at December
31, 1997 is as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Amount to
be paid
Expiration Interest rate Notional (received) upon
date to be received amount termination (a)
---------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
September 1998 4.8%-5.4% $ 450 $ 4
April 1999 7.4% 50 (1)
September 1999 6.4% 350 (1)
February 2000 5.8%-6.6% 300 (2)
March 2000 5.8%-6.0% 675 1
September 2000 5.1% 75 2
March 2027 9.7% 300 (15)
December 2036 9.7% 200 (6)
---------- ----------
$ 2,400 $ (18)
========== ==========
</TABLE>
------------------
(a) The estimated amount that TCI Group would pay or receive to
terminate the agreements at December 31, 1997, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
In addition to the Variable Rate Agreements, TCI Group entered into an
Interest Rate Swap in September 1997 pursuant to which it pays a
variable rate based on the London Interbank Offered Rate ("LIBOR")
(6.1% at December 31, 1997) and receives a variable rate based on the
Constant Maturity Treasury Index (6.4% at December 31, 1997) on a
notional amount of $400 million through September 2000. During the year
ended December 31, 1997, TCI Group's net receipts pursuant to such
agreement aggregated less than $1 million. At December 31, 1997, TCI
Group would be required to pay an estimated $3 million to terminate
such Interest Rate Swap.
TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of
nonperformance by the other parties to the agreements. However, TCI
Group does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
Further, TCI Group does not anticipate material near-term losses in
future earnings, fair values or cash flows resulting from derivative
financial instruments as of December 31, 1997.
Certain subsidiaries attributed to TCI Group are required to maintain
unused availability under bank credit facilities to the extent of
outstanding commercial paper. Also, certain of TCI Group'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)
II-178
<PAGE> 281
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Annual maturities of debt for each of the next five years are as
follows (amounts in millions):
<TABLE>
<S> <C>
1998 $ 912*
1999 957
2000 1,218
2001 1,284
2002 1,241
</TABLE>
*Includes $533 million of commercial paper.
(9) Redeemable Preferred Stock
The conversion rates identified below for the redeemable preferred
stocks that are convertible into TCI Group Series A 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 Liberty Group Series A Stock
and TCI Ventures Group Series A Stock have been adjusted to give effect
to the 1998 Liberty Stock Dividend and the Ventures Stock Dividend,
respectively. 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. All of the issued and outstanding shares of
Series C Preferred Stock were retired on December 31, 1997, with the
effect that such retired shares have been restored to the status of
authorized and unissued shares of Series Preferred Stock, and may be
reissued as shares of another series of Series Preferred Stock but may
not be reissued as Series C Preferred Stock.
Series C-TCI Group Preferred Stock. On December 31, 1997, TCI issued
70,575 shares designated as "Convertible Preferred Stock, Series C-TCI
Group" (the "Series C-TCI Group Preferred Stock") as partial
consideration for retired Series C Preferred Stock. See also Series
C-Liberty Media Group Preferred Stock below. There were 70,575 shares
of Series C-TCI Group Preferred Stock authorized and outstanding at
December 31, 1997.
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-TCI Group 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 of the Series C-TCI
Group Preferred Stock. The Series C-TCI Group Preferred Stock ranks
senior to TCI common stock and the Class B Preferred Stock and on a
parity with all other currently outstanding classes and series of TCI
preferred stock as to rights to receive assets upon liquidation,
dissolution or winding up of the affairs of TCI.
The Series C-TCI Group Preferred Stock is subject to optional
redemption by TCI at any time after August 8, 2001, in whole or in
part, at a redemption price, per share, equal to the liquidation value
of the Series C-TCI Group Preferred Stock of $2,208.35 per share. The
Series C-TCI Group Preferred Stock is required to be redeemed by TCI at
any time on or after August 8, 2001 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)
II-179
<PAGE> 282
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As of December 31, 1997, subject to anti-dilution adjustments, each
share of Series C-TCI Group Preferred Stock is currently convertible,
at the option of the holder, into 132.86 shares of TCI Group Series A
Stock. Subject to certain provisions, if the holders of Series C-TCI
Group Preferred Stock would be entitled to receive upon conversion
thereof any TCI capital stock that is redeemable or exchangeable at the
election of TCI ("Series C-TCI Group Redeemable Capital Stock"), and
all of the outstanding shares or other units of such Series C-TCI Group
Redeemable Capital Stock are redeemed, exchanged or otherwise acquired
in full, then, from and after such event (a "Series C-TCI Group
Redemption Event"), the holders of Series C-TCI Group Preferred Stock
then outstanding shall be entitled to receive upon conversion of such
shares, in lieu of shares of such Series C-TCI Group Redeemable Capital
Stock, the kind and amount of shares of stock and other securities and
property receivable upon such Series C-TCI Group Redemption Event by a
holder of the number of shares or units of Series C-TCI Group
Redeemable Capital Stock into which such shares of Series C-TCI Group
Preferred Stock could have been converted immediately prior to the
effectiveness of such Series C-TCI Group Redemption Event (assuming
that such holder failed to exercise any applicable right of election
with respect thereto and received per share or unit of such Series
C-TCI Group Redeemable Capital Stock the kind and amount of stock and
other securities and property received per share or unit by the holders
of a plurality of the non-electing shares or units thereof) and,
thereafter, the holders of the Series C-TCI Group Preferred Stock shall
have no other conversion rights with respect to such Series C-TCI Group
Redeemable Capital Stock.
If TCI distributes the stock of a subsidiary of TCI as a dividend to
all holders of TCI Group Series A Stock (a "TCI Group Spin Off"), TCI
shall make appropriate provision so the holders of the Series C-TCI
Preferred Stock have the right to exchange their shares of Series C-TCI
Group Preferred Stock on the effective date of the TCI Group Spin Off
for convertible preferred stock of TCI and convertible preferred stock
of such subsidiary that together have an aggregate liquidation
preference equal to the liquidation preference of a share of Series
C-TCI Group Preferred Stock on the effective date of the TCI Group Spin
Off and that otherwise each have terms, conditions, designations,
voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions applicable to such
convertible preferred stock that are identical, or as nearly so as is
practicable in the judgment of the Board, to those of the Series C-TCI
Group Preferred Stock for which such convertible preferred stock is to
be exchanged.
(continued)
II-180
<PAGE> 283
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In the event an "Exchange Offer" is made by TCI or a subsidiary of TCI
(the applicable of the foregoing being the "Series C-TCI Group
Offeror"), the Series C-TCI Group Offeror shall concurrently therewith
make an equivalent offer to the holders of Series C-TCI Group Preferred
Stock pursuant to which such holders may tender shares of Series C-TCI
Group Preferred Stock, based upon the number of shares of TCI Group
Series A Stock into which such tendered shares are then convertible
(and in lieu of tendering outstanding shares of TCI Group Series A
Stock), together with such other consideration as may be required to be
tendered pursuant to such Exchange Offer, and receive in exchange
therefor, in lieu of securities of the Series C-TCI Group Offeror
offered in such Exchange Offer ("Exchange Securities") (and other
property, if applicable), convertible preferred stock of the issuer of
the Exchange Securities with an aggregate liquidation preference equal
to the aggregate liquidation preference of the shares of Series C-TCI
Group Preferred Stock exchanged therefor and that otherwise has terms,
conditions, designations, voting powers, rights on liquidation and
other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
applicable to such convertible preferred stock that are identical, or
as nearly so as is practicable in the judgment of the Board, to those
of the Series C-TCI Group Preferred Stock for which such convertible
preferred stock is to be exchanged. For the purposes of the foregoing,
Exchange Offer means an issuer tender offer, including, without
limitation, one that is effected through the distribution of rights or
warrants, made to holders of TCI Group Series A Stock (or to holders of
other stock of TCI receivable by a holder of Series C-TCI Group
Preferred Stock upon conversion thereof), to issue stock of TCI or of a
subsidiary of TCI and/or other property to a tendering stockholder in
exchange for shares of TCI Group Series A Stock (or such other stock).
The holders of Series C-TCI Group Preferred Stock are entitled to vote
on an as converted basis on all matters submitted to a vote of holders
of the capital stock of TCI entitled to vote generally on the election
of directors. Holders of Series C-TCI Group Preferred Stock are not
entitled to vote as a separate class except as otherwise may be
required by the Delaware General Corporation Law ("DGCL").
Series C-Liberty Media Group Preferred Stock. On December 31, 1997, TCI
issued 70,575 shares designated as convertible preferred stock, Series
C-Liberty Media Group (the "Series C-Liberty Media Group Preferred
Stock") as remaining consideration for retired Series C Preferred
Stock. There were 70,575 shares of Series C-Liberty Media Group
Preferred Stock authorized and outstanding at December 31, 1997.
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-Liberty Media Group 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 of the Series C-Liberty Media Group Preferred Stock. The Series
C-Liberty Media Group Preferred Stock ranks senior to TCI common stock
and the Class B Preferred Stock and on a parity with all other
currently outstanding classes and series of TCI preferred stock as to
rights to receive assets upon liquidation, dissolution or winding up of
the affairs of TCI.
(continued)
II-181
<PAGE> 284
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Series C-Liberty Media Group Preferred Stock is subject to optional
redemption by TCI at any time after August 8, 2001, in whole or in
part, at a redemption price, per share, equal to the liquidation value
of the Series C-Liberty Media Group Preferred Stock of $579.31 per
share. The Series C-Liberty Media Group Preferred Stock is required to
be redeemed by TCI at any time on or after August 8, 2001 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.
As of December 31, 1997, subject to anti-dilution adjustments, each
share of Series C-Liberty Media Group Preferred Stock was convertible,
at the option of the holder, into 37.5 shares of Liberty Group Series A
Stock plus one additional share for every two such shares received upon
conversion. Subject to certain provisions, if (i) TCI redeems all the
outstanding shares of Liberty Group Series A Stock in accordance with
the terms thereof, or (ii) the holders of Series C-Liberty Media Group
Preferred Stock would be entitled to receive upon conversion thereof
any TCI capital stock that is redeemable or exchangeable at the
election of TCI ("Series C-Liberty Media Group Redeemable Capital
Stock"), and all of the outstanding shares or other units of such
Series C-Liberty Media Group Redeemable Capital Stock are redeemed,
exchanged or otherwise acquired in full, then, from and after either
such event (each event referred to in clause (i) and (ii) being a
"Series C-Liberty Media Group Redemption Event"), the holders of Series
C-Liberty Media Group Preferred Stock then outstanding shall be
entitled to receive upon conversion of such shares of Series C-Liberty
Media Group Preferred Stock, in lieu of shares of Liberty Group Series
A Stock or such Series C-Liberty Media Group Redeemable Capital Stock,
as the case may be, the kind and amount of shares of stock and other
securities and property receivable upon such Series C-Liberty Media
Group Redemption Event by a holder of the number of shares of Liberty
Group Series A Stock or shares or units of such Series C-Liberty Media
Group Redeemable Capital Stock, as the case may be, into which such
shares of Series C-Liberty Media Group Preferred Stock could have been
converted immediately prior to the effectiveness of such Series
C-Liberty Media Group Redemption Event (assuming that such holder
failed to exercise any applicable right of election with respect
thereto and received per share of Liberty Group Series A Stock or per
share or unit of such Series C-Liberty Media Group Redeemable Capital
Stock, as the case may be, the kind and amount of stock and other
securities and property received per share or unit by the holders of a
plurality of the non-electing shares or units thereof) and, thereafter,
the holders of the Series C-Liberty Media Group Preferred Stock shall
have no other conversion rights with respect to the Liberty Group
Series A Stock or such Series C-Liberty Media Group Redeemable Capital
Stock, as the case may be.
(continued)
II-182
<PAGE> 285
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
If TCI distributes the stock of a subsidiary of TCI as a dividend to
all holders of Liberty Group Series A Stock (a "Liberty Media Group
Spin Off"), TCI shall make appropriate provision so the holders of the
Series C-Liberty Media Group Preferred Stock have the right to exchange
their shares of Series C-Liberty Media Group Preferred Stock on the
effective date of the Liberty Media Group Spin Off for convertible
preferred stock of TCI and convertible preferred stock of such
subsidiary that together have an aggregate liquidation preference equal
to the liquidation preference of a share of Series C-Liberty Media
Group Preferred Stock on the effective date of the Liberty Media Group
Spin Off and that otherwise each have terms, conditions, designations,
voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions applicable to such
convertible preferred stock that are identical, or as nearly so as is
practicable in the judgment of the Board, to those of the Series
C-Liberty Media Group Preferred Stock for which such convertible
preferred stock is to be exchanged.
In the event an Exchange Offer is made by TCI or a subsidiary of TCI
(the applicable of the foregoing being the "Series C-Liberty Media
Group Offeror"), the Series C-Liberty Media Group Offeror shall
concurrently therewith make an equivalent offer to the holders of
Series C-Liberty Media Group Preferred Stock pursuant to which such
holders may tender shares of Series C-Liberty Media Group Preferred
Stock, based upon the number of shares of Liberty Group Series A Stock
into which such tendered shares are then convertible (and in lieu of
tendering outstanding shares of Liberty Group Series A Stock), together
with such other consideration as may be required to be tendered
pursuant to such Exchange Offer, and receive in exchange therefor, in
lieu of securities of the Series C-Liberty Media Group Offeror offered
in such Exchange Offer ("Liberty Media Group Exchange Securities") (and
other property, if applicable), convertible preferred stock of the
issuer of such Liberty Media Group Exchange Securities with an
aggregate liquidation preference equal to the aggregate liquidation
preference of the shares of Series C-Liberty Media Group Preferred
Stock exchanged therefor and that otherwise has terms, conditions,
designations, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions applicable to
such convertible preferred stock that are identical, or as nearly so as
is practicable in the judgment of the Board, to those of the Series
C-Liberty Media Group Preferred Stock for which such convertible
preferred stock is to be exchanged. For purposes of the foregoing,
Exchange Offer means an issuer tender offer, including, without
limitation, one that is effected through the distribution of rights or
warrants, made to holders of Liberty Group Series A Stock (or to
holders of other stock of TCI receivable by a holder of Series
C-Liberty Media Group Preferred Stock upon conversion thereof), to
issue stock of TCI or of a subsidiary of TCI and/or other property to a
tendering stockholder in exchange for shares of Liberty Group Series A
Stock (or such other stock).
The holders of Series C-Liberty Media Group Preferred Stock are
entitled to vote on an as converted basis on all matters submitted to a
vote of holders of the capital stock of TCI entitled to vote generally
on the election of directors. Holders of Series C-Liberty Media Group
Preferred Stock are not entitled to vote as a separate class except as
otherwise may be required by the DGCL.
(continued)
II-183
<PAGE> 286
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Convertible Preferred Stock, Series D. TCI designated and 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, 1997, there were 994,797 shares of Series D
Preferred Stock outstanding.
The holders of Series D Preferred Stock are 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, the TCI Ventures 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-TCI Group Preferred Stock, the Series
C-Liberty Media Group Preferred Stock, the Series F Preferred Stock,
the Series G Preferred Stock and the Series H Preferred Stock.
Each share of Series D Preferred Stock is convertible, at the option of
the holder, into 10 shares of TCI Group Series A Stock and 2.5 shares
of Liberty Group Series A 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
receive (i) one share of Liberty Group Series A Stock for every two
such shares received upon conversion, (ii) one additional share of
Liberty Media Group Series A Stock for every two such shares issued,
including those issued pursuant to (i) above, and (iii) one share of
Satellite Series A Common Stock for each share of Series D Preferred
Stock converted. Such shares of Satellite Series A Common Stock
represent the number of shares of Satellite Series A 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 Group Series A Stock at a conversion rate equal to 95% of the then
current market price of TCI Group Series A Stock, and upon issuance TCI
Group Series A 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.
(continued)
II-184
<PAGE> 287
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 TCI Group Series A Stock,
provided that such option may not be exercised unless the failure to
redeem continues for more than a year. Except as required by the DGCL,
holders of Series D Preferred Stock are not entitled to vote on any
matters submitted to a vote of the stockholders of TCI.
On February 20, 1998 TCI issued a Notice of Redemption which called for
the redemption of all of its outstanding Convertible Preferred Stock,
Series D on April 1, 1998, for a redemption price of $304.0233 per
share. The shares of Convertible Preferred Stock, Series D that are
redeemed are to be retired and restored to the status of authorized and
unissued shares of Series Preferred Stock.
Convertible Redeemable Participating Preferred Stock, Series F. TCI 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 Liberty Distribution, TCI caused each of its subsidiaries
holding shares of equity securities of TCI ("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 TCI Group Series A
Stock.
Each holder of Series F Preferred Stock has the right to receive upon
conversion 1,496.65 shares of TCI Group Series A 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 TCI Group Series A Stock issuable
upon conversion in the event of any non-cash dividend or distribution
of the TCI Group Series A 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 TCI
Group Series A Stock, with respect to any cash dividends or
distributions declared and paid on the TCI Group Series A Stock.
Dividends or distributions on the TCI Group Series A 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 TCI, holders of
Series F Preferred Stock will be entitled to receive from the assets of
TCI 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 TCI Group Series A Stock in such liquidation,
dissolution or winding up multiplied by the applicable conversion rate
of a share of Series F Preferred Stock.
(continued)
II-185
<PAGE> 288
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Series F Preferred Stock is subject to optional redemption by TCI
at any time after its issuance, in whole or in part, 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. TCI will 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 TCI Group Series A
Stock equal to the aggregate redemption price (or designated portion
thereof) of the shares to be redeemed divided by the average market
price of the TCI Group Series A Stock for a period specified, and
subject to the adjustments described, in the certificate of
designations establishing the Series F Preferred Stock.
Redeemable Convertible TCI Group Preferred Stock, Series G ("Series G
Preferred Stock") and Redeemable Convertible Liberty Media Group
Preferred Stock, Series H ("Series H Preferred Stock"). In January
1996, TCI designated and issued 7,259,380 shares of a series of Series
Preferred Stock designated "Redeemable Convertible TCI Group Preferred
Stock, Series G" and 7,259,380 shares of a series of Series Preferred
Stock designated "Redeemable Convertible Liberty Media Group Preferred
Stock, Series H" as consideration for an acquisition. At December 31,
1997, there were 6,567,344 shares of Series G Preferred Stock and
6,567,894 shares of 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 January 25,
1997, at the rate of 4% per annum of 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 Series A Stock.
Additional dividends will accrue on unpaid dividends initially at a
rate of 4% per annum. The dividend rate on dividends that remain unpaid
on the next succeeding dividend payment date 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 TCI Group Series A
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 (i) .2625 shares of Liberty Group Series A Stock, plus
(ii) one additional share of Liberty Group Series A Stock for every two
such shares received upon such conversion, plus (iii) one additional
share of Liberty Media Group Series A Stock for every two shares of
such stock held after calculating the shares pursuant to (i) and (ii)
above. The conversion rights of Series G and Series H Preferred Stock
are subject to adjustment in certain circumstances.
(continued)
II-186
<PAGE> 289
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Among other such adjustments, if the Liberty Group Series A 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.
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 on a parity with all
other currently outstanding classes and series of TCI preferred stock
as to rights to receive assets upon liquidation, dissolution or winding
up of the affairs of TCI.
(continued)
II-187
<PAGE> 290
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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.
(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
TCI Group, through certain subsidiary trusts, (the "Trusts"), had
preferred securities outstanding at December 31, 1997 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 TCI Group. 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 combined 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 aggregated $132 million and $71 million for the years ended
December 31, 1997 and 1996, respectively, and are included in minority
interests in earnings of consolidated subsidiaries in the accompanying
combined financial statements.
(11) Combined Deficit
General
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, the Liberty Group Stock and the TCI
Ventures Group Stock.
(continued)
II-188
<PAGE> 291
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During the fourth quarter of 1997, TCI Group entered into a Total
Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
the Equity Swap Facility, TCI Group has the right to direct the
counterparty (the "Counterparty") to use the Equity Swap Facility to
purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
TCI Ventures Group Series A Stock with an aggregate purchase price of
up to $300 million. TCI Group has the right, but not the obligation, to
purchase Equity Swap Shares through the September 30, 2000 termination
date of the Equity Swap Facility. During such period, TCI Group is to
settle periodically any increase or decrease in the market value of the
Equity Swap Shares. If the market value of the Equity Swap Shares
exceeds the Counterparty's cost, Equity Swap Shares with a fair value
equal to the difference between the market value and cost will be
segregated from the other Equity Swap Shares. If the market value of
Equity Swap Shares is less than the Counterparty's cost, TCI Group, at
its option, will settle such difference with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock or, subject to certain
conditions, with cash or letters of credit. In addition, TCI Group is
required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap
Shares. Due to TCI Group's ability to issue shares to settle periodic
price fluctuations and fees under the Equity Swap Facility, TCI Group
records all amounts received or paid under this arrangement as
increases or decreases, respectively, to equity. As of December 31,
1997, the Equity Swap Facility had acquired 345,000 shares of TCI Group
Series A Stock and 380,000 shares of TCI Ventures Group Series A Stock
at an aggregate cost that was approximately $3 million less than the
fair value of such Equity Swap Shares at December 31, 1997.
Effective January 13, 1997, TCI issued a stock dividend to holders of
Liberty Group Stock consisting of one share of Liberty Group Series A
Stock for every two shares of Liberty Group Series A Stock and one
share of Liberty Group Series A Stock for every two shares of Liberty
Group Series B Stock. Such stock dividend was treated as a stock split.
See note 1.
Stock Repurchases
Effective July 31, 1997, TCI merged Kearns-Tribune into a wholly-owned
TCI subsidiary attributed to TCI Group. TCI exchanged 47.2 million
shares of TCI Group Series A Stock for shares of Kearns-Tribune which
held 17.9 million shares of TCI Group stock and 10.1 million shares of
Liberty Group Stock. Immediately following the merger, Liberty Media
Group purchased from TCI Group the 10.1 million shares of Liberty Group
Stock that were acquired in such transaction for $168 million.
During the year ended December 31, 1997, pursuant to a stock repurchase
program approved by the Board, TCI Group repurchased 4,000,000 shares
of TCI Group Series A Stock and 330,902 shares of TCI Group Series B
Stock at an aggregate cost of $72.9 million. Such stock repurchases are
reflected as an increase of combined deficit in the accompanying
combined financial statements.
(continued)
II-189
<PAGE> 292
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Employee Benefit Plans
TCI has several employee stock purchase plans to provide employees an
opportunity to create a retirement fund, including ownership interests
in TCI. The primary employee stock purchase plan provides for employees
to contribute up to 10% of their compensation to a trust for investment
in several diversified investment choices, including investment in TCI
common stock. TCI, by annual resolution of the Board, generally
contributes up to 100% of the amount contributed by employees. Such TCI
contribution is invested in TCI Group Stock, Liberty Group Stock and
TCI Ventures Group Stock. Certain of TCI's subsidiaries have their own
employee benefit plans. Contributions to all plans aggregated $36
million, $35 million and $28 million for 1997, 1996 and 1995,
respectively.
Preferred Stock
Class A Preferred Stock. TCI is authorized to issue 700,000 shares of
Class A Preferred Stock, par value $.01 per share. Subsidiaries of TCI
previously held all of the issued 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 Liberty Distribution. See
note 1.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
TCI is authorized to issue 1,675,096 shares of Class B Preferred Stock
and 1,552,490 of such shares are issued and outstanding, net of shares
held by a member of TCI Group.
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 TCI Group Series A Stock or in any combination of
the foregoing. Accrued dividends not paid as provided above on any
dividend payment date will accumulate and such accumulated unpaid
dividends may be declared and paid in cash, shares of TCI Group Series
A 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)
II-190
<PAGE> 293
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of TCI Group Series A Stock, the number
of such shares to be issued and delivered will be determined by
dividing the amount of the dividend to be paid in shares of TCI Group
Series A Stock by the Average Market Price of the TCI Group Series A
Stock. For this purpose, "Average Market Price" means the average of
the daily last reported sale prices (or, if no sale price is reported
on any day, the average of the high and low bid prices on such day) of
a share of TCI Group Series A 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)
II-191
<PAGE> 294
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined 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 other class or
series of TCI preferred stock entitled to vote in any general election
of directors. The Class B Preferred Stock will have no other voting
rights except as required by the 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. TCI is authorized to issue 50,000,000
shares of Series Preferred Stock.
(continued)
II-192
<PAGE> 295
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
All shares of any one series of the TCI Series Preferred Stock are
required to be alike for every particular and all shares are required
to rank equally and be identical in all respects, except insofar as
they may vary with respect to matters which the Board is expressly
authorized by the TCI Charter to determine in the resolution or
resolutions providing for the issue of any series of the TCI Series
Preferred Stock.
Redeemable Convertible Preferred Stock, Series E. TCI is authorized to
issue 400,000 shares of Redeemable Convertible Preferred Stock, Series
E, par value $.01 per share. Subsidiaries of TCI previously 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 Liberty Distribution. See note 1.
Stock Options and Stock Appreciation Rights
Certain key employees of TCI Group hold options with tandem stock
appreciation rights ("SARs") to acquire TCI Group Series A Stock,
Liberty Group Series A Stock and TCI Ventures Group Series A Stock as
well as restricted stock awards of TCI Group Series A Stock, Liberty
Group Series A Stock and TCI Ventures Group Series A Stock. Estimates
of compensation relating to restricted stock awards, options and/or
SARs granted to such employees of TCI Group have been recorded in the
accompanying combined financial statements pursuant to APB Opinion No.
25. Such estimates are subject to future adjustment based upon the
vesting of the related stock options and stock appreciation rights
market value of TCI Group Series A Stock, Liberty Group Series A Stock
and TCI Ventures Group Series A Stock (see note 1) and, ultimately, on
the final determination of market value when the rights are exercised.
Had TCI Group accounted for its stock based compensation pursuant to
the fair value based accounting method in SFAS 123, the amount of
compensation would not have been materially different from what has
been reflected in the accompanying combined financial statements.
(continued)
II-193
<PAGE> 296
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(12) Transaction with Officers and Directors
On June 16, 1997, TCI Group exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI
Group Series B Stock owned by the estate of Bob Magness (the "Magness
Estate"), the late founder and former Chairman of the Board. Subsequent
to the Exchange, the Magness Estate sold (the "Sale") the shares of TCI
Group Series A Stock received in the Exchange, together with
approximately 1.5 million shares of TCI Group Series A Stock that the
Magness Estate previously owned (collectively, the "Option Shares"), to
two investment banking firms (the "Investment Bankers") for
approximately $530 million (the "Sale Price"). Subsequent to the Sale,
TCI entered into an agreement with the Investment Bankers whereby TCI
has the option, but not the obligation, to purchase the Option Shares
at any time within two years (the "Option Period") from the date of the
Sale. During the Option Period, TCI Group and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of
the Option Shares in an account at the Investment Bankers. If the
market value of the Option Shares exceeds the Investment Bankers' cost,
Option Shares with a fair value equal to the difference between the
market value and cost will be segregated from the other Option Shares
in an account at the Investment Bankers. If the market value of the
Option Shares is less than the Investment Bankers' cost, TCI Group, at
its option, will settle such difference with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock or, subject to certain
conditions, with cash or letters of credit. In addition, TCI Group is
required to pay the Investment Bankers a quarterly fee equal to the
LIBOR rate plus 1% on the Sale Price, as adjusted for payments made by
TCI Group pursuant to any quarterly settlement with the Investment
Bankers. Due to TCI Group's ability to settle quarterly price
fluctuations and fees with shares of TCI Group Series A Stock or TCI
Ventures Group Series A Stock, TCI Group records all amounts received
or paid under this arrangement as increases or decreases, respectively,
to equity. During the fourth quarter of 1997, TCI Group repurchased
4,000,000 shares of TCI Group Series A Stock from one of the Investment
Bankers for an aggregate cash purchase price of $66 million.
Additionally, as a result of the Exchange Offers and certain open
market transactions, the Investment Bankers disposed of 4,210,308
shares of TCI Group Series A Stock and acquired 23,407,118 shares (as
adjusted for the Ventures Stock Dividend) of TCI Ventures Group Series
A Stock during the last half of 1997 such that the Option Shares were
comprised of 16,402,082 shares of TCI Group Series A Stock and
23,407,118 shares (as adjusted for the Ventures Stock Dividend) of TCI
Ventures Series A Stock at December 31, 1997. At December 31, 1997, the
market value of the Option Shares exceeded the Investment Bankers' cost
by $325 million. In connection with the Exchange and Sale, Dr. Malone
agreed to forgo the exercise of certain option rights, and in
consideration, TCI granted to Dr. Malone the right (the "Malone Right")
to acquire 30,545,864 shares of TCI Group Series B Stock.
On January 5, 1998, TCI Group announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness
Estate.
(continued)
II-194
<PAGE> 297
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A
Stock and 11,666,506 shares (as adjusted for the Ventures Stock
Dividend) of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares. TCI then issued to the Magness Estate
10,017,145 shares of TCI Group Series B Stock and 12,034,298 shares (as
adjusted for the Ventures Stock Dividend) of TCI Ventures Series B
Stock.
On February 9, 1998, in connection with the Magness Settlement, TCI
Group entered into a call agreement (the "Malone Call Agreement") with
Dr. John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI Group the right to acquire the Malones'
high-voting shares (the "High-Voting Shares"), currently consisting of
an aggregate of approximately 60 million shares (as adjusted for stock
dividends) of Series B Stock upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal
amount) to third persons. In either such event, TCI Group has the right
to acquire the shares at a maximum price equal to the then relevant
market price of shares of "low-voting" Series A Stock plus a ten
percent premium. The Malones also agreed that if TCI were ever to be
sold to another entity, then the maximum premium that the Malones would
receive on their High-Voting Shares would be no greater than a ten
percent premium over the price paid for the relevant shares of Series A
Stock. TCI paid $150 million to the Malones for agreeing to the terms
of the Malone Call Agreement.
Also, on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI Group for
entering into the Magness Call Agreement. Additionally, on February 9,
1998, the Magness Family entered into a shareholders' agreement (the
"Shareholders' Agreement") with the Malones and TCI under which (i) the
Magness Family and the Malones agree to consult with each other in
connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree
on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for TCI's Board of Directors and Dr.
Malone has agreed to vote his High Voting Shares for such nominee and
(iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in
favor of the Malones. In addition, the Malone Right granted by TCI
Group to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B
Stock has been reduced to an option to acquire 14,511,570 shares of TCI
Group Series B Stock. Pursuant to the terms of the Shareholders'
Agreement, the Magness Family has the right to participate in the
reduced Malone Right on a proportionate basis with respect to
12,406,238 shares of the 14,511,570 shares subject to the Malone Right.
(continued)
II-195
<PAGE> 298
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") will be
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to the 1998 Liberty Stock Dividend and the
Ventures Stock Dividend) that are subject to the Malone Call Agreement
and the Magness Call Agreement. TCI Group's share of the Call Payments
of $134 million was paid during the first quarter of 1998 and will be
reflected as an increase of combined deficit.
On September 25, 1997, certain subsidiaries of TCI attributed to TCI
Group entered into an Asset Contribution Agreement with, among others,
Fisher Communications Associates, L.L.C., which is controlled by a
director of TCI. On January 15, 1998, the cable television assets of
the applicable cable systems of TCI Group were contributed to Peak
Cablevision, LLC ("Peak Cablevision") in exchange for a 66.7%
partnership interest in Peak Cablevision. Additionally, cable
television assets of Fisher Communications, L.L.C. were contributed in
1998 in exchange for a 33.3% interest in Peak Cablevision.
On July 23, 1997, an executive officer who is also a director of TCI
acquired from TCI an aggregate of 7,296,324 shares of TCI Group Series
B Stock and 3,417,187 shares of Liberty Group Series B Stock, in
exchange for a like number of shares of TCI Group Series A Stock and
Liberty Group Series A Stock, respectively, held by such executive
officer and director.
On July 24, 1997, TCI repurchased 219,937 shares of Liberty Group
Series A Stock from the spouse of an executive officer who is also a
director of TCI at an aggregate cost of approximately $4 million.
On June 10, 1997 (the "IP Phase I Closing Date"), TCI issued 139,513
shares of TCI Group Series B Stock (the "IP I Shares") to the IP Series
B Trust I ("Trust"). An executive officer who is also a director of TCI
is the trustee of the Trust. The IP I Shares were issued in connection
with a partial closing under two Partnership Interest Purchase
Agreements both dated as of June 10, 1997 (the "IP-I and IP-III
Purchase Agreements"), pursuant to which TCI acquired on the IP Phase I
Closing Date (a) a 99.998% limited partnership interest in InterMedia
Capital Management III, L.P., (b) a 75% limited partnership interest in
InterMedia CM - LP, and (c) a 99.998% limited partnership interest in
InterMedia Capital Management, L.P. in exchange for total consideration
of the IP I Shares and cash and assumption of current liabilities in an
aggregate amount of $6 million. As a result of such transactions, TCI
Group adopted the equity method of accounting for its investment in
InterMedia Partners, a California limited partnership, and restated its
financial statements. Such restatement resulted in a $125 million
decrease to its investment in InterMedia Partners, a $50 million
decrease to its deferred tax liability and a $75 million increase to
its accumulated deficit at December 31, 1996. In addition, such
restatement resulted in a $14 million decrease and a $12 million
increase to its net loss in 1996 and 1995, respectively.
(continued)
II-196
<PAGE> 299
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On August 5, 1997 (the "IP Phase II Closing Date") TCI issued 2,405,942
shares of TCI Group Series B Stock (the "IP II Shares") to the IP
Series B Trust II ("Trust II"). An executive officer who is also a
director of TCI is the trustee of the Trust II. The IP II Shares were
issued in connection with the closing under the Partnership Interest
Purchase Agreement dated as of August 5, 1997, and a partial and final
closing under the IP-I and IP-III Purchase Agreements, pursuant to
which TCI acquired on the IP Phase II Closing Date a 99.997% limited
partnership interest in ICM IV and an additional .001% limited
partnership interest in Intermedia Capital Management, L.P. in exchange
for total consideration of the IP II Shares and cash and assumption of
liabilities in an aggregate of $18 million. See note 5.
In connection with the three Partnership Interest Purchase Agreements,
a director of TCI received a consulting fee in the amount of $400,000
in cash and 31,030 shares of TCI Group Series B Stock and the son of a
director of TCI received an advisory fee in the amount of 36,364 shares
of TCI Group Series B Stock.
In connection with the Kearns-Tribune merger (see note 6), the former
Chairman of the Board of Kearns-Tribune, who is also a director of TCI
(the "Former Kearns-Tribune Chairman"), received (i) a cash payment of
$1.6 million and (ii) an assignment of all of Kearns-Tribune's right,
title and interest in and to all patented mining claims owned by
Kearns-Tribune including but not limited to royalties, buildings,
fixtures, surface rights, licenses and contracts related thereto, which
patented mining claims are valued at $438,000. With respect to the
assignment of the mining claims, the Former Kearns-Tribune Chairman
agreed to assume all liabilities with respect thereto and agreed to
indemnify Kearns-Tribune for any and all liabilities of Kearns-Tribune,
if any, relating to the mining claims, including those arising from
past operations. As of December 31, 1997, Kearns-Tribune had made the
cash payment to the Former Kearns-Tribune Chairman and was in process
of completing the transfers of the mining claims to a corporation
designated by the Former Kearns-Tribune Chairman. The parties
anticipate the remaining mining claim transfers will be completed in
fiscal 1998.
On March 4, 1997, an executive officer and director of TCI received an
advance from a wholly-owned subsidiary of TCI and a member of TCI Group
in the amount of $6 million. On March 5, 1997, such executive officer
and director received a second advance from a wholly-owned subsidiary
of TCI and a member of TCI Group in the amount of $6 million. The terms
of the advances were memorialized by a promissory note. The interest
rate on such loans is 1% over the one-month LIBOR rate compounded
annually. Principal outstanding on the note is due March 31, 1999 and
interest is payable annually on March 1 of each year. The loan is
unsecured.
On the date of the Satellite Spin-off, TCI Group granted options to two
of its executive officers and a key employee of TCIC to acquire an
aggregate of 1,660,190 shares of Satellite Series A Common Stock. The
exercise price for each such option is equal to $8.86 per share. Such
options vest 20% per annum beginning February 1, 1997 and expire on
February 1, 2006.
(continued)
II-197
<PAGE> 300
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective January 31, 1996, a director of TCI purchased one-third of
TCI Group's interest in two limited partnerships and obtained two
ten-year options to purchase TCI Group's remaining partnership
interests. The purchase price for the one-third partnership interest
was 37.209 shares of WestMarc Communications, Inc. ("WestMarc", a
wholly-owned subsidiary of TCI and a member of TCI Group) 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 were exercised during the first quarter of 1998. The aggregate
exercise price of $3,000,000 was satisfied with five non-interest
bearing promissory notes that are due and payable to TCI Group in 2008.
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.
(13) Income Taxes
TCI files a consolidated federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which TCI owns
less than 80% each file a separate income tax return. TCI and such
subsidiaries calculate their respective tax liabilities on a separate
return basis which are combined in the accompanying combined financial
statements.
A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
among TCI and certain subsidiaries of TCI was implemented effective
July 1, 1995. The Old Tax Sharing Agreement formalized 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. Under the Old Tax
Sharing Agreement, TCI Group was responsible to TCI for its share of
consolidated income tax liabilities (computed as if TCI were not liable
for the alternative minimum tax) determined in accordance with the Old
Tax Sharing Agreement, and TCI was responsible to TCI Group to the
extent that the income tax attributes generated by TCI Group and its
attributed entities were utilized by TCI to reduce its consolidated
income tax liabilities (computed as if TCI were not liable for the
alternative minimum tax). The tax liabilities and benefits of such
entities so determined are charged or credited to an intercompany
account between TCI and TCI Group. Such intercompany account is
required to be settled only upon the date that an entity ceases to be a
member of TCI's consolidated group for federal income tax purposes.
Under the Old Tax Sharing Agreement, TCI retains the burden of any
alternative minimum tax and has the right to receive the tax benefits
from an alternative minimum tax credit attributable to any tax period
beginning on or after July 1, 1995 and ending on or before October 1,
1997. In connection with the implementation of the Old Tax Sharing
Agreement, TCI Group recorded an increase to its deferred income tax
liability and a decrease to its combined equity of $2 million.
(continued)
II-198
<PAGE> 301
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by TCI Group,
Liberty Media Group and TCI Ventures Group. Effective for periods on
and after the Effective Date, federal income taxes will be computed
based upon the type of tax paid by TCI (on a regular tax or alternative
minimum tax basis) on a separate basis for each Group. 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 TCI based on its allocable share of TCI's consolidated
federal income tax liabilities (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used
by TCI in reducing its consolidated federal income tax liability. Tax
attributes 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 TCI pays alternative minimum tax, the federal
income tax benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for payment to
or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the utilized tax benefits would receive a cash payment only
if, and when, the unutilized taxable losses of the other Group are
actually utilized. If the unutilized taxable losses expire without ever
being utilized, the Group generating the unutilized tax benefits will
never receive payment for such benefits. Pursuant to the New 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 TCI's combined or
unitary tax liability is allocated among the Groups based upon such
separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement, as amended.
In connection with the creation of TCI Ventures Group, it was
determined that the net amount of the balance of each TCI Group
intercompany account under the Old Tax Sharing Agreement that is
attributable to entities included in TCI Ventures Group for the period
beginning July 1, 1995 and ending on September 10, 1997 (the
consummation date of the TCI Ventures Exchange) will be reflected as an
adjustment of TCI Group's combined equity. Tax liabilities and
benefits, as determined under the Old Tax Sharing Agreement, that are
generated by the entities comprising TCI Ventures Group for the period
beginning on September 10, 1997 and ending on September 30, 1997 will
be credited or debited to an intercompany account between TCI Group and
TCI Ventures Group in accordance with the Old Tax Sharing Agreement.
(continued)
II-199
<PAGE> 302
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) for the years ended December 31, 1997,
1996 and 1995 consists of:
<TABLE>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1997:
Intergroup allocation $(168) -- (168)
Federal -- 253 253
State and local (20) 39 19
----- ----- -----
$(188) 292 104
===== ===== =====
Year ended December 31, 1996:
Intergroup allocation $ (42) -- (42)
Federal -- 195 195
State and local (9) 43 34
----- ----- -----
$ (51) 238 187
===== ===== =====
Year ended December 31, 1995:
Intergroup allocation $ (72) -- (72)
Federal -- 135 135
State and local (8) 17 9
----- ----- -----
$ (80) 152 72
===== ===== =====
</TABLE>
Income tax benefit (expense) differs from the amounts computed by
applying the federal income tax rate of 35% as a result of the
following:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1997 1996 1995
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit $ 89 243 91
Amortization not deductible for tax purposes (17) (12) (14)
Minority interest of attributed subsidiaries 24 (3) 5
Gain recognized for tax purposes on exchange
of assets -- -- (12)
Gain recognized for tax purposes on sale of
investments -- (61) --
State and local income taxes, net of federal
income tax benefit 17 11 (4)
Other (9) 9 6
----- ----- -----
$ 104 187 72
===== ===== =====
</TABLE>
(continued)
II-200
<PAGE> 303
"TCI 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, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
------- -------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 683 613
Less-valuation allowance (88) (88)
Investment tax credit carryforwards 117 118
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 107 246
Future deductible amount attributable to accrued
stock appreciation rights and deferred
compensation 74 22
Future deductible amounts principally due to
non-deductible accruals 138 34
Other 5 4
------- -------
Net deferred tax assets 1,090 1,003
------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 1,278 1,107
Franchise costs, principally due to differences in
amortization 4,348 4,487
Investment in affiliates, due principally to
undistributed earnings of affiliates 328 329
Intangible assets, principally due to differences
in amortization 24 36
Leases capitalized for tax purposes -- 72
Other 259 132
------- -------
Total gross deferred tax liabilities 6,237 6,163
------- -------
Net deferred tax liability $ 5,147 5,160
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997
and 1996 was $129 million.
The tax attributes disclosed above are those determined pursuant to the
New Tax Sharing Agreement.
(continued)
II-201
<PAGE> 304
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At December 31, 1997, TCI Group had net operating loss carryforwards
for income tax purposes aggregating approximately $1,425 million of
which, if not utilized to reduce taxable income in future periods, $134
million expires in 2003, $117 million in 2004, $344 million in 2005,
$245 million in 2006, $19 million in 2009, $147 million in 2010, $231
million in 2011 and $188 million in 2012. Certain subsidiaries of TCI
Group had additional net operating loss carryforwards for income tax
purposes aggregating approximately $232 million and these net operating
losses are subject to certain rules limiting their usage. Pursuant to
the Old and New Tax Sharing Agreements, TCI Group has not received
benefit for approximately $513 million of the net operating loss
carryforward disclosed above. TCI is responsible to TCI Group to the
extent such amounts are utilized by TCI in future periods.
At December 31, 1997, TCI Group had remaining available investment tax
credits of approximately $62 million which, if not utilized to offset
future federal income taxes payable, expire at various dates through
2005. Certain subsidiaries of TCI Group had additional investment tax
credit carryforwards aggregating approximately $55 million and these
investment tax credit carryforwards are subject to certain rules
limiting their usage.
Certain of the federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under examination
by the Internal Revenue Service ("IRS") for the years 1993 through 1995
(the "IRS Examinations"). Certain income tax issues related to the
years 1981 through 1992 have been resolved. In the opinion of
management, any additional tax liability, not previously provided for,
resulting from the IRS Examinations, ultimately determined to be
payable, should not have a material adverse effect on the combined
financial position of TCI Group.
(14) Transactions with Liberty Media Group, TCI Ventures Group and Other
Related Parties
The components of due to (from) related parties are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----- -----
amounts in millions
<S> <C> <C>
Notes receivable from Liberty Media Group, including
accrued interest (a) $(378) --
TINTA Note Payable (b) 89 177
Intercompany account (c) (241) (42)
----- -----
$(530) 135
===== =====
</TABLE>
--------------------
(a) Amounts outstanding under the notes receivable from Liberty
Media Group bear interest at varying rates ranging from 6.5%
to 12.5%. Principal maturities are as follows: 1998 - $375
million and 1999 - $1 million. During the year ended December
31, 1997, interest income related to the notes receivable from
Liberty Media Group aggregated $15 million.
(continued)
II-202
<PAGE> 305
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(b) Amounts outstanding under TCI Group's note payable to TINTA (the
"TINTA Note Payable") bear interest at variable rates based on
TCI Group's weighted average cost of bank borrowings of similar
maturities (6.7% at December 31, 1997). TINTA is a member of the
TCI Ventures Group. Principal and interest is due and payable as
mutually agreed from time to time by TCI Group and TINTA. During
the years ended December 31, 1997 and 1996, interest expense
related to the TINTA Note Payable aggregated $6 million and $14
million, respectively.
(c) The non-interest bearing intercompany account includes certain
income tax and stock compensation allocations that are to be
settled at some future date. All other amounts included in the
intercompany account are to be settled within thirty days
following notification. In connection with the TCI Ventures
Exchange, the September 10, 1997 balance of the intercompany
account between TCI Group and TCI Ventures Group was
reclassified to "Combined Deficit."
TCI Ventures Group is expected to require additional advances from TCI
Group for some period of time. To satisfy this need, TCI Group has
provided a revolving loan facility (the "Revolving Credit Facility") to
TCI Ventures Group for a five-year period commencing on September 10,
1997. Such facility permits aggregate borrowings at any one time
outstanding of up to $500 million (subject to reduction as provided
below), which borrowings 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 is payable by TCI Ventures Group to TCI Group on a quarterly
basis. Such credit facility fees were not material during the year
ended December 31, 1997. 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 Ventures Group
is required to contribute to certain specified partnerships subsequent
to the September 10, 1997 consummation of the Exchange Offers is less
than $300 million. No borrowings were outstanding pursuant to the
Revolving Credit Facility at December 31, 1997.
Certain TCI corporate general and administrative costs are charged to
Liberty Media Group and 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 Liberty Media Group and
TCI Ventures Group would incur for comparable services on a stand-alone
basis. During the years ended December 31, 1997, 1996 and 1995, Liberty
Media Group was allocated $3 million, $3 million and $3 million,
respectively, and TCI Ventures Group was allocated $10 million, $8
million and $4 million, respectively, in corporate general and
administrative costs by TCI Group. Such amounts are included in
selling, general and administrative expenses in the accompanying
combined financial statements.
(continued)
II-203
<PAGE> 306
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During 1996, TCI Group transferred, subject to regulatory approval,
certain distribution equipment to a subsidiary of TINTA in exchange for
a (pound)15 million ($23 million using the applicable exchange rate)
principal amount promissory note (the "TVG LLC Promissory Note"). The
TVG LLC Promissory Note was contributed by TCI Group to TVG LLC in
connection with the September 10, 1997 consummation of the Exchange
Offers. The distribution equipment was subsequently leased back to TCI
Group over a five year term with semi-annual payments of $2 million,
plus expenses. Effective October 1, 1997, such distribution equipment
was transferred back to TCI Group and the related lease and the TVG LLC
Promissory Note were canceled. During the years ended December 31, 1997
and 1996, (i) the U.S. dollar equivalent of interest income earned with
respect to the TVG LLC Promissory Note was $1 million and less than $1
million, respectively and (ii) the U.S. dollar equivalent of the lease
expense under the above-described lease agreement aggregated $3 million
and $1 million, respectively.
Prior to July 1, 1997, TCI Group had a 50.1% partnership interest in
QE+Ltd. ("QE+"), a limited partnership interest which distributes
"STARZ!," a first-run movie premium programming service launched in
1994. Entities attributed to Liberty Media Group held the remaining
49.9% partnership interest. Also prior to July 1, 1997, Encore Media
Corporation ("EMC") (at the time a 90%-owned subsidiary of TCI and a
member of Liberty Media Group) earned management fees from QE+ equal to
20% of managed costs, as defined. In addition, Liberty Media Group
earned a fee for certain services provided to QE+ equal to 4% of the
gross revenue of QE+ ("STARZ Content Fees"). Such STARZ Content Fees
aggregated $4 million, $4 million and $1 million for the years ended
December 31, 1997, 1996 and 1995, respectively and are included in
operating costs and expenses in the accompanying combined financial
statements.
During July 1997, TCI Group, Liberty Media Group, and the 10% minority
holder of EMC, entered into a series of transactions pursuant to which
the businesses of "Encore," a movie premium programming service, and
STARZ! were contributed to a newly formed limited liability company
("Encore Media Group"). Upon completion of the transaction, Liberty
Media Group owned 80% of Encore Media Group and TCI Group owned the
remaining 20%. In connection with these transactions the 10% minority
interest in EMC was exchanged for approximately 2.4 million shares of
Liberty Group Series A Stock.
Liberty Media Group received its 80% ownership interest in Encore Media
Group in exchange for (i) the contribution of its 49.9% interest in
QE+, (ii) the contribution of EMC, (iii) the issuance of a $307 million
note payable to TCI Group (the "EMG Promissory Note "), (iv) the
cancellation and forgiveness of amounts due for STARZ! Content Fees and
(v) the termination of an option to increase Liberty Media Group's
ownership interest in QE+.
TCI Group received the remaining 20% interest in Encore Media Group and
the aforementioned consideration from Liberty Media Group in exchange
for the contribution of TCI Group's 50.1% ownership interest in QE+ and
certain capital contributions made by TCI Group to QE+. In addition,
TCI Group entered into a 25 year affiliation agreement with Encore
Media Group (the "EMG Affiliation Agreement") pursuant to which TCI
Group will pay monthly fixed amounts in exchange for unlimited access
to all of the existing Encore and STARZ! services.
(continued)
II-204
<PAGE> 307
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Upon formation of Encore Media Group, TCI Group ceased to include QE+
in its combined financial statements, and began to account for its
investment in Encore Media Group using the equity method of accounting.
The EMG Promissory Note is included in amounts due from related
parties.
Effective December 31, 1997, Liberty Media Group and TCI Group agreed
to amend the above transactions. Pursuant to the amendment, the above
described series of transactions were rescinded, retroactive to July 1,
1997. Such rescission was given effect as of December 31, 1997 for
financial reporting purposes. Simultaneously, Liberty Media Group and
TCI Group entered into a new agreement whereby the EMG Affiliation
Agreement was amended to permanently reduce the monthly fixed amounts
for the life of the contract. TCI Group's 20% ownership interest in
Encore Media Group was eliminated and the EMG Promissory Note was
reduced by $32 million. The amounts to be paid to Encore Media Group
pursuant to the EMG Affiliation Agreement were reduced to amounts which
reflect current market prices.
Due to the related party nature of the above-described transactions,
the $133 million excess of the consideration received over the
carryover basis of the assets transferred (including a deferred tax
asset of $98 million) was reflected as a decrease to combined deficit.
TCI Group's fixed annual commitments (as adjusted) pursuant to the EMG
Affiliation Agreement increase annually from $220 million in 1998 to
$315 million in 2003, and will increase with inflation through 2022.
DigiVentures, LLC ("DigiVentures"), a member of TCI Ventures Group,
leases certain digital boxes under a capital lease. During 1997, such
digital boxes were subleased to TCI Group under an operating lease. TCI
Group recognized lease expense of $15 million during the year ending
December 31, 1997 in connection with such lease. In January 1998, TCI
Ventures Group's interest in DigiVentures was assigned to TCI Group. In
connection therewith, TCI Group assumed DigiVentures' capital lease
obligations totaling $176 million and paid $7 million in cash to TCI
Ventures Group. Such transfer will be recorded at historical cost due
to the related party nature of the transaction.
HSN, a former attributed subsidiary of Liberty Media Group, paid a
commission to TCI Group for merchandise sales to customers who are
customers of TCI Group's cable systems. Effective December 20, 1996,
Liberty Media Group entered into a series of transactions whereby it
decreased its ownership interest in HSN such that HSN is no longer
included in the combined financial statements of Liberty Media Group.
Aggregate commissions to TCI Group were $7 million and $6 million for
the years ended December 31, 1996 and 1995, respectively. Such amounts
are recorded in revenue in the accompanying combined statements of
operations.
During 1997, TCI Group received marketing support payments from certain
entities attributed to Liberty Media Group. Total amounts received for
such arrangements for the year ended December 31, 1997 aggregated
$19 million. Such amount is included in selling, general and
administrative expenses in the accompanying combined financial
statements.
(continued)
II-205
<PAGE> 308
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
("DMX"). Following such merger (the "DMX Merger"), TCI owned 89.6% of
the common equity and 98.7% of the voting power of TCI Music.
Simultaneously with the DMX Merger, substantially all of TCI's
ownership interest in TCI Music was transferred from TCI Group to
Liberty Media Group in exchange for an $80 million promissory note (the
"Music Note") and an agreement to reimburse TCI for any amounts TCI
pays pursuant to its contingent obligation to purchase 14,896,648
shares (6,812,393 of which are owned by subsidiaries of TCI) of TCI
Music common stock at a price of $8.00 per share. The Music Note may be
reduced by the payment of cash or the issuance by TCI of shares of
Liberty Group Stock for the benefit of entities included within TCI
Group. Additionally, Liberty Media Group may elect to pay $50 million
of the Music Note by delivery of a Stock Appreciation Rights Agreement
that will give TCI Group the right to receive 20% of the appreciation
in value of Liberty Media Group's investment in TCI Music, to be
determined at July 11, 2002. Due to the related party nature of the
transaction, the $85 million excess of the consideration received over
the carryover basis of the TCI Music common stock acquired by Liberty
Media Group has been reflected as a decrease in combined deficit.
Pursuant to an agreement between TCI Music and TCI Group, certain
entities within TCI Group are required to deliver to TCI Music monthly
revenue payments aggregating $18 million annually (adjusted annually
for inflation) through 2017. In addition, TCI Group purchases certain
audio programming from TCI Music pursuant to a ten-year affiliation
agreement. During the year ended December 31, 1997, the aggregate
amount paid by the TCI Group to TCI Music pursuant to such arrangements
was $13 million. Such amount is included in operating costs and
expenses in the accompanying combined statements of operations.
In connection with TCI Ventures Group's sale of certain assets (the
"SUMMITrak Assets"), TCI Group entered into a commitment to purchase
billing services from the buyer of the SUMMITrak Assets. TCI Ventures
Group has reflected the $47 million excess (before deducting deferred
income taxes of $17 million) of the cash received over the book value
of the SUMMITrak Assets as a decrease to combined deficit. TCI Group,
in turn, has recorded an offsetting decrease to its combined deficit
and a $47 million deferred gain to be amortized over the expected
15-year life of the related billing services commitment.
See note 15.
During the fourth quarter of 1997, TCI Ventures Group's remaining
assets in TCI SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were
transferred to TCI Group in exchange for a $19 million reduction of the
intercompany amount owed by TCI Ventures Group to TCI Group. Such
transfer was recorded at historical cost due to the related party
nature of the transaction.
Entities included in TCI Group lease satellite transponder facilities
and receive video transport services from entities included in TCI
Ventures Group. Charges by TCI Ventures Group for such arrangements and
other related operating expenses for the years ended December 31, 1997,
1996 and 1995, aggregated $25 million, $15 million and $6 million,
respectively. Such amounts are included in operating costs and expenses
in the accompanying combined statements of operations.
(continued)
II-206
<PAGE> 309
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain subsidiaries attributed to Liberty Media Group produce and/or
distribute programming to cable television operators (including TCI
Group) and others. Charges to TCI Group, which are based upon customary
rates charged to others, aggregated $112 million, $64 million and $75
million for the years ended December 31, 1997, 1996 and 1995,
respectively. Such amounts are included in operating costs and
expenses in the accompanying combined statements of operations.
In addition, certain subsidiaries attributed to TCI Ventures Group
distributed certain program services and system integration services to
TCI Group. Charges to TCI Group for such services aggregated $9 million
and $11 million for the years ended December 31, 1997 and 1996,
respectively, and are included in operating costs and expenses in the
accompanying combined financial statements.
(15) Commitments and Contingencies
On October 5, 1992, the United States Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). In 1993 and 1994, the Federal Communications Commission
(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, TCI Group'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.
TCI Group believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCI Group's rates for Regulated Services are
subject to review by the FCC, if a complaint is filed by a customer, or
the appropriate franchise authority, if such authority has been
certified by the FCC to regulate rates. 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.
TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $191 million at December 31, 1997. With respect to TCI
Group's guarantees of $166 million of such obligations, TCI Group has
been indemnified for any loss, claim or liability that TCI Group may
incur, by reason of such guarantees. Although there can be no
assurance, management of TCI Group 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 TCI Group.
(continued)
II-207
<PAGE> 310
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Group is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output, distribution
and license agreements. As of December 31, 1997, the amount of such
obligations or guarantees was approximately $120 million. The future
obligations of TCI Group with respect to these agreements is not
currently determinable 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.
As described in note 14, TCI Group has agreed to make fixed monthly
payments through 2022 to Liberty Media Group pursuant to the Encore
Media Affiliation Agreement.
TCI Group is a party to affiliation agreements with several of its
programming suppliers. Pursuant to these agreements, TCI Group is
committed to carry such suppliers programming on its cable systems.
Several of these agreements provide for penalties and charges in the
event the programming is not carried or not delivered to a
contractually specified numbers of customers.
During the third quarter of 1997, TCI Group committed to purchase
billing services pursuant to three successive five year agreements.
Pursuant to such arrangement, TCI Group is obligated to make minimum
payments aggregating approximately $1.6 billion through 2012. Such
minimum payments are subject to inflation and other adjustments
pursuant to the terms of the underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated to make minimum revenue and license fee payments to TCI Music
aggregating approximately $445 million through 2017. Such minimum
payments are subject to inflation and other adjustments pursuant to the
terms of the underlying agreements.
TCI Group leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and
uses certain equipment under lease arrangements. Rental expense under
such arrangements amounted to $208 million, $101 million and $73
million in 1997, 1996 and 1995, 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>
Years ending
December 31,
------------
<S> <C>
1998 $ 157
1999 124
2000 105
2001 84
2002 69
Thereafter 351
</TABLE>
(continued)
II-208
<PAGE> 311
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 1998.
TCI Group has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it
is reasonably possible TCI Group 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 combined financial statements.
Effective as of December 16, 1997, the National Digital Television
Center, Inc. ("NDTC"), a subsidiary of TCI and a member of TCI Ventures
Group, on behalf of TCI Group and other cable operators that may be
designated from time to time by NDTC ("Approved Purchasers"), entered
into an agreement (the "Digital Terminal Purchase Agreement") with
General Instrument Corporation (formerly NextLevel Systems, Inc., "GI")
to purchase advanced digital set-top devices. The hardware and software
incorporated into these devices will be designed and manufactured to be
compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's
research and development consortium, in November 1997. NDTC has agreed
that Approved Purchasers will purchase, in the aggregate, a minimum of
6.5 million set-top devices over the next three years at an average
price of $318 per basic set-top device (including a required royalty
payment). GI agreed to provide NDTC and its Approved Purchasers the
most favorable prices, terms and conditions made available by GI to any
customer purchasing advanced digital set-top devices. In connection
with NDTC's purchase commitment, GI agreed to grant warrants to
purchase its common stock proportional to the number of devices ordered
by each organization, which as of the effective date of the Digital
Terminal Purchase Agreement, would have represented at least a 10%
equity interest in GI (on a fully diluted basis). It is anticipated
that the value associated with such equity interest would be attributed
to TCI Group upon purchase and deployment of the digital set-top
devices.
(continued)
II-209
<PAGE> 312
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During 1997, TCI Group began an enterprise-wide comprehensive review of
its computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information.
The systems being evaluated include all internal use software and
devices and those systems and devices that manage the distribution of
TCI Group's products. Additionally, TCI Group has initiated formal
communications with its significant suppliers and affiliated companies
to determine the readiness of third parties and the impact on TCI Group
if those third parties fail to remediate their own year 2000 issues.
Over the past three years, TCI Group began an effort to convert a
substantial portion of its financial applications to commercial
products which are anticipated to be year 2000 ready, or to outsource
portions of financial applications to third party vendors who are
expected to be year 2000 ready. Notwithstanding such effort, TCI Group
is in the process of finalizing its assessment of the impact of year
2000. TCI Group is utilizing both internal and external resources to
identify, correct or reprogram, and test systems for year 2000
readiness. To date, TCI Group has inventoried substantially all of its
cable systems and is currently evaluating the results of such
inventory. TCI Group expects that it will have to modify or replace
certain portions of its cable distribution plant, although TCI Group
has not yet completed its assessment. Confirmations have been received
from certain primary suppliers indicating that they are either year
2000 ready or have plans in place to ensure readiness. As part of TCI
Group's manual assessment of its year 2000 issue, it is evaluating the
level of validation it will require of third parties to ensure their
year 2000 readiness. TCI Group's assessment of the impact of the year
2000 date change should be complete by mid-1998.
Management of TCI Group has not yet determined the cost associated with
its year 2000 readiness efforts and the related potential impact on TCI
Group's results of operations. Amounts expended to date have not been
material, although there can be no assurance that costs ultimately
required to be paid to ensure TCI Group's year 2000 readiness will not
have an adverse effect on TCI Group's financial position. Additionally,
there can be no assurance that the systems of other companies on which
TCI Group relies will be converted in time or that any such failure to
convert by another company will not have an adverse effect on TCI
Group's financial condition or position.
II-210
<PAGE> 313
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, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997.
We have also audited the accompanying combined balance sheets of Liberty Media
Group (a combination of certain assets of Tele-Communications, Inc., as defined
in note 1) as of December 31, 1997 and 1996, and the related combined statements
of operations, equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 Liberty Media 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 Liberty Media Group are intended to reflect
the performance of the businesses of Tele-Communications, Inc., which produce
and distribute programming services. The combined financial statements of
Liberty Media Group should be read in conjunction with the consolidated
financial statements of Tele-Communications, Inc. and subsidiaries.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Liberty
Media Group as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
II-211
<PAGE> 314
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Assets amounts in thousands
- ------
<S> <C> <C>
Cash and cash equivalents $ 45,398 317,359
Trade and other receivables, net 39,963 24,796
Prepaid program rights 104,219 32,063
Committed program rights 114,658 20,092
Investments in affiliates, accounted for under the
equity method, and related receivables (note 5) 523,590 545,121
Investment in Time Warner, Inc. ("Time Warner")
(note 6) 3,537,841 2,016,799
Other investments, at cost, and related
receivables (note 7) 426,715 81,537
Property and equipment, at cost:
Land 39 39
Support equipment and buildings 41,478 17,756
---------- ----------
41,517 17,795
Less accumulated depreciation 13,954 7,846
---------- ----------
27,563 9,949
---------- ----------
Excess cost over acquired net assets 203,300 8,755
Less accumulated amortization 9,057 2,126
---------- ----------
194,243 6,629
---------- ----------
Other assets, at cost, net of amortization 24,371 4,607
---------- ----------
$5,038,561 3,058,952
========== ==========
</TABLE>
(continued)
II-212
<PAGE> 315
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Liabilities and Combined Equity amounts in thousands
- -------------------------------
<S> <C> <C>
Accounts payable and accrued liabilities $ 69,367 25,563
Accrued stock compensation (note 11) 68,846 17,758
Program rights payable 156,351 33,700
Deferred option premium (note 6) 305,742 --
Debt (note 8) 348,590 1,620
Deferred income taxes (note 9) 1,046,854 582,089
Other liabilities 2,060 --
---------- ----------
Total liabilities 1,997,810 660,730
---------- ----------
Minority interests in equity of attributed
subsidiaries (note 10) 120,359 1,052
Combined equity (note 10):
Combined equity 1,670,897 2,355,021
Unrealized gains on available-for-sale securities,
net of taxes 740,903 --
---------- ----------
2,411,800 2,355,021
---------- ----------
Due to related parties 508,592 42,149
---------- ----------
Total combined equity 2,920,392 2,397,170
---------- ----------
Commitments and contingencies (note 11)
$5,038,561 3,058,952
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
II-213
<PAGE> 316
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
amounts in thousands,
except per share amounts
<S> <C> <C> <C>
Revenue:
Programming services:
Related parties (note 10) $ 172,563 106,734 79,738
Others 201,660 248,508 441,312
Net sales from electronic retailing services -- 984,117 919,796
---------- ---------- ----------
374,223 1,339,359 1,440,846
---------- ---------- ----------
Cost of sales, operating costs and expenses:
Cost of sales -- 605,116 602,849
Operating 193,593 265,586 426,445
Selling, general and administrative 89,328 282,265 372,216
Charges from related parties (note 10) 36,476 21,915 23,899
Stock compensation (notes 10 and 11) 153,862 17,353 11,686
Restructuring charges -- -- 16,846
Depreciation 4,216 15,543 24,769
Amortization 8,148 45,149 73,242
---------- ---------- ----------
485,623 1,252,927 1,551,952
---------- ---------- ----------
Operating income (loss) (111,400) 86,432 (111,106)
Other income (expense):
Interest expense (5,716) (16,671) (17,395)
Interest expense to related parties (note 10) (15,290) -- (1,920)
Dividend and interest income, primarily from
affiliates 47,828 22,040 11,552
Share of earnings (losses) of affiliates, net (note 5) (11,907) 7,524 (15,092)
Minority interests in losses (earnings) of
consolidated subsidiaries 10,228 (13,257) 34,518
Gain (loss) on dispositions (notes 5, 6 and 7) 304,233 1,537,408 (2,195)
Litigation settlements -- -- (9,003)
Loss on early extinguishment of debt (320) -- --
Other, net (163) 575 17
---------- ---------- ----------
328,893 1,537,619 482
---------- ---------- ----------
Earnings (loss) before income taxes 217,493 1,624,051 (110,624)
Income tax benefit (expense) (note 9) (92,904) (567,655) 54,292
---------- ---------- ----------
Net earnings (loss) $ 124,589 1,056,396 (56,332)
========== ========== ==========
Basic earnings (loss) attributable to common
stockholders per common share (note 3) $ .34 2.82 (.07)
========== ========== ==========
Diluted earnings (loss) attributable to common
stockholders per common and potential common
share (note 3) $ .31 2.58 (.07)
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
II-214
<PAGE> 317
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
holding gains
for available-for- Due to Total
Combined sale securities, related combined
equity net of taxes parties equity
---------- ------------------ ---------- ----------
amounts in thousands
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $1,391,440 98,189 28,724 1,518,353
Net loss (56,332) -- -- (56,332)
Sale of programming to related parties (43,079) -- (36,659) (79,738)
Cost allocations from related parties 14,480 -- 9,419 23,899
Cable distribution fees paid to TCI Group from
Home Shopping Network, Inc. ("HSN") -- -- (26,540) (26,540)
Stock compensation 6,765 -- 2,738 9,503
Interest expense to related party 1,786 -- 134 1,920
Intergroup tax allocation 435 -- (407) 28
Deferred tax assets transferred to related party (13,717) -- -- (13,717)
Deferred tax assets transferred to TCI Group
upon implementation of tax sharing
agreement (2,410) -- -- (2,410)
Net cash transferred from related parties 17,637 -- 30,087 47,724
Contribution to combined equity for
acquisitions 19,120 -- -- 19,120
Change in unrealized holding gains for
available-for-sale securities -- 171,619 -- 171,619
---------- ------------------ ---------- ----------
Balance at December 31, 1995 1,336,125 269,808 7,496 1,613,429
Net earnings 1,056,396 -- -- 1,056,396
Purchase of Liberty Group Stock (37,500) -- -- (37,500)
Sale of programming to related parties -- -- (106,734) (106,734)
Cost allocations from related parties -- -- 21,915 21,915
Cable distribution fees paid to TCI Group from
HSN -- -- 2,620 2,620
Stock compensation -- -- (2,789) (2,789)
Payment of stock compensation -- -- (192) (192)
Intergroup tax allocation -- -- 32,042 32,042
Net cash transfers from related parties -- -- 87,791 87,791
Recognition of previously unrealized gains on
available-for-sale securities -- (355,922) -- (355,922)
Change in unrealized holding gains on
available-for-sale securities -- 86,114 -- 86,114
---------- ------------------ ---------- ----------
Balance at December 31, 1996 2,355,021 -- 42,149 2,397,170
Net earnings 124,589 -- -- 124,589
Contribution to combined equity for issuance
of Liberty Group Stock to TCI Employee
Stock Purchase Plan 2,054 -- -- 2,054
Purchase of Liberty Group Stock (621,403) -- -- (621,403)
Excess of consideration paid over carryover
basis of net assets acquired from related
party (219,364) -- -- (219,364)
Issuance of Liberty Group Stock 30,000 -- -- 30,000
Sale of programming to related parties -- -- (172,563) (172,563)
Cost allocations from related parties -- -- 36,476 36,476
Stock compensation -- -- 93,115 93,115
Net cash transfers from related parties -- -- 153,067 153,067
Issuance of notes payable to related parties -- -- 436,843 436,843
Payments of notes payable to related parties -- -- (73,517) (73,517)
Interest expense to related parties -- -- 15,290 15,290
Payments of interest to related parties -- -- (268) (268)
Payments of stock compensation -- -- (22,000) (22,000)
Change in unrealized holding gains on
available-for-sale securities -- 740,903 -- 740,903
---------- ------------------ ---------- ----------
Balance at December 31, 1997 $1,670,897 740,903 508,592 2,920,392
========== ================== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
II-215
<PAGE> 318
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
amounts in thousands
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 124,589 1,056,396 (56,332)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,364 60,692 98,011
Stock compensation 153,862 17,353 11,686
Payments of stock compensation (31,659) (1,218) --
Share of losses (earnings) of affiliates, net 11,907 (7,524) 15,092
Deferred income tax expense (benefit) 91,813 542,613 (53,900)
Intergroup tax allocation -- 32,042 28
Noncash interest expense 15,290 4,097 1,920
Minority interests in earnings (losses) (10,228) 13,257 (34,518)
Litigation settlements -- -- 9,003
Payments of litigation settlements -- (3,725) (30,313)
Loss (gain) on disposition of assets (304,233) (1,537,408) 2,195
Loss on early extinguishment of debt 320 -- --
Other noncash charges 261 (1,003) 4,501
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Change in receivables 10,183 (40,180) (11,851)
Change in committed program rights (401) 9,839 (7,721)
Change in inventories -- (8,659) 15,616
Change in prepaid expenses 4,529 (6,182) (16,658)
Change in payables and accruals 1,405 19,461 54,937
---------- ---------- ----------
Net cash provided by operating activities 80,002 149,851 1,696
---------- ---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions (2,462) (55,000) (36,596)
Capital expended for property and equipment (3,571) (11,734) (48,700)
Additional investments in and loans to affiliates and others (78,941) (36,044) (69,479)
Return of capital from affiliates 26,251 6,144 20,009
Collections on loans to affiliates and others 13,734 1,918 2,501
Cash paid for cable distribution fees -- (31,529) (43,875)
Cash proceeds from dispositions 583 27,623 373
Other investing activities (7,141) (7,572) 14,168
---------- ---------- ----------
Net cash used by investing activities (51,547) (106,194) (161,599)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings of debt 442,553 278,899 222,549
Repayments of debt (100,206) (333,906) (50,284)
Contribution for issuance of Liberty Group Stock 2,054 -- --
Change in cash transfers to related parties (23,387) 5,592 (34,655)
Purchase of Liberty Group Stock (621,403) (37,500) --
Contributions by minority shareholders of attributed
subsidiaries 8 319,457 2,084
Distributions to minority shareholders of attributed
subsidiaries (35) (65) (1,529)
---------- ---------- ----------
Net cash provided (used) by financing activities (300,416) 232,477 138,165
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (271,961) 276,134 (21,738)
Cash and cash equivalents at beginning of year 317,359 41,225 62,963
---------- ---------- ----------
Cash and cash equivalents at end of year $ 45,398 317,359 41,225
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
II-216
<PAGE> 319
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
December 31, 1997,1996 and 1995
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
are attributed to Liberty Media Group, as defined below. All
significant intercompany accounts and transactions have been
eliminated.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share (the " TCI Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share (the "TCI Group Series B Stock", and together
with the TCI Group Series A Stock, the "TCI Group Stock"),
respectively. On August 10, 1995, TCI distributed, in the form of a
dividend, 2.25 shares of Liberty Group Stock (as adjusted for stock
dividends - see below) for each four shares of TCI Group Stock owned
(the "Liberty Distribution").
Liberty Media Group's assets include businesses which provide
programming services, including production, acquisition and
distribution through all available formats and media of branded
entertainment, educational and informational programming and software,
including multimedia products. Liberty Media Group's assets also
include businesses engaged in electronic retailing, direct marketing,
advertising sales relating to programming services, infomercials and
transaction processing.
The Liberty Distribution represented one hundred percent of the equity
value attributable to Liberty Media Group. The issuance of 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 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share (the "TCI Ventures Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
Ventures Group Stock"). The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is
comprised of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.
(continued)
II-217
<PAGE> 320
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As of December 31, 1997, the TCI Group Stock is intended to reflect the
separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such
subsidiaries and assets, which are comprised primarily of TCI's
domestic cable and communications businesses, are collectively referred
to as "TCI Group". Collectively, Liberty Media Group, TCI Ventures
Group and TCI Group are referred to as the "Groups" and individually
are referred to as a "Group". The TCI Group Series A Stock, TCI
Ventures Group Series A Stock and the Liberty Group Series A Stock are
sometimes collectively referred to herein as the "Series A Stock," and
the TCI Group Series B Stock, TCI Ventures Group Series B Stock and
Liberty Group Series B Stock are sometimes collectively referred to
herein as the "Series B Stock."
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock 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 Liberty Group Stock are common stockholders of TCI and are
subject to risks associated with an investment in TCI and all of its
businesses, assets and liabilities. The redesignation of TCI Group
Stock and issuance of Liberty Group Stock did not affect the rights of
creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of
Liberty Media Group and the market price of shares of Liberty Group
Stock. In addition, net losses of any portion of TCI, dividends and
distributions on, or repurchases of, any series of common stock, and
dividends on, or certain repurchases of preferred stock would reduce
funds of TCI legally available for dividends on all series of common
stock. Accordingly, financial information of any one Group should be
read in conjunction with the financial information of TCI and the other
Groups.
(continued)
II-218
<PAGE> 321
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
After the Liberty 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 TCI Group Series A Stock as were theretofore issuable
thereunder) the number of shares of Liberty Group Series A Stock that
would have been issuable in the Liberty 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
Liberty Distribution. Options to purchase TCI Class A common stock
outstanding at the time of the Liberty Distribution were adjusted by
issuing to the holders of such options separate options to purchase
that number of shares of Liberty Group Series A 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 Liberty Distribution and reallocating a portion of the
aggregate exercise price of the previously outstanding options to the
newly issued options to purchase Liberty Group Series A Stock.
The issuance of shares of Liberty Group Series A Stock upon such
conversion, exchange or exercise of such convertible securities will
not result in any transfer of funds or other assets from TCI Group to
Liberty Media Group in consideration of such issuance. In the case of
the exercise of such options to purchase Liberty Group Series A Stock,
the proceeds received upon the exercise of such options will be
attributed to Liberty Media Group.
The common stockholders' equity value of Liberty Media Group that, at
any relevant time, is attributed to TCI Group, and accordingly not
represented by outstanding Liberty Group Stock is referred to as
"Inter-Group Interest." Prior to consummation of the Liberty
Distribution, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group. Following consummation of the Liberty Distribution, TCI
Group no longer has an Inter-Group Interest in Liberty Media Group.
Following consummation of the Liberty Distribution an Inter-Group
Interest would be created with respect to Liberty Media Group only if a
subsequent transfer of cash or other property from TCI Group to Liberty
Media Group is specifically designated by the Board as being made to
create an Inter-Group Interest or if outstanding shares of Liberty
Group Stock are purchased with funds attributable to TCI Group.
Dividends on Liberty Media Group Stock are payable at the sole
discretion of the Board out of the lesser of assets of TCI legally
available for dividends or the available dividend amount with respect
to Liberty Media Group, as defined. Determinations to pay dividends on
Liberty Media Group Stock are based primarily upon the financial
condition, results of operations and business requirements of Liberty
Media Group and TCI as a whole.
(continued)
II-219
<PAGE> 322
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) 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.
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstance, one of the other
Groups may transfer funds to such Group. Such transfers of funds among
the Groups will be reflected as borrowings or, if determined by the
Board, in the case of a transfer from TCI Group to Liberty Media Group,
reflected as the creation of, or increase in, TCI Group's Inter-Group
Interest in Liberty Media Group or, in the case of a transfer from
Liberty Media Group to TCI Group, reflected as a reduction in TCI
Group's Inter-Group Interest in Liberty Media 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 TCI, 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.
Loans from one Group to another Group generally will 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 policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of TCI, 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 reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical financial statements, net loans
or advances between Groups have been and will continue to be included
as a component of each respective Group's equity.
(continued)
II-220
<PAGE> 323
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group resulting from an equity contribution by TCI Group to
Liberty Media Group or any decrease in such Inter-Group Interest
resulting from a transfer of funds from Liberty Media Group to TCI
Group would be determined by reference to the market value of the
Liberty Group Series A 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 and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, the proceeds of
which are attributed to TCI Group, TCI Ventures Group or Liberty Media
Group, respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or Liberty Media Group, respectively) result in TCI
Group being credited, and TCI Ventures Group or Liberty Media 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 or Liberty Group Stock and a fraction of the numerator of which
is the TCI Ventures Group or the Liberty Media Group "Inter-Group
Interest Fraction" and the denominator of which is TCI Ventures Group
or the Liberty Media Group "Outstanding Interest Fraction" (both as
defined). Financial impacts of repurchases of TCI Ventures Group Stock
or Liberty Group Stock, the consideration for which is charged to TCI
Group, will be to such extent reflected in the combined financial
statements of TCI Group and will result in an increase in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively.
Stock Dividend
Effective February 6, 1998, TCI issued stock dividends to holders of
Liberty Group Stock (the "1998 Liberty Stock Dividend"). The 1998
Liberty Stock Dividend consisted of one share of Liberty Group Stock
for every two shares of Liberty Group Stock owned. The 1998 Liberty
Stock Dividend has been treated as a stock split, and accordingly, all
share and per share amounts have been restated to reflect the 1998
Liberty Stock Dividend.
(continued)
II-221
<PAGE> 324
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Summary of Significant Accounting Policies
Cash Equivalents
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, 1997 and 1996 was not material.
Program Rights
Prepaid program rights are amortized on a film-by-film basis over the
specific number of exhibitions. Committed program rights and program
rights payable are recorded at the estimated cost of the programs when
the film is available for airing less prepayments. These amounts are
amortized on a film-by-film basis over the anticipated number of
exhibitions.
Investments
All marketable equity securities held by Liberty Media Group 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
combined equity. Realized gains and losses are determined on a
specific-identification basis.
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 TCI'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 Liberty Media Group's share of net earnings or losses of
the affiliates as they occur rather then as dividends or other
distributions are received, limited to the extent of Liberty Media
Group's investment in, advances to and commitments for the investee.
Liberty Media Group's share of net earnings or losses of affiliates
includes the amortization of the difference between Liberty Media
Group's investment and its share of the net assets of the investee.
However, recognition of gains on sales of properties to affiliates
accounted for under the equity method is deferred in proportion to
Liberty Media Group's ownership interest in such affiliates.
Changes in Liberty Media Group's proportionate share of the underlying
equity of an attributed subsidiary or equity method investee, which
result from the issuance of additional equity securities by such
attributed subsidiary or equity investee, generally are recognized as
gains or losses in Liberty Media Group's combined statements of
operations.
(continued)
II-222
<PAGE> 325
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Property and Equipment
Property and equipment, including significant improvements, is stated
at cost which includes acquisition costs allocated to tangible assets
acquired.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 40 years for support equipment and buildings
(furniture and other equipment are depreciated from 3 to 8 years and
buildings and improvements are depreciated from 20 to 40 years).
Repairs and maintenance and any gains or losses on disposition of
assets are included in operations.
Excess Cost Over Acquired Net Assets
Excess cost over acquired net assets consists of the difference between
the cost of acquiring programming entities and amounts assigned to
their tangible assets. Such amounts are amortized on a straight-line
basis over 10 to 30 years.
Impairment of Long-lived Assets
Liberty Media Group periodically reviews the carrying amounts of
property, plant and equipment and its intangible assets to determine
whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such
loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary
to estimate the fair value of assets, accordingly, actual results could
vary significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or
fair value less costs to sell.
Minority Interests
Recognition of minority interests' share of losses of attributed
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those attributed
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of attributed
subsidiaries have the right to cause Liberty Media Group to repurchase
such holders' common equity.
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 1997
presentation.
(continued)
II-223
<PAGE> 326
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(3) Earnings (Loss) Per Common and Potential Common Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128, Earnings Per Share, ("SFAS 128") in
February of 1997. SFAS 128 establishes new computation, presentation
and disclosure requirements for earnings per share ("EPS"). SFAS 128
requires companies with complex capital structures to present basic and
diluted EPS. Basic EPS is measured as the income or loss available to
common stockholders divided by the weighted average outstanding common
shares for the period. Diluted EPS is similar to basic EPS but presents
the dilutive effect on a per share basis of potential common shares
(e.g., convertible securities, options, etc.) as if they had been
converted at the beginning of the periods presented. Potential common
shares that have an anti-dilutive effect (i.e., those that increase
income per share or decrease loss per share) are excluded from diluted
EPS. The Company adopted SFAS 128 as of December 31, 1997 and has
restated all prior period EPS data, as required. SFAS 128 did not have
a material impact on EPS for any period presented.
Basic earnings attributable to Liberty Media Group stockholders per
common share for the years ended December 31, 1997 and 1996 was
computed by dividing net earnings attributable to Liberty Media Group
stockholders by the weighted average number of common shares
outstanding of Liberty Group Stock during the period, as adjusted for
the effect of the 1998 Liberty Stock Dividend (366 million and 374
million, respectively).
Diluted earnings attributable to Liberty Media Group stockholders per
common and potential common share for the years ended December 31, 1997
and 1996 was computed by dividing earnings attributable to Liberty
Media Group stockholders by the weighted average number of common and
potential common shares outstanding of Liberty Group Stock during the
period, as adjusted for the effect of the 1998 Liberty Stock Dividend
(403 million and 409 million, respectively). Shares issuable upon
conversion of the Convertible Preferred Stock, Series C (the "Series C
Preferred Stock"), the Convertible Preferred Stock, Series D (the
"Series D Preferred Stock"), the Redeemable Convertible Liberty Media
Group Preferred Stock, Series H (the "Series H Preferred Stock"),
convertible notes payable, and other fixed and nonvested performance
awards have been included in the computation of weighted average
shares, as illustrated below. Numerator adjustments for dividends and
interest associated with the convertible preferred shares and
convertible note payable, respectively, were not made to the
computation of diluted earnings per share as such dividends and
interest are paid or payable by TCI Group.
(continued)
II-224
<PAGE> 327
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The basic and diluted loss attributable to Liberty Group Stock per
common share for the period from the Liberty Distribution to December
31, 1995 was computed by dividing net loss attributable to Liberty
Group Stock from the distribution date through December 31, 1995 ($27
million) by the weighted average number of common shares outstanding of
Liberty Group Stock during the period, as adjusted for the effect of
the 1998 Liberty Stock Dividend (369 million). Potential common shares
were not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive. After
giving consideration to the effect of the 1998 Liberty Stock Dividend,
no material changes in the weighted average outstanding shares or
potential common shares occurred after December 31, 1997.
Information concerning the reconciliation of basic EPS to dilutive EPS
with respect to Liberty Group Stock is presented below:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1997 1996 1995 (a)
-------- -------- --------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Basic EPS:
Earnings (loss) available to
common stockholders $ 125 1,056 (27)
======== ======== ========
Weighted average common
shares 366 374 369
======== ======== ========
Basic earnings (loss) per
common share
attributable to common
stockholders $ 0.34 2.82 (0.07)
======== ======== ========
Diluted EPS:
Earnings (loss) available to
common stockholders $ 125 1,056 (27)
======== ======== ========
Weighted average common
shares 366 374 369
-------- -------- --------
Add dilutive potential
common shares:
Employee and director
options 4 3 --
Convertible note payable 19 21 --
Series C Preferred Stock 4 4 --
Series D Preferred Stock 6 5 --
Series H Preferred Stock 4 2 --
-------- -------- --------
Total dilutive potential
common shares 37 35 --
-------- -------- --------
Diluted weighted average
common shares 403 409 369
======== ======== ========
Diluted earnings (loss) per
share attributable to
common stockholders $ 0.31 2.58 (0.07)
======== ======== ========
</TABLE>
----------
(a) Represents the period from the Liberty Distribution to
December 31, 1995.
(continued)
II-225
<PAGE> 328
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(4) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $4,974,000, $16,032,000 and $14,968,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Cash
paid for income taxes during the years ended December 31, 1997, 1996
and 1995 was $1,091,000, $1,553,000 and $1,707,000, respectively. In
addition, Liberty Media Group received income tax refunds amounting to
$14,648,000 during the year ended December 31, 1996.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------------------------------------
1997 1996 1995
----------- ------------- -------------
amounts in thousands
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 376,958 55,000 35,329
Net liabilities assumed (174,026) -- (934)
Debt issued to related parties (403,693) -- --
Contribution to combined equity from
TCI for acquisition -- -- (19,120)
Deferred tax asset recorded in
acquisition 111,791 -- 1,084
Excess of consideration paid over
carryover basis of net assets acquired
from related party 219,364 -- --
Minority interests in equity of acquired
entities (127,932) -- 20,237
----------- ------------ -------------
Cash paid for acquisitions $ 2,462 55,000 36,596
=========== ============ =============
Common stock received in exchange for
option (note 6) $ 305,742 -- --
=========== ============ =============
Preferred stock received in exchange for
common stock and note receivable
(note 7) $ 370,875 -- --
=========== ============ =============
Noncash acquisition of minority interest in
consolidated subsidiary (note 5):
Fair value of assets $ (29,205) -- --
Minority interest in equity of attributed subsidiary (795) -- --
Liberty Group Stock issued 30,000 -- --
----------- ------------ -------------
$ -- -- --
=========== ============ =============
Noncash accretion of contingent obligation
to purchase shares of attributed subsidiary from the
minority holders (note 10) $ 2,425 -- --
=========== ============ =============
Exchange of attributed subsidiaries for
note receivable and equity investments $ -- 574,104 --
=========== ============ =============
Conversion of debt into additional minority
interest $ -- -- 14,215
=========== ============ =============
Assets contributed for interest in limited
liability company $ -- -- 2,633
=========== ============ =============
(continued)
</TABLE>
II-226
<PAGE> 329
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Investments in Affiliates
Summarized unaudited results of operations for affiliates accounted for
under the equity method are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
----------------- ----------------
amounts in thousands
Combined Financial Position
<S> <C> <C>
Property and equipment, net $ 696,747 524,949
Program rights 471,285 360,129
Cable distribution rights 252,323 276,342
Other intangibles, net 3,833,570 2,892,021
Other assets, net 2,959,787 1,619,096
----------------- ----------------
Total assets $ 8,213,712 5,672,537
================= ================
Debt $ 3,363,964 1,811,509
Due to Liberty Media Group 15,938 9,239
Program rights payable 163,593 162,212
Other liabilities 2,411,340 1,939,108
Owners' equity 2,258,877 1,750,469
----------------- ----------------
Total liabilities and equity $ 8,213,712 5,672,537
================= ================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1997 1996 1995
------------- ------------ -------------
amounts in thousands
Combined Operations
<S> <C> <C> <C>
Revenue $ 5,366,351 3,392,548 2,632,908
Operating expenses (4,779,274) (3,167,329) (2,338,703)
Depreciation and amortization (285,827) (153,325) (137,663)
------------- ------------- ------------
Operating income 301,250 71,894 156,542
Interest expense (180,274) (103,321) (107,506)
Other, net (212,134) (187,787) (95,446)
-------------- ------------- ------------
Net loss $ (91,158) (219,214) (46,410)
============== ============= ============
(continued)
</TABLE>
II-227
<PAGE> 330
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The following table reflects the carrying value of Liberty Media
Group's investments, accounted for under the equity method, including
related receivables:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
------------- --------------
amounts in thousands
<S> <C> <C>
Discovery Communications, Inc.
("Discovery") $ 88,251 117,724
QVC, Inc. ("QVC") 133,920 103,855
International Cable Channels
Partnership, Ltd. ("ICCP")(a) -- 9,411
Bet Holdings, Inc. ("BET") 26,466 20,225
Courtroom Television Network ("Court") (3,286) 2,160
Fox/Liberty Networks LLC ("Fox Sports")
(b) (21,608) (21,964)
Liberty/TINTA LLC ("Liberty/TINTA") (b) (14,532) --
Superstar/Netlink Group LLC
("Superstar/Netlink") (c) (40,161) (37,236)
HSN (d) 118,653 141,921
BDTV INC., BDTV II INC. and BDTV III
INC. (collectively "BDTV")(d) 228,522 199,701
Your Choice TV, LLC ("YCTV") 9,316 --
Other (1,951) 9,324
------------- --------------
$ 523,590 545,121
---- ============= ==============
</TABLE>
(a) Effective November 1, 1997, Liberty Media Group acquired the
remaining 50% interest in ICCP for $1.75 million which was
accounted for as an acquisition of a minority interest,
resulting in an increase to Liberty Media Group's excess cost
of approximately $10 million. Upon consummation of such
transaction the operations of ICCP are included in the
combined financial results of Liberty Media Group.
(b) As of April 29, 1996, Liberty Media Group, The News
Corporation Limited ("News Corp.") and Tele-Communications
International, Inc. ("TINTA") formed two sports programming
ventures. In the United States, Liberty Media Group and News
Corp. formed 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 a distribution of $350
million in cash. No gain or loss was recognized in connection
with the formation of Fox Sports.
(continued)
II-228
<PAGE> 331
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Internationally, News Corp. and Liberty/TINTA, a limited
liability corporation owned 50% by Liberty Media Group and 50%
by TINTA, formed a venture ("Fox Sports International") to
operate previously existing sports services in Latin American
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 America
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 multi-channel, multi-point distribution systems or cable
television. The formation of Liberty/TINTA was recorded at
carryover basis and no gain was recognized.
(c) Effective April 1, 1996, United Video Satellite Group, Inc.
("UVSG") and Liberty Media Group formed Superstar/Netlink, a
limited liability company comprised of UVSG's Superstar
Satellite Entertainment and Netlink USA's ("Netlink") 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 satellite business no longer consolidated with
the combined financial results of Liberty Media Group. On
February 17, 1998, TCI, Liberty Media Group and UVSG announced
that UVSG agreed to acquire Liberty Media Group's interest in
Superstar/Netlink and Liberty Media Group's interest in
Netlink in a tax free stock transaction. In exchange for such
interests, UVSG will issue 6.4 million shares of UVSG Series A
common stock to Liberty Media Group. No assurance can be given
that such transaction will be consummated.
(continued)
II-229
<PAGE> 332
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(d) 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 "Silver King
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
Silver King 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 Silver King 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 Federal Communications Commission ("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.
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.
(continued)
II-230
<PAGE> 333
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As a result of the HSN Merger, HSN is no longer included in
the combined 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 as well as a direct interest in HSN which would be
exchangeable into shares of Silver King. Accordingly, HSN and
BDTV are accounted for using the equity method. Subsequent to
the HSN Merger, the surviving corporation was renamed HSN,
Inc. ("HSNI").
The following table reflects Liberty Media Group's share of earnings
(losses) of each of the aforementioned affiliates:
<TABLE>
<CAPTION>
Years ended
December 31,
---------------------------------------------------
1997 1996 1995
------------ ------------ ------------
amounts in thousands
<S> <C> <C> <C>
Discovery $ (29,474) 351 4,191
QVC 30,065 22,720 2,261
Sunshine Network -- 634 2,524
SportsChannel Chicago -- 3,065 6,560
ICCP (2,533) (2,755) (1,973)
Premier Sports -- (3,199) (8,478)
BET 6,241 4,872 4,158
Court (5,447) (2,543) (21,064)
Liberty/TINTA (14,581) (6,603) --
Superstar/Netlink 18,409 10,754 --
HSN 2,816 -- --
DMX Inc. ("DMX") (711) (13,617) --
BDTV 2,736 (954) --
YCTV (5,684) -- --
Other (a) (13,744) (5,201) (3,271)
------------ ------------ ------------
$ (11,907) 7,524 (15,092)
============ ============ ============
</TABLE>
(a) Prior to July 1997, Liberty Media Group's other investments
included a 49.9% partnership interest in QE+ Ltd. ("QE+"), a
limited partnership which distributed "STARZ!," a first-run
movie premium programming service launched in 1994. Entities
attributed to TCI Group held the remaining 50.1% partnership
interest.
Encore Media Corporation ("EMC") (a subsidiary of TCI which is
attributed to Liberty Media Group) earned management fees from
QE+ equal to 20% of managed costs, as defined. In addition,
Liberty Media Group earned a fee for certain services provided
to QE+ equal to 4% of the gross revenue of QE+ ("STARZ Content
Fees"). The STARZ Content Fees aggregated $4,266,000,
$3,735,000 and $972,000 for the years ended December 31, 1997
and 1996, and the six months ended December 31, 1995,
respectively, and are included in revenue from related parties
in the combined statements of operations.
(continued)
II-231
<PAGE> 334
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During July 1997, Liberty Media Group, TCI Group, and the 10%
minority holder of EMC, entered into a series of transactions
pursuant to which the businesses of "Encore," a movie premium
programming service, and STARZ! were contributed to a newly
formed limited liability company ("Encore Media Group"). Upon
completion of the transaction, Liberty Media Group owned 80%
of Encore Media Group and TCI Group owned the remaining 20%.
In connection with these transactions the 10% minority
interest in EMC was exchanged for approximately 2.4 million
shares of Liberty Group Series A Stock, which was accounted
for as an acquisition of a minority interest.
Liberty Media Group received its 80% ownership interest in
Encore Media Group in exchange for (i) the contribution of its
49.9% interest in QE+, (ii) the contribution of EMC, (iii) the
issuance of a $307 million note payable to TCI Group (the "EMG
Promissory Note "), (iv) the cancellation and forgiveness of
amounts due for STARZ Content Fees and (v) the termination of
an option to increase Liberty Media Group's ownership interest
in QE+.
TCI Group received the remaining 20% interest in Encore Media
Group and the aforementioned consideration from Liberty Media
Group in exchange for the contribution of TCI Group's 50.1%
ownership interest in QE+ and certain capital contributions
made by TCI Group to QE+. In addition, TCI Group entered into
a 25 year affiliation agreement with Encore Media Group (the
"EMG Affiliation Agreement") pursuant to which TCI Group will
pay monthly fixed amounts in exchange for unlimited access to
all of the existing Encore and STARZ! services.
Upon formation of Encore Media Group, the operations of STARZ!
are included in the combined financial results of Liberty
Media Group. The EMG Promissory Note is included in amounts
due to related parties.
Effective December 31, 1997, Liberty Media Group and TCI Group
agreed to amend the above transactions. Pursuant to the
amendment, the above described series of transactions were
rescinded, retroactive to July 1, 1997. Such rescission was
given effect as of December 31, 1997 for financial reporting
purposes. Simultaneously, Liberty Media Group and TCI Group
entered into a new agreement whereby the EMG Affiliation
Agreement was amended to permanently reduce the monthly fixed
amounts for the life of the contract. TCI Group's 20%
ownership interest in Encore Media Group was eliminated and
the EMG Promissory Note was reduced by $32 million. The
amounts to be paid to Encore Media Group pursuant to the EMG
Affiliation Agreement were reduced to amounts which reflect
current market prices.
(continued)
II-232
<PAGE> 335
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Due to the related party nature of the above-described
transactions, the $133 million excess of the consideration
paid over the carryover basis of the assets transferred
(including a deferred tax asset of $98 million) was reflected
as a decrease to combined equity. Subsequent to the amendment,
100% of the operations of Encore Media Group are included in
the combined financial results of Liberty Media Group.
Certain of Liberty Media Group's affiliates are general partnerships
and any subsidiary of TCI which is attributed to Liberty Media Group
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.
(6) Investment in Time Warner
On October 10, 1996, 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.
Time Warner, TBS, TCI and Liberty Media Corporation 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 Media Group 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.
(continued)
II-233
<PAGE> 336
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the TBS/Time Warner Merger, Liberty Media Group
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, Liberty Media Group recognized a pre-tax gain of approximately
$1.5 billion in the fourth quarter of 1996. Additionally, Liberty Media
Group 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 Satellite
Systems, Inc. ("Southern"), a wholly-owned subsidiary of Liberty Media
Group which distributes the TBS SuperStation ("WTBS") signal in the
United States and Canada, 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. On June
24, 1997, under the new agreement, Liberty Media Group granted Time
Warner an option, expiring October 10, 2002, to acquire the business of
Southern and certain of its subsidiaries (together with Southern, the
"Southern Business") through a purchase of assets (the "Southern
Option"). Liberty Media Group received 6.4 million shares of TW
Exchange Stock valued at $306 million in consideration for the grant.
Such amount has been reflected as a deferred option premium in the
accompanying combined balance sheet as of December 31, 1997. In
September 1997, Time Warner exercised the Southern Option. Pursuant to
the Southern Option, Time Warner acquired the Southern Business,
effective January 1, 1998, for $213.3 million, which was paid in cash
together with the assumption of certain liabilities on January 2, 1998.
As security for borrowings under one of its credit facilities, Liberty
Media Group has pledged a portion of its TW Exchange Stock. At December
31, 1997 such pledged portion had an aggregate fair value of
approximately $1.4 billion. See note 8.
(7) Other Investments
Other investments and related receivables are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
------------- ------------
amounts in thousands
<S> <C> <C>
Marketable equity securities, at fair value $ 24,905 790
Investment in preferred stock, at cost,
including premium (a) 370,791 --
Convertible debt, at cost, which
approximates fair value -- 23,000
Other investments, at cost, and related
receivables 31,019 57,747
------------- ------------
$ 426,715 81,537
============= ============
</TABLE>
(continued)
II-234
<PAGE> 337
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(a) On August 1, 1997, Liberty IFE, Inc., a wholly-owned
subsidiary of TCI attributed to Liberty Media Group, which
held non-voting class C common stock of International Family
Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million
of IFE 6% convertible secured notes due 2004, convertible into
Class C Stock, ("Convertible Notes"), contributed its Class C
Stock and Convertible Notes to Fox Kids Worldwide, Inc.
("FKW") in exchange for a new series of 30 year
non-convertible 9% preferred stock of FKW with a stated value
of $345 million (the "FKW Preferred Stock"). As a result of
the exchange, Liberty Media Group recognized a pre-tax gain of
approximately $304 million.
Management of Liberty Media Group estimates that the market value,
calculated utilizing a variety of approaches including multiple of cash
flow, per subscriber value, a value of comparable public or private
businesses or publicly quoted market prices, of all of Liberty Media
Group's other investments aggregated $483 million and $162 million at
December 31, 1997 and 1996, respectively. No independent external
appraisals were conducted for those assets.
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
interest
rate December 31,
-------- ---------------------------
1997 1996
---------- --------
amounts in thousands
<S> <C> <C> <C>
Bank credit facility (a) 6.3% $ 292,000 --
Note payable to bank (b) 6.6% 53,200 --
Note payable to bank (c) -- -- 1,620
Other 10.0% 3,390 --
---------- --------
$ 348,590 1,620
========== ========
</TABLE>
(a) Payable by Communications Capital Corp. ("CCC")
This revolving credit agreement, as amended, provides for
borrowings up to $500 million through August of 2000. Interest
on borrowings under the agreement is tied to, at CCC's option,
the bank's prime rate or the London Interbank Offered Rate
("LIBOR") plus an applicable margin. The revolving credit
agreement provides as security for this indebtedness a portion
of Liberty Media Group's TW Exchange Stock. CCC must pay an
annual commitment fee of .2% of the unfunded portion of the
commitment.
(continued)
II-235
<PAGE> 338
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(b) Payable by TCI Music, Inc. ("TCI Music")
On December 30, 1997 TCI Music entered into a revolving loan
agreement (the "TCI Music Revolving Loan Agreement") which
provides for borrowings up to $100 million. Interest on
borrowings under the agreement is tied to LIBOR plus an
applicable margin or at the banks base rate dependent on TCI
Music's leverage ratio, as defined, for the preceding quarter.
The TCI Music Revolving Loan Agreement matures on June 30,
2005 with principal reductions beginning semi-annually on June
30, 2000 based on a scheduled percentage of the total
commitment. A commitment fee is charged on the unborrowed
portion of the TCI Music Revolving Loan Agreement commitment
ranging from .25% to .375% based upon the leverage ratio for
the preceding quarter.
(c) Payable by EMC
Debt at December 31, 1996 represents borrowings by EMC
pursuant to a bank credit facility which provided for
borrowings up to $50 million through September 30, 1999. On
July 7, 1997, Encore Media Group obtained a new $625 million
senior, secured facility (the "EMG Senior Facility") in the
form of a $225 million reducing revolving line of credit and a
$400 million, 364-day revolving credit facility convertible to
a term loan. Interest on the EMG Senior Facility is tied to
the bank's prime rate plus an applicable margin or the LIBOR
rate plus an applicable margin. Encore Media Group is required
to pay a commitment fee which varies based on a leverage
ratio. The credit agreement for the EMG Senior Facility
contains certain provisions which limit Encore Media Group as
to additional indebtedness, sale of assets, liens, guarantees,
and distributions. Additionally, Encore Media Group must
maintain certain specified financial ratios. The EMG Senior
Facility serves to replace the EMC bank credit facility which
was terminated. No borrowings were outstanding at December 31,
1997.
Annual debt maturities for the next five years are as follows: 1998 -
$3,354,000; 1999 - $0; 2000 - $293,597,000; 2001 - $5,324,000; and 2002
- $9,425,000.
The fair market value of Liberty Media Group's debt approximated its
carrying value at December 31, 1997.
(continued)
II-236
<PAGE> 339
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(9) Income Taxes
TCI files a consolidated federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which TCI owns
less than 80% each file a separate tax return. TCI and such
subsidiaries calculate their respective tax liabilities on a separate
return basis. Income tax expense for Liberty Media Group is based upon
those items in the consolidated tax calculations of TCI applicable to
Liberty Media Group. Intergroup tax allocation represents an
apportionment of tax expense or benefit (other than deferred taxes) and
alternative minimum taxes to Liberty Media Group in relation to its
amount of taxable earnings or losses. Such amounts are reflected as
borrowings from or loans to related parties.
A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI and
certain subsidiaries of TCI was implemented effective July 1, 1995. The
Old Tax Sharing Agreement formalized 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. Under the Old Tax Sharing
Agreement, Liberty Media Group was responsible to TCI for its share of
consolidated income tax liabilities (computed as if TCI were not liable
for the alternative minimum tax) determined in accordance with the Old
Tax Sharing Agreement, and TCI was responsible to Liberty Media Group
to the extent that the income tax attributes generated by Liberty Media
Group and its subsidiaries were utilized by TCI to reduce its
consolidated income tax liabilities (computed as if TCI were not liable
for the alternative minimum tax). The tax liabilities and benefits of
such entities so determined are charged or credited to an intercompany
account between TCI and Liberty Media Group. Such intercompany account
was required to be settled only upon the date that an entity ceases to
be a member of TCI's consolidated group for federal income tax
purposes. Under the Old Tax Sharing Agreement, TCI retains the burden
of any alternative minimum tax and has the right to receive the tax
benefits from an alternative minimum tax credit attributable to any tax
period beginning on or after July 1, 1995 and ending on or before
October 1, 1997.
(continued)
II-237
<PAGE> 340
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by TCI Group,
Liberty Media Group and TCI Ventures Group. Effective for periods on
and after the Effective Date, federal income taxes will be computed
based upon the type of tax paid by TCI (on a regular tax or alternative
minimum tax basis) on a separate basis for each Group. 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 TCI based on its allocable share of TCI's consolidated
federal income tax liabilities (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used
by TCI in reducing its consolidated federal income tax liability. Tax
attributes 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 TCI pays alternative minimum tax, the federal
income tax benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for payment to
or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the utilized tax benefits would receive a cash payment only
if, and when, the unutilized taxable losses of the other Group are
actually utilized. If the unutilized taxable losses expire without ever
being utilized, the Group generating the utilized tax benefits will
never receive payment for such benefits. Pursuant to the New 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 TCI's combined or
unitary tax liability is allocated among the Groups based upon such
separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement as amended.
(continued)
II-238
<PAGE> 341
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------------ ------------ -----------
amounts in thousands
<S> <C> <C> <C>
Year ended December 31, 1997:
State and local intergroup tax expense
allocation $ (1,091) (18,108) (19,199)
Federal intergroup tax expense allocation -- (73,705) (73,705)
------------ ------------ -----------
$ (1,091) (91,813) (92,904)
============ ============ ===========
Year ended December 31, 1996:
State and local intergroup tax expense
allocation $ (1,251) (95,417) (96,668)
Federal intergroup tax expense allocation (23,791) (447,196) (470,987)
------------ ------------ -----------
$ (25,042) (542,613) (567,655)
============ ============ ===========
Year ended December 31, 1995:
State and local intergroup tax benefit
(expense) allocation $ (2,192) 8,920 6,728
Federal intergroup tax benefit allocation 2,584 44,980 47,564
------------ ------------ -----------
$ 392 53,900 54,292
============ ============ ===========
</TABLE>
Income tax benefit (expense) differs from the amounts computed by the federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1997 1996 1995
------------ ----------- ------------
amounts in thousands
<S> <C> <C> <C>
Computed expected tax benefit (expense) $ (76,123) (568,418) 38,726
Dividends excluded for income tax
purposes 7,951 2,114 1,116
Minority interest of attributed
subsidiaries (78) (4,735) 13,333
Amortization not deductible for income tax
purposes (2,066) (3,765) (5,723)
Excess executive compensation -- -- 688
State and local income taxes, net of
federal income tax benefit (12,514) (61,250) 2,043
Change in allocated state tax rate 112 -- 2,353
Recognition of difference in income tax
basis of investments in consolidated
subsidiaries (9,969) 66,735 --
Other, net (217) 1,664 1,756
------------ ----------- -------------
$ (92,904) (567,655) 54,292
============ =========== =============
</TABLE>
(continued)
II-239
<PAGE> 342
"LIBERTY MEDIA 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, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
------------- -----------
amounts in thousands
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards $ 59,865 9,264
Charitable contribution carryforward 278 166
Future deductible amount attributable
to accrued stock appreciation rights
and deferred compensation 28,146 6,927
Property and equipment, due principally
to differences in depreciation (280) 5,475
Intangible assets due principally to
increase in tax basis upon
consummation of merger of subsidiary 15,820 --
Intangible assets, due principally to
differences in amortization -- 1,428
Other future deductible amounts due
principally to non-deductible accruals 506 395
------------- -----------
Deferred tax assets 104,335 23,655
------------- -----------
Less valuation allowance (60,924) --
------------- -----------
Net deferred tax assets 43,411 23,655
------------- -----------
Deferred tax liabilities:
Lease obligations, capitalized for income
tax purposes 4,331 17,075
Intangible assets, due principally to
differences in amortization 573 --
Investments in affiliates, due principally
to undistributed earnings of affiliates 1,085,361 588,669
------------- ------------
Deferred tax liabilities 1,090,265 605,744
------------- ------------
Net deferred tax liabilities $ 1,046,854 582,089
============= ============
</TABLE>
At December 31, 1997, Liberty Media Group had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $93,023,000
which, if not utilized to reduce taxable income in future periods, expire as
follows: $2,352,000 in 2003, $478,000 in 2004, $11,345,000 in 2005, $9,249,000
in 2006, $13,367,000 in 2010, $12,908,000 in 2011 and $43,324,000 in 2012.
(continued)
II-240
<PAGE> 343
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain subsidiaries of Liberty Media Group had additional net
operating loss carryforwards for income tax purposes aggregating
$100,254,000 and these net operating losses are subject to certain
rules limiting their usage.
Pursuant to the Old and New Tax Sharing Agreement, Liberty Media Group
has already received benefit for approximately $38,310,000 of the net
operating loss carryforward disclosed above. Liberty Media Group is
responsible to TCI to the extent this amount of net operating loss
carryforward is utilized by TCI in future periods.
Liberty Media Group has determined that it is more likely than not that
a portion of the deferred tax assets will not be realized and has
therefore recognized a valuation allowance.
(10) Combined Equity
General
The rights of holders of 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 TCI Group Stock, TCI Ventures Group
Stock and Liberty Group Stock.
Effective January 13, 1997, TCI issued a stock dividend to holders of
Liberty Group Stock consisting of one share of Liberty Group Series A
Stock for every two shares of Liberty Group Series A Stock and one
share of Liberty Group Series A Stock for every two shares of Liberty
Group Series B Stock. Such stock dividend was treated as a stock split.
Stock Repurchases
During the year ended December 31, 1997, pursuant to a stock repurchase
program approved by the Board, Liberty Media Group repurchased 916,500
shares of Liberty Group Series A Stock in open market transactions and
219,937 shares of Liberty Group Series A Stock from the spouse of an
officer and director of TCI at an aggregate cost of $18,239,000.
Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
wholly-owned TCI subsidiary attributed to TCI Group. TCI exchanged 47.2
million shares of TCI Group Series A Stock for shares of Kearns-Tribune
Corporation which held 17.9 million shares of TCI Group Stock and 10.1
million shares of Liberty Group Stock. Liberty Media Group purchased
from TCI Group the 10.1 million shares of Liberty Group Stock that were
acquired in such transaction for $168 million.
During the third quarter of 1997, Liberty Media Group commenced a
tender offer (the "Liberty Tender Offer") to purchase up to an
aggregate of 22.5 million shares of Liberty Group Stock at a price of
$20 per share through October 3, 1997. During the fourth quarter of
1997, Liberty Media Group repurchased 21.7 million shares of Liberty
Group Series A Stock and 82,074 shares of Liberty Group Series B Stock
at an aggregate cost of approximately $435 million pursuant to the
Liberty Tender Offer. All of the above described purchases are
reflected as a reduction of combined equity in the accompanying
combined financial statements.
(continued)
II-241
<PAGE> 344
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Stock Options and Stock Appreciation Rights
Estimates of the compensation relating to options and/or stock
appreciation rights granted to employees of Liberty Media Group and
members of the Board have been recorded in the accompanying combined
financial statements, but are subject to future adjustment based upon
the vesting of the related stock options and stock appreciation rights
and the market value of TCI Group Series A Stock, Liberty Group
Series A Stock and TCI Ventures Group Series A Stock (see note 1) and,
ultimately, on the final determination of market value when the rights
are exercised. The payable or receivable arising from the compensation
related to the options and/or stock appreciation rights is included in
the amount due to related parties.
Transactions with Officers and Directors
On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Estate of
Bob Magness (the "Magness Estate"), the late founder and former
Chairman of the Board of TCI.
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr.
John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI the right to acquire the Malones'
high-voting shares (the "High-Voting Shares"), currently consisting of
an aggregate of approximately 60 million shares (as adjusted for stock
dividends) of Series B Stock, upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal
amount) to third persons. In either such event, TCI has the right to
acquire the shares at a maximum price equal to the then relevant market
price of shares of Series A Stock plus a ten percent premium. The
Malones also agreed that if TCI were ever to be sold to another entity,
then the maximum premium that the Malones would receive on their
High-Voting Shares would be no greater than a ten percent premium over
the price paid for the relevant shares of Series A Stock. TCI paid $150
million to the Malones for agreeing to the terms of the Malone Call
Agreement.
(continued)
II-242
<PAGE> 345
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for
entering into the Magness Call Agreement. Additionally, on February 9,
1998, the Magness Family entered into a shareholders' agreement (the
"Shareholders' Agreement") with the Malones and TCI under which (i) the
Magness Family and the Malones agreed to consult with each other in
connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree
on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for TCI's Board of Directors and Dr.
Malone has agreed to vote his High Voting Shares for such nominee and
(iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in
favor of the Malones.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") were
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to the 1998 Liberty Stock Dividend) that
are subject to the Malone Call Agreement and the Magness Call
Agreement. Liberty Media Group's share of the Call Payments of $64
million was paid during the first quarter of 1998 and will be reflected
as a reduction of combined equity.
Transactions with TCI and Other Related Parties
Certain TCI corporate general and administrative costs are charged to
Liberty Media 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 Liberty Media Group would incur for comparable
services on a stand-alone basis. During the years ended December 31,
1997, 1996 and 1995 Liberty Media Group was allocated $2,891,000,
$2,723,000 and $3,066,000, respectively, in corporate general and
administrative costs by TCI Group.
(continued)
II-243
<PAGE> 346
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Entities attributed to Liberty Media Group lease satellite transponder
facilities from TCI Ventures Group. Charges by TCI Ventures Group for
such arrangements and other related operating expenses for the years
ended December 31, 1997, 1996 and 1995 aggregated $14,105,000,
$12,005,000 and $14,709,000, respectively.
During 1997, entities attributed to Liberty Media Group made marketing
support payments to entities attributed to TCI Group. Charges by TCI
Group for such arrangements for the year ended December 31, 1997
aggregated $19,480,000.
Certain subsidiaries attributed to Liberty Media Group produce and/or
distribute sports and other programming to cable television operators
(including TCI Group) and others (including TCI Ventures Group).
Charges to TCI Group and TCI Ventures Group are based upon customary
rates charged to others.
HSN pays a commission to TCI Group for merchandise sales to customers
who are customers of TCI Group's cable systems. Aggregate commissions
and charges paid to TCI Group were $7,187,000 and $6,124,000 for the
years ended December 31, 1996 and 1995, respectively.
(continued)
II-244
<PAGE> 347
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Due to Related Parties
Effective July 11, 1997, pursuant to an Agreement and Plan of Merger,
dated as of February 6, 1997, as amended (the "Merger Agreement"), by
and among TCI, TCI Music, a wholly-owned subsidiary of TCI, TCI Merger
Sub, a wholly-owned subsidiary of TCI Music ("Merger Sub") and DMX,
Merger Sub was merged with and into DMX, with DMX as the surviving
corporation (the "DMX Merger"). As a result of the DMX Merger,
stockholders of DMX became stockholders of TCI Music.
In connection with the DMX Merger, TCI and TCI Music entered into a
Contribution Agreement. Pursuant to the Contribution Agreement,
effective as of the closing of the DMX Merger: (i) TCI Music issued to
TCI (as designee of certain of its indirect subsidiaries), 62.5 million
shares of Series B Common Stock, $01 par value per share, of TCI Music
("TCI Music series B Common Stock") and a promissory note in the amount
of $40 million (the "TCI Music Note"), (ii) until December 31, 2006,
certain subsidiaries of TCI transferred to TCI Music the right to
receive all revenue from sales of DMX music services to their
residential and commercial subscribers, net of an amount equal to 10%
of revenue from such sales to residential subscribers and net of the
revenue otherwise payable to DMX as license fees for DMX music services
under affiliation agreements currently in effect (the "Contributed Net
DMX Revenue"), (iii) TCI contributed to TCI Music certain commercial
digital DMX tuners that are not in service as of the effective date of
the DMX Merger (the "Contributed Tuners"), and (iv) TCI granted to each
stockholder who became a stockholder of TCI Music pursuant to the DMX
Merger, one right (a "Right") with respect to each whole share of
Series A Common Stock, $.01 par value per share, of TCI Music ("TCI
Music Series A Common Stock") acquired by such stockholder in the DMX
Merger pursuant to the terms of a Rights Agreement among TCI, TCI Music
and the rights agent (the "Rights Agreement"). The foregoing
transactions are collectively referred to herein as the "Contribution."
Upon consummation of the DMX Merger, each outstanding share of DMX
Common Stock was converted into the right to receive (i) one-quarter of
a share of TCI Music Series A Common Stock, (ii) one Right with respect
to each whole share of TCI Music Series A Common Stock and (iii) cash
in lieu of the issuance of fractional shares of TCI Music Series A
Common Stock and Rights. Each Right entitles the holder to require TCI
to purchase from such holder one share of TCI Music Series A Common
Stock for $8.00 per share, subject to reduction by the aggregate amount
per share of any dividend and certain other distributions, if any, made
by TCI Music to its stockholders, and, payable at the election of TCI,
in cash, a number of shares of TCI Group Series A Stock, having an
equivalent value or a combination thereof, if during the one-year
period beginning on the effective date of the DMX Merger, the price of
TCI Music Series A Common Stock does not equal or exceed $8.00 per
share for a period of at least 20 consecutive trading days.
(continued)
II-245
<PAGE> 348
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Subsequently, TCI Music and TCI entered into an Amended and Restated
Contribution Agreement to be effective as of July 11, 1997 (the
"Amended Contribution Agreement") which provides, among other things,
for TCI to deliver, or cause certain of its subsidiaries to deliver to
TCI Music fixed monthly payments (subject to inflation and other
adjustments) through 2017.
Effective with the DMX Merger, TCI beneficially owned approximately
45.7% of the outstanding shares of the TCI Music Series A Common stock
and 100% of the outstanding shares of TCI Music Series B Common Stock
(together, the "TCI Music Common Stock"), which represented 89.6% of
the equity and 98.7% of the voting power of TCI Music. Simultaneously
with the DMX Merger, Liberty Media Group acquired the TCI Music Series
B Common Stock and 2.6 million of the TCI-owned TCI Music Series A
Common Stock by assuming the obligation of the Rights Agreement and
issuing an $80 million promissory note (the "Music Note") to TCI. The
Music Note may be reduced by the payment of cash or the issuance by TCI
of shares of Liberty Group Stock for the benefit of entities attributed
to TCI Group. Additionally, Liberty Media Group may elect to pay $50
million of the Music Note by delivery of a Stock Appreciation Rights
Agreement that will give TCI Group the right to receive 20% of the
appreciation in value of Liberty Media Group's investment in TCI Music,
to be determined at July 11, 2002. Following the above-described
transaction, Liberty Media Group held TCI Music Common Stock, which
when combined with the TCI Music Common Stock received by Liberty Media
Group in the DMX Merger, represented 86.05% of the equity and 98.31% of
the voting power of TCI Music. Therefore, TCI Music was included in the
combined financial results of Liberty Media Group as of the date of the
DMX Merger. Due to the related party nature of the transaction, the $85
million excess of the consideration paid over the carryover basis of
the TCI Music Common Stock acquired by Liberty Media Group from TCI was
reflected as a decrease in combined equity. The Music Note is included
in amounts due to related parties.
The estimated aggregate fair value of the consideration issued to
entities not controlled by TCI (the "Unaffiliated Stockholders") in the
DMX Merger and the carryover basis of the consideration issued to
entities controlled by TCI has been allocated to excess cost as the net
book values of DMX's assets and liabilities approximate their
respective fair values. The number of shares and Rights issued is based
upon DMX Common Stock ownership as of June 30, 1997. The estimated fair
value of the consideration issued to Unaffiliated Stockholders in the
DMX Merger is being accreted to the value of $8.00 per share, subject
to reduction by the aggregate amount per share of any dividend and
certain other distributions, if any, made by TCI Music to its
stockholders during the one-year period beginning on the effective date
of the DMX Merger. Such accretion is reflected as an increase in excess
cost with a corresponding increase to minority interest.
In December 1997, TCI Music issued convertible preferred stock and
common stock in connection with two acquisitions. After giving effect
to such issuances and assuming the conversion of the TCI Music
convertible preferred stock, Liberty Media Group, at December 31, 1997,
owned TCI Music securities representing 78% of TCI Music's common stock
and 97% of the voting power attributable to such TCI Music common
stock,
(continued)
II-246
<PAGE> 349
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The components of "Due to related parties" are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
amounts in thousands
<S> <C> <C>
Notes payable to TCI Group, including
accrued interest $ 378,348 --
Intercompany account 130,244 42,149
------------ ------------
$ 508,592 42,149
============ ============
</TABLE>
Amounts outstanding under the notes payable to TCI Group bear interest
at varying rates from 6.5% to 12.5%. Principal maturities are as
follows: 1998 - $375 million and 1999 - $1 million. During the year
ended December 31, 1997, interest expense related to the notes payable
to TCI Group aggregated approximately $15.3 million.
The non-interest bearing intercompany account includes certain income
tax and stock compensation allocations that are to be settled at some
future date. All other amounts included in the intercompany account are
to be settled within thirty days following notification.
(11) Commitments and Contingencies
Encore Media Group 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 subscriber levels at December
31, 1997, these agreements require minimum payments aggregating
approximately $695 million. The aggregate amount of the Film Licensing
Obligations under these 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, required aggregate payments under the
Film Licensing Obligations could prove to be significant.
Liberty Media Group leases business offices, has entered into
transponder lease agreements and uses certain equipment under lease
arrangements. Rental expense under such arrangements amounted to
$24,043,000, $40,039,000 and $47,569,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
(continued)
II-247
<PAGE> 350
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
thousands):
<TABLE>
<S> <C>
1998 $ 26,512
1999 26,165
2000 21,092
2001 10,191
2002 8,616
Thereafter 23,067
</TABLE>
It is expected that in the normal course of business, leases that
expire 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 amounts shown for 1998.
Estimates of stock compensation granted to employees of a subsidiary of
TCI attributed to Liberty Media Group have been recorded in the
accompanying combined financial statements, but are subject to future
adjustment based upon a valuation model derived from such subsidiary's
cash flow, working capital and debt.
Liberty Media Group has guaranteed capital contributions to a joint
venture entered into by Encore International, Inc. ("EI"). The amount
of the guarantee at December 31, 1997 was approximately $11 million and
is automatically reduced as EI makes capital contributions or advances
to the joint venture.
In February 1998, pursuant to an Investment Agreement among Universal
Studios, Inc. ("Universal"), HSNI, HSN and Liberty Media Group, dated
as of October 1997 and amended and restated as of December 1997 (the
"Investment Agreement"), HSNI consummated a transaction (the "Universal
Transaction") through which USA Networks Partners, Inc., a subsidiary
of Universal, sold its 50% interest in USA Networks, a New York general
partnership ("USA Networks") to HSNI and Universal contributed the
remaining 50% interest in USA Networks and its domestic television
production and distribution operations to HSNI. In connection with the
Universal Transaction, Universal, HSNI, HSN and Liberty Media Group
became parties to a number of other agreements relating to, among other
things, (i) the management of HSNI, (ii) the purchase and sale or other
transfer of voting securities of HSNI, including securities convertible
or exchangeable for voting securities of HSNI, and (iii) the voting of
such securities.
At the closing of the Universal Transaction, Universal (i) was issued
3,190,000 shares of HSNI's Class B Common Stock, 3,560,000 shares of
HSNI's Common Stock and 54,327,170 common equity shares ("LLC Shares")
of USANi LLC, a limited liability company ("USANi LLC") formed to hold
all of the businesses of HSNI and its subsidiaries, except for its
broadcasting business and its equity interest in Ticketmaster and (ii)
received a cash payment of $1.3 billion. Pursuant to an Exchange
Agreement relating to the LLC Shares (the "LLC Exchange Agreement"),
36,810,000 of the LLC Shares issued to Universal are each exchangeable
for one share of HSNI's Class B Common Stock and the remainder of the
LLC Shares issued to Universal are each exchangeable for one share of
HSNI's Common Stock.
(continued)
II-248
<PAGE> 351
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At the closing of the Universal Transaction, Liberty Media Group was
issued 589,161 shares of HSNI's Class B Common Stock, representing all
of the remaining shares of HSNI's Class B Common Stock issuable
pursuant to Liberty Media Group's Contingent Right. Of such shares,
400,000 shares of Class B Common Stock were contributed to BDTV IV Inc.
("BDTV-IV"), a newly-formed entity having substantially the same terms
as BDTV-I and BDTV-II (with the exception of certain transfer
restrictions). In addition, Liberty Media Group purchased 5 LLC Shares
at the closing of the Universal Transaction for an aggregate purchase
price of $200. Liberty Media Group has also agreed to contribute $300
million in cash to USANI LLC by June 30, 1998 in exchange for an
aggregate of 7,500,000 LLC Shares and/or shares of HSNI's Common Stock.
Liberty Media Group's cash purchase price will increase at an annual
interest rate of 7.5% beginning from the date of the closing of the
Universal Transaction through the date of Liberty Media Group's
purchase of such securities (the "Liberty Closing"). Pursuant to the
LLC Exchange Agreement, each LLC Share issued or to be issued to
Liberty Media Group is exchangeable for one share of HSNI's Common
Stock.
(continued)
II-249
<PAGE> 352
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the Universal Transaction, each of Universal and
Liberty Media Group has been granted a preemptive right with respect to
future issuances of HSNI's capital stock, subject to certain
limitations, to maintain their respective percentage ownership
interests in HSNI that they had immediately prior to such issuances. In
addition, with respect to issuances of HSNI's capital stock in certain
specified circumstances, Universal will be obligated to maintain the
percentage ownership interest in HSNI that it had immediately prior to
such issuances. In addition, HSNI, Universal and Liberty Media Group
have agreed that if the parties agree prior to June 30, 1998 (the date
of mandatory cash contributions) on the identity of assets owned by
Liberty Media Group that are to be contributed to the LLC and the form
and terms of such contributions, Liberty Media Group will contribute
those assets in exchange for LLC Shares valued at $40 per share. If
Liberty Media Group contributes such additional assets, Liberty Media
Group has the right to elect to reduce the number of LLC Shares it is
obligated to purchase for cash by an amount equal to 45% of the value
of the assets contributed by Liberty Media Group. If Liberty Media
Group exercises the option to contribute assets and thereby reduces its
cash contribution amount, Universal will be required to purchase a
number of additional LLC shares (valued at $40 per share) equal to the
value of Liberty Media Group's asset contribution, less the amount by
which Liberty Media Group's asset contribution is applied towards
reducing Liberty Media Group's cash contribution. In addition,
Universal may purchase an additional number of LLC shares (valued at
$40 per share), equal to the value of Liberty Media Group's asset
contribution which is not applied towards reducing Liberty Media
Group's cash contribution.
During 1997, TCI began an enterprise-wide comprehensive review of its
computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information.
The systems being evaluated include all internal use software and
devices and those systems and devices that manage the distribution of
Liberty Media Group's, as well as third parties' products.
Additionally, Liberty Media Group has initiated a program of
communications with its significant suppliers, customers and affiliated
companies to determine the readiness of third parties and the impact on
Liberty Media Group if those third parties fail to remediate their own
year 2000 issues.
Over the last year, Liberty Media Group converted its financial
applications to commercial products which are anticipated to be year
2000 ready, or outsourced portions of its financial applications to
third party vendors who are expected to be year 2000 ready.
Notwithstanding such efforts, Liberty Media Group is in the process of
finalizing its assessment of the impact of year 2000. Liberty Media
Group is utilizing both internal and external resources to identify,
correct or reprogram, and test systems for year 2000 readiness.
Confirmations have been received from certain primary suppliers
indicating that they are either year 2000 ready or have plans in place
to ensure readiness. As part of Liberty Media Group's assessment of its
year 2000 issue, it is evaluating the level of validation it will
require of third parties to ensure their year 2000 readiness. Liberty
Media Group's manual assessment of the impact of the year 2000 date
change should be complete by mid-1998.
Management of Liberty Media Group has not yet determined the cost
associated with its year 2000 readiness efforts and the related
potential impact on Liberty Media Group's results of operations.
Amounts expended to date have not been material, although there can be
no assurance that costs ultimately required to be paid to ensure
Liberty Media Group's year 2000 readiness will not have an adverse
effect on Liberty Media Group's financial position. Additionally, there
can be no assurance that the systems of other companies on which
Liberty Media Group relies will be converted in time or that any such
failure to convert by another company will not have an adverse effect
on Liberty Media Group's financial condition or position.
II-250
<PAGE> 353
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, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997.
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, 1997 and 1996, and the related combined statements
of operations, equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of TCI
Ventures Group as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
II-251
<PAGE> 354
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
amounts in thousands
<S> <C> <C>
Assets
Cash and cash equivalents $ 161,495 105,527
Trade and other receivables, net 86,856 115,491
Film inventory and other prepaid expenses 26,426 85,998
Investments in Sprint Spectrum Holding Company, L.P. and MinorCo, L.P.
(and their respective predecessor) and PhillieCo, L.P.
(collectively, the "PCS Ventures"), accounted for under the equity
method (note 10) 607,333 829,651
Investment in Telewest Communications plc ("Telewest"), accounted for
under the equity method (note 11) 324,417 488,495
Investment in Teleport Communications Group, Inc. ("TCG"), accounted for
under the equity method, and related receivables (note 12) 294,851 276,112
Investment in Cablevision S.A. and certain affiliated companies
("Cablevision"), accounted for under the equity method (note 5) 239,379 --
Investments in other affiliates, accounted for under the equity method,
and related receivables (note 13) 631,918 474,599
Deferred tax asset (note 16) 85,737 --
Property and equipment, at cost:
Land 7,893 7,837
Distribution systems 851,145 761,191
Support equipment and buildings 116,088 208,294
----------- ----------
975,126 977,322
Less accumulated depreciation 265,945 240,322
----------- ----------
709,181 737,000
----------- ----------
Franchise costs and other intangible assets 333,516 1,029,842
Less accumulated amortization 76,507 103,631
----------- ----------
257,009 926,211
----------- ----------
Other assets, net of amortization 355,300 220,619
----------- ----------
$ 3,779,902 4,259,703
=========== ==========
</TABLE>
(continued)
II-252
<PAGE> 355
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
amounts in thousands
<S> <C> <C>
Liabilities and Combined Equity
Accounts payable $ 31,825 71,776
Accrued liabilities 109,549 148,962
Customer prepayments 133,479 100,670
MultiThematiques Obligation (note 13) -- 47,902
Capital lease obligations (note 17) 386,766 199,961
Debt (note 14) 408,574 526,254
Deferred income taxes (note 16) -- 220,306
Other liabilities 18,683 21,477
------------- ---------
Total liabilities 1,088,876 1,337,308
------------- ---------
Minority interests in equity of attributed subsidiaries 420,177 411,594
Combined equity (notes 6, 13 and 15):
Combined equity 2,215,683 2,646,079
Cumulative foreign currency translation
adjustments, net of taxes 3,760 26,146
Unrealized holding gains for available-for-
sale securities, net of taxes 29,901 15,077
------------- ---------
2,249,344 2,687,302
Due to (from) related parties (note 15) 21,505 (176,501)
------------- ---------
Total combined equity 2,270,849 2,510,801
------------- ---------
Commitments and contingencies
(notes 7, 9, 10, 13, 15 and 17)
$ 3,779,902 4,259,703
============= =========
</TABLE>
See accompanying notes to combined financial statements.
II-253
<PAGE> 356
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
amounts in thousands,
except per share amounts
<S> <C> <C> <C> <C>
Revenue (note 15) $ 969,194 925,676 325,991
Operating costs and expenses:
Operating (note 15) 551,437 536,457 137,038
Programming rights provision -- 8,706 --
General and administrative (note 15) 263,119 288,735 142,183
Cost of distribution agreement (note 9) 172,591 -- --
Impairment of intangible assets 14,992 -- --
Stock compensation (note 17) 142,484 (6,954) 4,614
Depreciation 122,993 90,411 49,125
Amortization 51,872 58,878 25,972
----------- ----------- -----------
1,319,488 976,233 358,932
----------- ----------- -----------
Operating loss (350,294) (50,557) (32,941)
Other income (expense):
Share of losses of the PCS Ventures (note 10) (493,435) (133,497) (33,890)
Share of losses of Telewest (note 11) (145,264) (109,357) (70,274)
Share of losses of TCG (note 12) (65,951) (50,543) (29,975)
Share of losses of Cablevision (note 5) (3,377) -- --
Share of losses of other affiliates (note 13) (110,826) (74,941) (60,951)
Interest income (note 15) 14,069 30,040 15,267
Interest expense (53,717) (51,128) (41,730)
Gain on sale of stock by attributed entities
(notes 8 and 9) 60,233 -- 122,660
Gain on issuance of stock by equity investees
(notes 11 and 12) 111,697 12,668 164,900
Gain on disposition of assets, net 116,659 79,575 48,710
Recognized holding loss for available-for-sale
securities (1,194) (59,302) --
Minority interests' share of losses (earnings) 95,429 28,177 (14,924)
Foreign currency transaction gains (losses) 224 6,994 (2,649)
Other, net 2,552 3,104 (5,960)
----------- ----------- -----------
(472,901) (318,210) 91,184
----------- ----------- -----------
Earnings (loss) before income taxes (823,195) (368,767) 58,243
Income tax benefit (note 16) 222,684 110,345 1,797
----------- ----------- -----------
Net earnings (loss) $ (600,511) (258,422) 60,040
=========== =========== ===========
Basic and diluted loss attributable to common
stockholders per common share subsequent to
TCI Ventures Exchange (notes 1 and 3) $ (.62)
===========
</TABLE>
See accompanying notes to combined financial statements.
II-254
<PAGE> 357
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statements of Combined Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
currency available- Due to
translation for-sale (from) Total
Combined adjustment, securities, related combined
equity net of taxes net of taxes parties equity
------ ------------ ------------ ------- ------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 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
Gain in connection with the
issuance of ordinary shares by
Flextech p.l.c. ("Flextech") (note 13) 50,900 -- -- -- 50,900
Issuance of common stock by
attributed entity in 1995 initial
public offering 301,343 -- -- -- 301,343
Issuance of common stock by
attributed entity as partial
consideration for investment 11,000 -- -- -- 11,000
Stock compensation 4,614 -- -- -- 4,614
Revenue from related parties (20,881) -- -- -- (20,881)
Operating costs to related parties 3,400 -- -- -- 3,400
Corporate general and administrative
cost allocations 4,120 -- -- -- 4,120
Intergroup tax allocation (55,941) -- -- -- (55,941)
Other intergroup transfers 795,651 -- -- -- 795,651
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 2,326,106 (8,555) 61,171 -- 2,378,722
Net loss (258,422) -- -- -- (258,422)
Issuance of common stock by
attributed entity 9,990 -- -- -- 9,990
Minority interest deficit in joint
venture at formation (note 6) (49,169) -- -- -- (49,169)
Excess of earnings over distributions
to minority interest in joint venture
(note 6) 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)
Loan to Tele-Communications, Inc.
("TCI") -- -- -- (336,375) (336,375)
Repayment of amounts on loan to TCI -- -- -- 159,874 159,874
Stock compensation (6,954) -- -- -- (6,954)
Revenue from related parties (38,292) -- -- -- (38,292)
Operating costs to related parties 38,400 -- -- -- 38,400
Corporate general and administrative
cost allocations 7,918 -- -- -- 7,918
Interest income on loan to TCI (14,000) -- -- -- (14,000)
Intergroup tax allocation (52,660) -- -- -- (52,660)
Other intergroup transfers 674,708 -- -- -- 674,708
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 2,646,079 26,146 15,077 (176,501) 2,510,801
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
(continued)
II-255
<PAGE> 358
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statements of Combined Equity, continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
currency available- Due to
translation for-sale (from) Total
Combined adjustment, securities, related combined
equity net of taxes net of taxes parties equity
------ ------------ ------------ ------- ------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,646,079 26,146 15,077 (176,501) 2,510,801
Net loss (600,511) -- -- -- (600,511)
Foreign currency translation
adjustment -- (22,386) -- -- (22,386)
Change in unrealized holding gains for
available-for-sale securities -- -- 14,824 -- 14,824
Gain in connection with the
issuance of ordinary shares by
Flextech (note 13) 66,392 -- -- -- 66,392
Repurchases of common stock (3,663) -- -- -- (3,663)
Adjustment due to gain deferred by
related party, net of tax (note 15) 30,253 -- -- -- 30,253
Repayment of amounts on loan to TCI -- -- -- 87,794 87,794
Interest income on loan to TCI -- -- -- (5,782) (5,782)
Stock compensation 68,410 -- -- 74,074 142,484
Payments of stock compensation (31,706) -- -- (12,026) (43,732)
Revenue from related parties (24,508) -- -- (41,863) (66,371)
Operating costs to related parties 22,961 -- -- 19,832 42,793
Corporate general and administrative
cost allocations 5,899 -- -- 4,366 10,265
Intergroup tax allocation (192,613) -- -- 33,547 (159,066)
Other intergroup transfers 228,690 -- -- 38,064 266,754
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 $ 2,215,683 3,760 29,901 21,505 2,270,849
</TABLE>
II-256
<PAGE> 359
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
amounts in thousands
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(600,511) (258,422) 60,040
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 174,865 149,289 75,097
Programming rights provision -- 8,706 --
Cost of distribution agreement 172,591 -- --
Impairment of intangible assets 14,992 -- --
Stock compensation 142,484 (6,954) 4,614
Payment of obligation relating to stock
compensation (43,732) -- (3,270)
Share of losses of affiliates, net 818,853 368,338 195,090
Gain on sale of stock by attributed entities (60,233) -- (122,660)
Gain on issuance of stock by equity
investees (111,697) (12,668) (164,900)
Gain on disposition of assets (116,659) (79,575) (48,710)
Recognized holding loss for available-
for-sale securities 1,194 59,302 --
Minority interests' share of earnings
(losses), net (95,429) (28,177) 14,924
Unrealized foreign currency transaction
losses (gains) (2,151) (6,287) 1,761
Accretion of discount on MultiThematiques
Obligation 2,911 5,751 271
Other noncash charges (credits) -- 6,445 (1,259)
Deferred income tax expense (benefit) (75,607) (71,643) 45,063
Intergroup tax allocation (159,066) (52,660) (55,941)
Changes in operating assets and liabilities,
net of the effect of acquisitions and the
deconsolidation of Flextech and
Cablevision:
Change in receivables (953) (13,394) (4,147)
Change in film inventory and other
prepaid expenses (7,585) (16,667) (31,199)
Change in payables, accruals, customer
prepayments and other liabilities 36,191 34,471 42,124
--------- --------- ---------
Net cash provided by operating
activities $ 90,458 85,855 6,898
--------- --------- ---------
</TABLE>
(continued)
II-257
<PAGE> 360
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows, continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
amounts in thousands
(see note 3)
<S> <C> <C> <C>
Cash flows from investing activities:
Effect of the deconsolidation of Flextech and
Cablevision on cash and cash equivalents $ (39,097) -- --
Investments in and loans to affiliates (548,898) (473,102) (1,040,896)
Purchase of marketable equity securities, net (54,966) (26,583) --
Cash paid for acquisitions, net (38,421) (108,790) (189,752)
Capital expended for property and equipment (164,767) (209,378) (141,569)
Cash paid to purchase minority interests -- (4,636) (24,735)
Proceeds from dispositions of assets 301,760 142,854 99,335
Proceeds from repayment of loans by affiliates 118,857 21,628 12,062
Other, net (3,697) 3,304 (47,931)
---------- ---------- ----------
Net cash used in investing activities (429,229) (654,703) (1,333,486)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings of debt 224,701 191,219 314,815
Repayments of debt and capital lease
obligations (248,253) (294,265) (315,958)
Repurchase of common stock by attributed
entity (42,014) -- --
Repurchase of common stock (3,663) -- --
Issuance of debentures -- 345,000 --
Loan to TCI ("TCI Note Receivable") (102,000) (336,375) --
Repayments received on TCI Note Receivable 189,794 159,874 --
Net proceeds from issuance of common stock
of attributed entities 99,868 9,990 301,343
Proceeds from issuance of preferred stock 48,147 -- --
Proceeds from issuance of shares by Flextech -- -- 74,779
Payment of deferred financing costs (950) (9,524) (2,105)
Increase to combined equity 210,168 457,954 1,081,757
Change in amounts due from related parties 14,617 -- --
Contributions from minority interest owners 4,324 4,822 --
Other, net -- -- 8,707
---------- ---------- ----------
Net cash provided by financing
activities 394,739 528,695 1,463,338
---------- ---------- ----------
Effect of exchange rate changes on cash -- 3,926 (3,142)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 55,968 (36,227) 133,608
Cash and cash equivalents:
Beginning of year 105,527 141,754 8,146
---------- ---------- ----------
End of year $ 161,495 $ 105,527 141,754
========== ========== ==========
See accompanying notes to combined financial statements.
</TABLE>
II-258
<PAGE> 361
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
December 31, 1997, 1996 and 1995
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
are attributed to TCI Ventures Group, as defined below. All significant
intercompany accounts and transactions have been eliminated. Preferred
stock of TCI, which is owned by subsidiaries of TCI, eliminates in
combination. Common stock of TCI held by subsidiaries is included in
combined equity.
Targeted Stock
On August 28, 1997, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue the Tele-Communications, Inc.
Series A TCI Ventures Group Common Stock, par value $1.00 per share
(the "TCI Ventures Group Series A Stock") and Tele-Communications, Inc.
Series B TCI Ventures Group Common Stock, par value $1.00 per share
(the "TCI Ventures Group Series B Stock," and together with TCI
Ventures Group Series A Stock, the "TCI Ventures Group Stock") The TCI
Ventures Group Stock is intended to reflect the separate performance of
the TCI Ventures Group, as defined below.
(continued)
II-259
<PAGE> 362
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As of December 31, 1997, the TCI Ventures Group consisted 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. ("TINTA"), which is TCI'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 TCI'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.), TCI's 28% equity interest (representing a 41% voting
interest) in TCG, a competitive local exchange carrier, and Western
Tele-Communications, Inc. ("WTCI"), a wholly-owned subsidiary of TCI
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 39% 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 39% equity interest (representing
a 72% 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"), a wholly-owned subsidiary of TCI which is a developer and
distributor of for-profit education, training and communications
services and products, and National Digital Television Center, Inc.
("NDTC"), which provides digital compression and authorization services
to programming suppliers and to video distribution outlets. The
foregoing subsidiaries and assets are collectively referred to as "TCI
Ventures Group." The stocks of TINTA, TCG, @Home and UVSG are traded on
the National Market tier of The Nasdaq Stock Market.
The TCI Ventures Group does not include any 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 may 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 that TCI 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 TCI that any businesses,
assets and liabilities so attributed to the TCI Ventures Group in the
future would not include assets and liabilities of TCI'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).
(continued)
II-260
<PAGE> 363
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The "TCI Group" is intended to reflect the performance of those
businesses of TCI and its subsidiaries 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 TCI
Ventures Group. Collectively, TCI Group, Liberty Media Group and TCI
Ventures Group are referred to as the "Groups" and individually may be
referred to herein as a "Group". The Tele-Communications, Inc. Series A
TCI Group Common Stock, par value $1.00 per share (the "TCI Group
Series A Stock"), TCI Ventures Group Series A Stock and the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") are
sometimes collectively referred to herein as the "Series A Stock," and
the Tele-Communications, Inc. Series B TCI Group Common Stock, par
value $1.00 per share (the "TCI Group Series B Stock"), TCI Ventures
Group Series B Stock and Tele-Communications, Inc. Series B Liberty
Media Group Common Stock, par value $1.00 per share ("Liberty Group
Series B Stock") are sometimes collectively referred to herein as the
"Series B Stock."
The common stockholders' equity value of TCI attributable to TCI
Ventures Group that, at any relevant time, is attributed to TCI Group,
and accordingly, not represented by outstanding TCI Ventures Group
Stock is referred to as "Inter-Group Interest". Prior to the issuance
of shares of TCI Ventures Group Stock, the Inter-Group Interest of TCI
Group in TCI Ventures Group was 100%. Following consummation of the TCI
Ventures Exchange, TCI Group no longer has an Inter-Group Interest in
TCI Ventures Group. Following consummation of the TCI Ventures
Exchange, an Inter-Group Interest would be created with respect to TCI
Ventures Group only if a subsequent transfer of cash or other property
from TCI Group to TCI Ventures Group is specifically designated by the
Board as being made to create an Inter-Group Interest or if outstanding
shares of TCI Ventures Stock are purchased with funds attributable to
TCI Group.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures 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.
Holders of "TCI Group Series A Stock and TCI Group Series B Stock
(collectively, the "TCI Group Stock"), Liberty Group Series A Stock and
Liberty Group Series B Stock (collectively, the "Liberty Group Stock")
and TCI Ventures Group Stock are common stockholders of TCI and are
subject to risks associated with an investment in TCI and all of its
businesses, assets and liabilities.
(continued)
II-261
<PAGE> 364
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the exchange offers was two shares
(as adjusted for a stock dividend - see below) of the applicable series
of TCI Ventures Group Stock for each share of the corresponding series
of TCI Group Stock properly tendered up to the indicated maximum
numbers. Upon the September 10, 1997 consummation of the Exchange
Offers, 188,661,300 shares of TCI Group Series A Stock and 16,266,400
shares of TCI Group Series B Stock were exchanged for 377,322,600
shares of TCI Ventures Group Series A Stock and 32,532,800 shares of
TCI Ventures Group Series B Stock (as adjusted for a stock dividend -
see below), (the "TCI Ventures Exchange"). The aggregate number of
shares of TCI Ventures Group Stock issued in the Exchange Offers
represented 100% of the common stockholders' equity value of TCI
attributable to the TCI Ventures Group. Accordingly, the Inter-Group
Interest of the TCI Group was reduced to zero upon consummation of the
Exchange Offers.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and the
issuance of TCI Ventures Group Stock 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, Liberty Media Group Stock and TCI Ventures Group Stock
are common stockholders of TCI and are subject to risks associated with
an investment in TCI and all of its businesses, assets and liabilities.
The redesignation of TCI Group Stock and the issuance of TCI Ventures
Group Stock did not affect the rights of the creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition could affect
the combined results of operations or financial condition of the TCI
Ventures Group and the market price of shares of TCI Ventures Group
Stock. In addition, net losses of any portion of TCI, dividends or
distributions on, or repurchases of, any series of common stock, and
dividends on, or certain repurchases of, preferred stock, would reduce
funds of TCI legally available for dividends on all series of common
stock. Accordingly, TCI Ventures Group financial information should be
read in conjunction with the financial information of TCI and the other
Groups.
Dividends on 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 the 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 the TCI
Ventures Group and TCI as a whole.
(continued)
II-262
<PAGE> 365
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 TCI Group
Stock or 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 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.
All debt incurred or preferred stock issued by TCI and its subsidiaries
following the issuance of TCI Ventures Group Stock is (unless the Board
otherwise provides) 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 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)
II-263
<PAGE> 366
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among 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 TCI, 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 in note 15 with respect to the Revolving Credit
Facility, as defined therein, 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 TCI, 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 reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical financial statements, net loans
or advances between Groups have been and will continue to be included
as a component of each respective Group's equity.
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)
II-264
<PAGE> 367
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Other
In February 1998, TCI issued a stock dividend to holders of TCI
Ventures Group Stock (the "Ventures Stock Dividend"). The Ventures
Stock Dividend consisted of one share of TCI Ventures Group Stock for
every one share of TCI Ventures Group Stock owned. The Ventures Stock
Dividend has been treated as a stock split, and accordingly, all share
and per share amounts have been retroactively restated to reflect the
Ventures Stock Dividend.
As further described in notes 5 and 13, TINTA ceased to consolidate
Flextech and Cablevision and began to account for Flextech and
Cablevision using the equity method of accounting, effective January 1,
1997 and October 1, 1997, respectively.
(2) Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist of investments which are readily convertible
into cash and have maturities of three months or less at the time of
acquisition.
Trade and Other Receivables
Trade and other receivables are reflected net of an allowance for
doubtful accounts. Such allowance was not material at December 31, 1997
and 1996.
Investments
All marketable equity securities held by TCI Ventures Group 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.
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 TCI'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 TCI Ventures Group's share of the net earnings or losses
of the affiliates as they occur rather than as dividends or other
distributions are received. TCI Ventures Group's share of losses are
generally limited to the extent of TCI Ventures Group's investment in,
advances to and commitments for the investee. TCI Ventures Group's
share of net earnings or losses of affiliates includes the amortization
of the difference between TCI Ventures Group'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 TCI Ventures Group's ownership interest in
such affiliates.
(continued)
II-265
<PAGE> 368
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Changes in the TCI Ventures Group's proportionate share of the
underlying equity of an attributed subsidiary or equity method
investee, which result from the issuance of additional equity by such
attributed subsidiary or equity method investee, are generally
recognized as gains or losses in the TCI Ventures Group's combined
statements of operations.
Film Inventory
Film inventory for Flextech as of December 31, 1996 included exhibition
and other exploitation rights acquired under license agreements or
through production and output agreements. Such rights, along with the
related obligation, were recorded at the face amount of the contract at
the time the programming becomes available.
Film inventory was carried at the lower of unamortized cost or net
realizable value. Exhibition rights were amortized on a straight-line
basis over the available runs in the contract period. Other
exploitation rights were amortized based on the percentage that current
year revenues bear to estimated future revenues on a program-by-program
basis. Estimates of future revenues were 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.
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
customer installation costs, including interest during construction,
material, labor and applicable overhead, are capitalized. Interest
capitalized during 1997, 1996 and 1995 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
property 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.
(continued)
II-266
<PAGE> 369
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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).
Impairment of Long-lived Assets
TCI Ventures Group periodically reviews the carrying amounts of
property, plant and equipment and its identifiable intangible assets to
determine whether current events or circumstances warrant adjustments
to such carrying amounts. If an impairment adjustment is deemed
necessary, such loss is measured by the amount that the carrying value
of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their
financial statement carrying amount or fair value less costs to sell.
Foreign Currency Translation
The functional currency of the TCI Ventures Group is the United States
("U.S.") dollar. The functional currency of TINTA'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 certain of TINTA's foreign subsidiaries and foreign equity
investees is the Argentine peso, the United Kingdom ("UK") pound
sterling ("(pound)" or "pounds"), the French franc ("FF") and the
Japanese yen ("(Y)"). All amounts presented herein with respect to
operations in Argentina 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.
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.
(continued)
II-267
<PAGE> 370
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Cash flows from TINTA'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.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot
rate at December 31, 1997, as published in The Wall Street Journal.
Foreign Currency Derivatives
From time to time, TINTA 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, 1997 and 1996, the TCI Ventures Group had no material
deferred hedging gains or losses.
Minority Interests
Recognition of minority interests' share of losses of attributed
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those attributed
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of attributed
subsidiaries have the right to cause TCI Ventures Group to repurchase
such holders' common equity.
Revenue Recognition
Cable and programming revenue is recognized in the period that services
are rendered. Cable installation revenue is recognized in the period
the related services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain
connected to the cable television system.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the
Financial Accounting Standards Board 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 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.
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.
(continued)
II-268
<PAGE> 371
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Reclassifications
Certain amounts have been reclassified for comparability with the 1997
presentation.
(3) Earnings (Loss) Per Common Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128, Earnings Per Share, ("SFAS 128") in
February of 1997. SFAS 128 establishes new computation, presentation
and disclosure requirements for earnings per share ("EPS"). SFAS 128
requires companies with complex capital structures to present basic and
diluted EPS. Basic EPS is measured as the income or loss available to
common stockholders divided by the weighted average outstanding common
shares for the period. Diluted EPS is similar to basic EPS but presents
the dilutive effect on a per share basis of potential common shares
(e.g., convertible securities, options, etc.) as if they had been
converted at the beginning of the periods presented. Potential common
shares that have an anti-dilutive effect (i.e., those that increase
income per share or decrease loss per share) are excluded from diluted
EPS. The Company adopted SFAS 128 as of December 31, 1997 and has
restated all prior period EPS data, as required. SFAS 128 did not have
a material impact on EPS for any period presented.
The basic and diluted loss attributable to TCI Ventures Group
stockholders per common share was computed by dividing the $256
million net loss attributable to TCI Ventures Group stockholders by
the weighted average number of common shares outstanding of TCI
Ventures Group Stock for the period from the TCI Ventures Exchange to
December 31, 1997, as adjusted for the effect of the Ventures Stock
Dividend (410 million). Potential common shares were not included in
the computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
At December 31, 1997, there were 35 million potential common shares
consisting of fixed and nonvested performance awards and convertible
securities that could potentially dilute future EPS calculations in
periods of net income. Such potential common share amount does not
take into account the assumed number of shares that would be
repurchased by the Company upon the exercise of the fixed and
nonvested performance awards. After giving consideration to the
effect of the Ventures Stock Dividend, no material changes in the
weighted average outstanding shares or potential common shares
occurred after December 31, 1997.
(continued)
II-269
<PAGE> 372
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(4) Supplemental Disclosures to Statements of Cash Flows
Cash paid for interest was $54.8 million, $36.3 million and $38.0
million for years ended December 31, 1997, 1996 and 1995, respectively.
Cash paid for income taxes was $33.6 million and $12.5 million during
the years ended December 31, 1997 and 1996, respectively, and was not
material during the year ended December 31, 1995.
The net cash paid by the TCI Ventures Group for acquisitions is as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Fair value of assets acquired $(75,171) (632,768) (589,193)
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 35,235 151,273 310,022
Increase in minority interests in equity
of subsidiaries due to issuance of
shares by Flextech -- 43,223 --
Minority interest in equity of
acquired entity 1,515 81,751 2,664
Increase in combined equity due to TCI
Group's issuance of preferred stock in
connection with acquisition by TCI
Ventures Group -- 196,004 --
-------- -------- --------
Cash paid for acquisitions $(38,421) (108,790) (189,752)
======== ======== ========
Property and equipment purchased
under capital leases $175,833 63,656 77,076
======== ======== ========
</TABLE>
The effects of changing the method of accounting for the TCI Ventures
Group's ownership interest in Flextech and Cablevision (see notes 4 and
12) from the consolidation method to the equity method are summarized
below (amounts in thousands):
<TABLE>
<S> <C>
Change to equity investments $ (310,198)
Decrease in property and equipment,
net 164,330
Decrease in franchise costs and other
intangible assets, net 633,649
Decrease in other assets 108,310
Decrease in debt (164,245)
Decrease in deferred income tax
liabilities (226,617)
Decrease in other liabilities (93,049)
Decrease in minority interests in
equity of subsidiaries (151,277)
----------
Decrease in cash and cash equivalents $ (39,097)
==========
</TABLE>
For information concerning additional non-cash transactions see notes 9
and 13.
(continued)
II-270
<PAGE> 373
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Cablevision
On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision, an entity engaged in the multi-channel video distribution
business in Buenos Aires, Argentina, 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
TINTA's issuance of $86.8 million principal amount of secured
negotiable promissory notes payable to the selling shareholders. Such
notes payable were repaid in their entirety during 1997.
On October 9, 1997, TINTA sold a portion of its 51% interest in
Cablevision to CEI Citicorp Holdings Sociedad Anonima ("CEI") and T.I.
Telefonica Internacional de Espana S.A. (together with CEI, the
"Buyers") for cash proceeds of $120 million. A portion of such proceeds
were loaned to TCI pursuant to an unsecured promissory note. See note
15. In addition, on October 9, 1997, Cablevision issued 3,541,829
shares of stock in the aggregate to the Buyers for $80 million in cash
and notes receivable with an aggregate principal amount of $240
million, plus accrued interest at LIBOR, due within the earlier of two
years or at the request of Cablevision's board of directors. The 1997
transactions, (collectively, the "Cablevision Sale") reduced TINTA's
interest in Cablevision to 26.2%. TINTA recognized a gain of $49
million on the Cablevision Sale. TINTA will continue to have the right
to manage Cablevision pursuant to a renewable five-year management
contract that was entered into in connection with the Cablevision Sale,
and certain material corporate transactions of Cablevision will require
TINTA's approval, so long as TINTA maintains at least a 16% interest in
Cablevision. The Buyers also purchased the additional 39% interest in
Cablevision that TINTA had the right to acquire. As a result of the
Cablevision Sale, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the
equity method of accounting.
Prior to 1997, none of Cablevision's operating results had been
allocated to Cablevision's 49% minority interest because (i) the
minority interest had 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. During the
second quarter of 1997, Cablevision's net earnings caused the minority
interest's historical cost basis in Cablevision's net assets to become
positive. Accordingly, TINTA began allocating 49% of such net earnings
to the minority interest during the second quarter of 1997. If the
minority interest's historical cost basis had been positive since the
April 25, 1995 acquisition date, TINTA would have allocated an
additional $12.9 million, $15.9 million and $11.7 million during the
nine months ended September 30, 1997, the year ended December 31, 1996
and the period from April 25, 1995 through December 31, 1995,
respectively, of Cablevision's net earnings to the minority interest.
(continued)
II-271
<PAGE> 374
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The $154.1 million excess of TINTA's aggregate historical cost basis in
Cablevision over TINTA's proportionate share of Cablevision's net
assets is being amortized over an estimated useful life of 20 years.
Summarized financial information for Cablevision at December 31, 1997
and for the period Cablevision's operations have been accounted for
under the equity method is as follows:
<TABLE>
<CAPTION>
December 31,
1997
--------------------
amounts in thousands
<S> <C>
Consolidated Financial Position
Cash $ 7,933
Investments 232,382
Property and equipment, net 132,068
Franchise costs and other assets, net 635,858
-----------
Total assets $ 1,008,241
===========
Debt $ 809,261
Other liabilities 109,973
Shareholder's equity 89,007
-----------
Total liabilities and equity $ 1,008,241
===========
Three months ended
December 31, 1997
--------------------
Consolidated Operations amounts in thousands
Revenue $ 62,367
Operating, selling, general and
administrative expenses (40,208)
Depreciation and amortization (15,767)
-----------
Operating income 6,392
Interest expense (14,124)
Other, net 2,296
-----------
Net loss $ (5,436)
===========
</TABLE>
(continued)
II-272
<PAGE> 375
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(6) Acquisitions
(a) OCC Acquisition
On October 1, 1996, 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 Notes
were repaid in their entirety during the second quarter of
1997. The OCC Acquisition has been accounted for by the
purchase method. Accordingly, the results of operations of OCC
have been consolidated with those of Cablevision since the
date of acquisition and Cablevision recorded OCC's assets and
liabilities at fair value.
(b) UVSG
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
39% of the issued and outstanding common stock of UVSG and
approximately 85% of the total voting power of UVSG common
stock immediately after the UVSG Merger, resulting in UVSG
becoming a majority-controlled entity of TCI Ventures Group.
The UVSG Merger has been accounted for by the purchase method.
Accordingly, the results of operations of UVSG have been
combined with those of the TCI Ventures Group since January
25, 1996 and the TCI Ventures Group recorded UVSG's assets and
liabilities at fair value.
On January 12, 1998, TCI purchased 12.4 million shares of UVSG
Series A common stock held by Lawrence Flinn, Jr., UVSG's
Chairman Emeritus, in exchange for 12.7 million shares of TCI
Ventures Group Series A Stock and 7.3 million shares of
Liberty Group Series A Stock. As a result of such transaction
TCI increased its ownership in the equity of UVSG to
approximately 73%, of which 56% is attributed to the TCI
Ventures Group and 17% is attributed to Liberty Media Group.
In addition, TCI's collective voting power increased to 93%.
(continued)
II-273
<PAGE> 376
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) IFE Acquisitions
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in
Maidstone Broadcasting, 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"), TINTA granted to IFE the right to put the IFE
Consideration Shares to TINTA under certain circumstances. Due
primarily to TINTA's contingent purchase obligations under the
above-described put option, TINTA recognized no gain in
connection with the dilution of TINTA'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 was 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 formation of two separate joint ventures
between Flextech and BBC Worldwide Limited and certain related
transactions, as described in note 13, all of the IFE
Consideration Shares were converted into Flextech Ordinary
Shares during 1997 thereby eliminating TINTA's put obligation
with respect to such shares.
(d) Superstar/Netlink
Effective April 1, 1996, UVSG and Liberty Media Group
contributed their retail C-band home satellite dish business'
assets, obligations and operations to Superstar/Netlink Group
LLC, a new entity owned 50% each by UVSG and Liberty Media
Group ("Superstar/Netlink"). 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 Superstar/Netlink have been
consolidated, effective April 1, 1996, with the operating
results of UVSG as UVSG has voting control over
Superstar/Netlink's operations.
Assets contributed by Liberty Media Group to Superstar/Netlink
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.
(continued)
II-274
<PAGE> 377
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On February 17, 1998, TCI, Liberty Media Group and UVSG
announced that UVSG agreed to acquire Liberty Media Group's
interest in Superstar/Netlink and Liberty Media Group's
interest in Netlink USA ("Netlink") in a tax free stock
transaction. In exchange for such assets, UVSG will issue 6.4
million shares of UVSG Series A common stock to Liberty Media
Group. In the event such transaction is consummated, TCI's
collective interest in UVSG will increase to 77%, 48% of which
is attributable to TCI Ventures Group and 29% of which is
attributable to Liberty Media Group. No assurance can be given
that such transaction will be consummated.
(7) Dispositions
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.
TCI Ventures Group sold its interest in Acclaim Entertainment, Inc. in
February 1998 for cash proceeds of approximately $17 million.
On February 12, 1998, the TCI Ventures Group sold its (i) 40% interest
in NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii)
79% interest in New Jersey Fiber Technologies, L.P. to Hyperion
Telecommunications, Inc. for aggregate cash proceeds of $44.3 million.
TCI and the other partner of Kansas City Fiber Network, L.P. ("KC
Fiber") have signed an agreement to sell the assets of KC Fiber to TCG
for cash proceeds of approximately $55 million. The TCI Ventures Group
holds a 50% interest in KC Fiber and the remaining 50% is held by
Kansas City Cable Partners, a partnership in which the TCI Group holds
a 50% interest. The sale of KC Fiber is subject to certain regulatory
and other conditions, and there can be no assurance that it will be
consummated. If consummated, TCI Ventures Group's share of such
proceeds will be approximately $20 million.
In December 1997, NDTC entered into a memorandum of understanding (the
"GI MOU") with GI which contemplates the sale to GI of certain of the
assets of NDTC's set-top authorization business, the license of certain
related technology to GI, and an additional cash payment in exchange
for approximately 21.4 million shares of stock of GI. In connection
therewith, NDTC would also enter into a services agreement pursuant to
which it will provide certain services to GI's set-top authorization
business. The transaction is subject to the signing of definitive
agreements; accordingly, there can be no assurance that it will be
consummated.
(continued)
II-275
<PAGE> 378
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On September 23, 1997, TCI announced that it and ETC entered into a
letter of intent with Knowledge Universe, L.L.C. ("Knowledge
Universe"). The letter of intent contemplates that TCI, through ETC,
will become a partner of Knowledge Universe in a new venture into which
Knowledge Universe would make a substantial investment and ETC would
contribute a significant portion of its assets. As a result, Knowledge
Universe would be the majority owner of the new venture, with ETC
retaining a significant minority interest. There can be no assurance
that the proposed transaction with Knowledge Universe will ultimately
be consummated or that the terms of the proposed transaction will not
be substantially modified.
(8) Sale of Stock by TINTA
On July 18, 1995, TINTA completed an initial public offering (the
"TINTA 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. ("Torneos"), an Argentine sports programming company
(the "TYC Acquisition"). As a result of the TINTA IPO and the TYC
Acquisition, the TCI Ventures Group recognized a gain amounting to $123
million.
(9) @Home
In April 1997, @Home issued 240,000 shares of convertible preferred
stock resulting in cash proceeds of $48 million, less issuance costs.
On July 11, 1997 @Home completed its initial public offering (the
"@Home IPO"), in which 10,350,000 shares of @Home common stock were
sold for cash proceeds of approximately $100 million. As a result of
the @Home IPO, the TCI Ventures Group's economic interest in @Home
decreased from 43% to 39% which economic interest represents an
approximate 72% voting interest. In connection with the associated
dilution of the TCI Ventures Group's ownership interest of @Home, the
TCI Ventures Group recognized a gain of $60 million.
Effective October 2, 1997, @Home entered into an exclusive distribution
agreement with Cablevision Systems Corporation ("CSC") and issued to
CSC warrants to purchase 10,946,936 shares of @Home's Series A common
stock at an exercise price of $.50 per share. Of these warrants,
warrants to purchase 10,231,298 shares were exercisable as of March 4,
1998, subject to the receipt of all necessary governmental consents or
approvals and the balance will become exercisable as and to the extent
certain Connecticut cable television systems are transferred from TCI
and its controlled affiliates to CSC, CSC's parent or their controlled
affiliates. During the fourth quarter of 1997, @Home recorded a
non-cash, non-recurring charge of $172.6 million to operations based on
the fair value of 7,875,784 shares which were underlying the then
exercisable warrants. An additional charge to operations of
approximately $74 million will be recorded in March 1998 when warrants
with respect 2,355,514 shares became exercisable. The 1997 charge is
included in "cost of distribution agreement" in the accompanying
combined statements of operations. Following the exercise of all of
CSC's warrants, TCI Ventures Group's equity interest and voting power
in @Home will decrease to approximately 36% and 69%, respectively.
(continued)
II-276
<PAGE> 379
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(10) Investments in the PCS Ventures
TCI Telephony 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, "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, Cox and TCI. The partners of PhillieCo are subsidiaries of
Sprint, Cox and TCI. TCI Ventures Group has a 30% partnership interest
in each of the Sprint PCS Partnerships and a 35% partnership interest
in PhillieCo.
From inception through December 1997, the four partners have
contributed approximately $4.0 billion to the Sprint PCS Partnerships
(of which TCI Telephony contributed an aggregate of approximately $1.3
billion). The remaining capital that the Sprint PCS Partnerships will
require to fund the operation of the PCS systems and the commitments
made to its affiliates 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 $200 million of such amount
(of which TCI Telephony's share is approximately $60 million) 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.
Sprint PCS's business plan will require additional capital financing
prior to the end of 1998. Sources of funding for Sprint PCS's capital
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans
and/or capital contributions from the Sprint PCS partners. However,
there can be no assurance that any additional financing can be
obtained on a timely basis, on terms acceptable to Sprint PCS or the
Sprint PCS partners and within the limitations contained in the
agreements governing Sprint PCS's existing debt.
(continued)
II-277
<PAGE> 380
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized
management to operate Sprint PCS in accordance with such budget. The
Sprint PCS partners may mutually agree to make additional capital
contributions. However, the Sprint PCS partners have no such obligation
in the absence of an approved budget, and there can be no assurance the
Sprint PCS partners will reach such an agreement or approve the 1998
proposed budget. In addition, the failure by the Sprint PCS partners to
approve a business plan may impair the ability of Sprint PCS to obtain
required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the
delay or abandonment of Sprint PCS's development and expansion plans
and expenditures, the failure to meet regulatory requirements or other
potential adverse consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership
board has resulted in the occurrence of a "Deadlock Event" under the
Sprint PCS partnership agreement as of January 1, 1998. Under the
Sprint PCS partnership agreement, if one of the Sprint PCS partners
refers the budget issue to the chief executive officers of the
corporate parents of the Sprint PCS partners for resolution pursuant to
specified procedures and the issue remains unresolved, buy/sell
provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint
PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
Discussions among the Sprint PCS partners about restructuring their
interests in Sprint PCS in lieu of triggering such buy/sell procedures
are ongoing. However, there is no certainty the discussions will result
in a change to the partnership structure or will avert the triggering
of the resolution and buy/sell procedures referred to above or a
liquidation of Sprint PCS.
Summarized combined financial information for the PCS Ventures,
accounted for under the equity method, is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
Combined Financial Position 1997 1996
------ -------
amounts in thousands
<S> <C> <C>
Cash $ 124,885 71,098
Investments and related receivables 2,599,506 2,451,263
Other assets, net 4,386,754 1,921,282
---------- ----------
Total assets $7,111,145 4,443,643
========== ==========
Debt $3,569,423 686,192
Other liabilities 1,621,407 1,210,924
Owners' equity 1,920,315 2,546,527
---------- ----------
Total liabilities and equity $7,111,145 4,443,643
========== ==========
</TABLE>
(continued)
II-278
<PAGE> 381
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
Combined Operations 1997 1996 1995
----------- ----------- -----------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 258,029 4,175 --
Operating expenses (1,321,427) (350,452) (66,720)
Depreciation and amortization (316,276) (11,297) (211)
----------- ----------- -----------
Operating loss (1,379,674) (357,574) (66,931)
Other, net (253,304) (87,221) (45,749)
----------- ----------- -----------
Net loss $(1,632,978) (444,795) (112,680)
=========== =========== ===========
</TABLE>
(11) Investment in Telewest
Telewest is a company that is currently operating and constructing
cable television and telephony systems in the UK. At December 31, 1997,
TINTA indirectly owned through TW Holdings, L.L.C., an entity in which
TINTA and certain affiliates of U S WEST, Inc. ( the "U S WEST
Affiliates") each hold an indirect 50% ownership interest, 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, L.L.C., TINTA 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, L.L.C.
(continued)
II-279
<PAGE> 382
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On October 3, 1995, the merger of Telewest's predecessor ("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 TINTA'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 TINTA's ownership
interest in Telewest, the TCI Ventures Group recognized a 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 years ended
December 31, 1997 and 1996 and 1995, Telewest experienced unrealized
foreign currency transaction gains (losses) of $(39.1 million), $1.7
million and $(23.0 million) respectively, with respect to the Telewest
Debentures.
On December 31, 1997, the reported closing price on the London Stock
Exchange of the Telewest ordinary shares was (pound)0.70 per share
($1.16 per share).
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
1.6431 to 1, 1.5718 to 1 and 1.5799 to 1 during the years ended
December 31, 1997, 1996 and 1995, 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 1.6508 to 1 and 1.7125 to 1 at December
31, 1997 and 1996, respectively.
(continued)
II-280
<PAGE> 383
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized financial information for Telewest is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- ----------
amounts in thousands
<S> <C> <C>
Consolidated Financial Position
Cash and receivables, net $ 151,812 241,117
Investments 140,243 162,816
Property and equipment, net 2,801,658 2,478,030
Franchise costs and other assets, net 870,701 956,910
---------- ----------
Total assets $3,964,414 3,838,873
========== ==========
Debt $2,255,516 1,505,713
Other liabilities 495,353 499,635
Shareholders' equity 1,213,545 1,833,525
---------- ----------
Total liabilities and equity $3,964,414 3,838,873
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
amounts in thousands
Consolidated Operations
Revenue $ 634,671 455,923 228,744
Operating, selling, general and administrative
expenses (553,255) (454,458) (264,014)
Depreciation and amortization (334,410) (245,566) (107,233)
--------- --------- ---------
Operating loss (252,994) (244,101) (142,503)
Interest expense (232,710) (164,757) (42,101)
Interest income 13,063 26,163 24,718
Share of losses of affiliates (35,650) (25,076) (20,186)
Foreign exchange gain (loss) (39,114) 1,670 (23,029)
Other, net (including realized loss on
interest rate swap of $13,601 in 1995) 1,368 242 (14,184)
--------- --------- ---------
Net loss $(546,037) (405,859) (217,285)
========= ========= =========
</TABLE>
(continued)
II-281
<PAGE> 384
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(12) Investment in TCG
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 TCI Ventures Group's ownership interest in TCG 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).
During 1997, TCG issued approximately 6.6 million shares of its Class A
common stock for certain acquisitions. The total consideration paid by
TCG through the issuance of common stock for such acquisitions was
approximately $123 million. In addition, effective November 5, 1997,
TCG consummated a public offering of 17.2 million shares of its Class A
common stock. Of the 17.2 million shares, 7.3 million shares were
offered by TCG and 9.9 million shares were offered by MediaOne of
Delaware, Inc. (formerly Continental Cablevision, Inc., "MediaOne").
TCG did not receive any proceeds from the sale of shares by MediaOne,
which represented all of MediaOne's interest in TCG. TCG received net
proceeds from its sale of shares pursuant to the above offering of
$317.6 million (after deducting expenses and fees). As a result of the
above transactions, the TCI Ventures Group's ownership interest in TCG
decreased from 31% to 28%. In connection with the dilution of the TCI
Ventures Group's ownership interest in TCG, the TCI Ventures Group
recognized gains aggregating $111.7 million (before deducting deferred
income tax expense of approximately $43 million).
In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T Corporation ("AT&T"). Upon
consummation of such merger, TCI would receive in exchange for all of
its interest in TCG, approximately 46.95 million shares of AT&T common
stock, which shares would be attributed to the TCI Ventures Group. The
transaction is subject to a number of regulatory and other conditions,
accordingly, there can be no assurance that such transaction will be
consummated on the terms contemplated by the parties, or at all.
On December 31, 1997, TCI Ventures Group owned 1,011,528 shares of
TCG's Class A common stock and 48,779,000 shares of TCG's Class B
common stock. TCG's Class A common stock had a closing price on the
Nasdaq financial market of $54.875 per share on December 31, 1997.
(continued)
II-282
<PAGE> 385
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized financial information for TCG, accounted for under the
equity method, is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ----------
amounts in thousands
<S> <C> <C>
Financial Position
Cash $ 173,331 277,540
Property and equipment, net 1,493,096 1,067,262
Other assets, net 789,874 705,295
---------- ----------
Total assets $2,456,301 2,050,097
========== ==========
Debt and capital lease obligations $1,117,319 1,019,365
Other liabilities 307,366 233,862
Owners' equity 1,031,616 796,870
---------- ----------
Total liabilities and equity $2,456,301 2,050,097
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Operations
Revenue $ 494,304 267,669 216,445
Operating expenses (471,417) (242,615) (215,861)
Depreciation and amortization (155,402) (78,416) (61,482)
--------- --------- ---------
Operating loss (132,515) (53,362) (60,898)
Interest expense (116,172) (73,633) (28,953)
Other, net 26,020 12,146 (12,819)
--------- --------- ---------
Net loss $(222,667) $(114,849) (102,670)
========= ========= =========
</TABLE>
(13) Investments in Other Affiliates
The TCI Ventures Group's affiliates other than the PCS Ventures,
Cablevision, Telewest 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, 1997, the U.S. dollar
equivalent of the amounts borrowed pursuant to the Guaranteed
Obligations aggregated $26 million.
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 is, as such, liable, as a matter of partnership law
for all debts (other than non-recourse debts) of that partnership to
the extent liabilities of that partnership were to exceed its assets.
(continued)
II-283
<PAGE> 386
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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,
----------------------
1997 1996
--------- --------
amounts in thousands
<S> <C> <C>
Flextech (a) $261,453 --
Liberty/TINTA LLC ("Liberty/TINTA")(b) 127,574 63,227
MultiThematiques S.A. ("MultiThematiques")
(c) 68,335 84,007
Jupiter Telecommunications
Co., Ltd. ("Jupiter") (d) 49,197 47,251
United International Investments (e) 26,966 25,598
Bresnan International Partners
(Poland), L.P. ("BIP Poland")(f) 26,110 27,951
Bresnan International Partners (Chile), L.P.
("BIP Chile")(g) 22,863 34,408
Jupiter Programming Co., Ltd. ("JPC") (h) 15,582 2,830
Flextech Affiliates (i) -- 129,563
Other 33,838 59,764
-------- --------
$631,918 474,599
======== ========
</TABLE>
(a) Flextech
TINTA owned, at December 31, 1997, 57,889,033 Flextech
ordinary shares ("Flextech Ordinary Shares") representing
36.8% of the issued and outstanding Flextech share capital
and, when combined with a special voting share owned by TINTA,
50% of the aggregate voting interests attributable to such
Flextech share capital. Flextech is engaged in the
distribution and production of programming for multi-channel
video distribution systems in the UK and other parts of
Europe.
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."
(continued)
II-284
<PAGE> 387
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 certain contingent obligations of TINTA to
purchase Flextech Non-Preference Shares and/or Flextech
Ordinary Shares of TINTA from subsidiaries of U S WEST and
Hallmark.
In January 1997, TINTA 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
TINTA's ownership interest in Flextech to 35.9% and the
issuance to TINTA by Flextech of a special voting share (the
"Special Voting Share"). The Special Voting Share when
combined with TINTA's other share capital in Flextech, allows
TINTA to cast 50% of the votes on most matters brought to the
shareholders of Flextech for vote. 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 TINTA outside a specified affiliated group. In light
of TINTA's decreased voting interest in Flextech, TINTA,
effective January 1, 1997, ceased to consolidate Flextech and
began to account for Flextech using the equity method of
accounting.
In connection with the April 1997 formation of the two BBC
Joint Ventures, 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 TINTA through the issuance of
34,954,713 new Flextech Ordinary Shares, valued at (pound)7.20
($11.89) per share for U.S. financial reporting purposes. One
joint venture with BBC Worldwide (the "Principal Joint
Venture") will operate and launch a number of new subscription
television channels for distribution in the UK and Ireland.
Flextech and BBC Worldwide each have a 50% interest in this
venture. The other joint venture (the "Second Joint Venture")
acquired 65% of the share capital of UKGL from Flextech, 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.
Flextech's outstanding Flextech Non-Preference Shares had been
issued in connection with previous acquisition transactions by
Flextech due to TINTA'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.
(continued)
II-285
<PAGE> 388
"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 the Principal Joint Venture. Flextech has also
agreed to make available to the Second Joint Venture, if
required, funding of up to (pound)10 million ($16.5 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 TINTA
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 ($36.3
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 ($145.3
million) and subject to certain restrictions, a standby credit
facility of (pound)30 million ($49.5 million).
If BBC Worldwide requires TINTA to perform Flextech's funding
obligations pursuant to the Standby Commitment, then TINTA
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 TINTA. Flextech will pay
commitment and standby fees to TINTA for its undertaking under
the Standby Commitment. If Flextech repays to TINTA all loans
it makes to the Principal Joint Venture (plus interest at
TINTA's marginal cost of funds plus 2% per annum) within 180
days after TINTA first becomes obligated to perform Flextech's
financial obligations, it may reacquire its interest in the
Principal Joint Venture for (pound)1.00. TINTA 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 TINTA 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 TINTA at any
time after December 31, 2011.
As a result of the issuance of shares by Flextech in
connection with Flextech's acquisition of all of the share
capital of UKLL and UKGL which Flextech did not already own,
and the associated dilution of TINTA's ownership interest in
Flextech, TINTA recorded a $151.6 million increase to the
carrying value of its investment in Flextech, a $98.5 million
increase to stockholders' equity and a $53.1 million increase
to its deferred income tax liability. No gain was recognized
in the statement of operations due primarily to TINTA's
contingent obligations under the Standby Commitment.
(continued)
II-286
<PAGE> 389
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On July 7, 1997, TINTA purchased from certain officers of
Flextech 748,435 Flextech Ordinary Shares for a per share
price of (pound)6.225 ($10.29 at the applicable exchange
rate). In addition, on September 29, 1997, TINTA purchased
800,000 Flextech Ordinary Shares for a per share price of
(pound)6.05 ($9.76 at the applicable exchange rate). As a
result of such purchases, TINTA's ownership interest in the
issued and outstanding share capital of Flextech increased
from 35.9% to 36.8%.
The $20.3 million excess of TINTA's aggregate historical cost
basis in Flextech over TINTA's proportionate share of
Flextech's net assets is being amortized over an estimated
useful life of 20 years.
Based upon the (pound)5.27 ($8.70) per share closing price of
the Flextech Ordinary Shares on the London Stock Exchange, the
Flextech Ordinary Shares owned by TINTA had an aggregate
market value of (pound)305 million ($503 million) at December
31, 1997.
(b) Liberty/TINTA LLC
Effective April 29, 1996, TINTA, the Liberty Media Group and
News Corporation Limited ("News Corp.") formed a joint venture
including a number of partnerships or other entities under
common ownership, ("Fox Sports International"), 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
Fox Sports International with the remaining 50% owned by
Liberty/TINTA LLC, a limited liability company owned in equal
parts by subsidiaries of TINTA and the Liberty Media Group.
TINTA contributed to Liberty/TINTA its 35% equity interest in
Torneos y Competencias S.A. ("Torneos"), an Argentinean sports
programming production company, and Liberty Media Group
contributed to Liberty/TINTA its interests in Latin American
and Australian Sports programming services and its rights
under various television sports programming agreements.
Liberty/TINTA contributed the non-cash assets contributed to
it by TINTA and the Liberty Media Group to Fox Sports
International. News Corp. contributed various international
sports rights and certain trademark rights in exchange for its
50% interest in Fox Sports International. TINTA's share of
losses of Torneos prior to its contribution to Liberty/TINTA
have been included with Liberty/TINTA in the table below. The
formation of Liberty/TINTA was recorded at carryover basis and
no gain was recognized. During the third quarter of 1997, Fox
Sports International distributed (i) its 35% interest in
Torneos to Liberty/TINTA and (ii) certain Australian sports
rights to News Corp. In addition, as of December 31, 1997,
TINTA had made cash contributions to Torneos on the behalf of
Liberty/TINTA of $48 million and purchased a 5% interest in
Torneos for $12 million. It is anticipated that Liberty Media
Group's portion of such cash contributions to Torneos will be
repaid to TINTA in cash or other economic consideration to be
determined at some future date.
(continued)
II-287
<PAGE> 390
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The $43.1 million excess of the TCI Ventures Group's aggregate
historical cost basis in Liberty/TINTA over the TCI Ventures
Group's 50% proportionate share of Liberty/TINTA's net assets
is being amortized over an estimated useful life of 20 years.
(c) MultiThematiques
On December 13, 1995, TINTA invested in MultiThematiques, a
European programming company that is one-third-owned by each
of TINTA and two French media companies, CANAL + S.A. ("Canal
+") and Havas Images ("Havas") (formerly Generale d'Images
S.A.). On December 13, 1995, (i) TINTA contributed to
MultiThematiques FF123.1 million ($24.7 million at the
applicable exchange rate), (ii) Canal + and Havas 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, TINTA contributed
FF105.0 million ($20.4 million at the applicable exchange
rate), FF100.0 million ($19.5 million at the applicable
exchange rate) and FF164.0 million ($30.3 million at the
applicable exchange rate) on December 13, 1996, February 13,
1997 and December 13, 1997, respectively, to MultiThematiques.
TINTA's obligation to make the above-described additional FF
369.1 million in contributions was viewed as additional
consideration to be paid by TINTA 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 such contributions was reflected as a
liability (the "MultiThematiques Obligation") in the
accompanying combined balance sheet at December 31, 1996.
During the years ended December 31, 1997 and 1996 and from
December 13, 1995 through December 31, 1995, TINTA experienced
foreign currency transaction gains (losses) of $991,000, $3.3
million and $(968,000), respectively, with respect to the
MultiThematiques Obligation. The $58.6 million excess of
TINTA's investment in MultiThematiques over TINTA'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.
TINTA, Canal + and Havas 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.
(continued)
II-288
<PAGE> 391
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(d) Jupiter
On January 18, 1995, TINTA 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. TINTA
and Sumitomo own 40% and 60%, respectively of Jupiter. The
functional currency of Jupiter is the Japanese yen. Through
December 31, 1997, TINTA had made aggregate contributions to
Jupiter of (Y) 11.1 billion ($101.2 million at the applicable
exchange rates).
The TCI Ventures Group estimates that Jupiter will require
additional funding for the acquisition of additional
franchises and the development of its network, which
additional funding may be significant. The TCI Ventures Group
anticipates that the additional funding will be obtained
through a combination of capital contributions by TINTA and
Sumitomo, on a pro rata basis, and to the extent available on
acceptable terms, debt financing by Jupiter.
(e) UII
UII is a general partnership that was formed by TCI and United
and Philips Communications B.V. ("UPC") to acquire TCI's
interest in Tevel Israel International Communications Ltd.
("Tevel"), an Israeli multi-channel television company, and
UPC's interests in Melita Cable TV Limited ("Melita"), a cable
television system operator in the republic of Malta. In
addition, UII has an ownership interest in Princes Holding
Limited ("PHL") a multi-channel television concern in Ireland.
The functional currency of Melita, Tevel and PHL are the
applicable local currencies in Malta (lira), Israel (shekel)
and Ireland (punt), respectively.
At December 31, 1997, UII owned approximately 50.0%, 46.6% and
45.0% of Melita, Tevel and PHL, respectively. Through UII,
TINTA owned 50.0%, 50.0% and 55.6% of the foregoing Melita,
Tevel and PHL ownership interests.
The $13.1 million excess of TINTA's aggregate historical cost
basis in UII over TINTA's proportionate share of UII's net
assets is being amortized over an estimated useful life of 20
years.
(continued)
II-289
<PAGE> 392
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(f) BIP Poland
As of December 31, 1997, TINTA has general and limited
partnership interests in BIP Poland of 0.5% and 43.45%,
respectively. Prior to December 31, 1996, TINTA had general
and limited partnership interests in BIP Poland of 0.5% and
79.5%, respectively. BCI Poland, Inc. ("BCI Poland"), an
entity in which the TCI Ventures Group has no ownership
interest, has a 20% general partnership interest in BIP
Poland. BCI Poland is the managing general partner of BIP
Poland. Due to the veto powers of BCI Poland, the TCI Ventures
Group accounts for its interest in BIP Poland using the equity
method of accounting. Through its acquired operating
subsidiaries and affiliates, BIP Poland is engaged in the
cable business in Poland. The functional currency of BIP
Poland is the U.S. dollar.
TINTA loaned funds to BIP Poland pursuant to a 12%
subordinated credit note (the "Poland Subordinated Credit
Note") due on December 31, 2004. On December 31, 1996,
pursuant to an amended and restated agreement of limited
partnership of BIP Poland, (i) TINTA converted the principal
balance of the Poland Subordinated Credit Note ($23.8 million)
to equity and made an additional equity contribution of $10
million and (ii) BCI Poland contributed $18.5 million to BIP
Poland, thereby reducing TINTA's ownership percentage from 80%
to 43.95%. The amended and restated agreement of limited
partnership also provides that each partner shall earn a
return of 15% per annum on the average of such partner's
Unreturned Capital (as defined). Through December 31, 1997,
TINTA's Unreturned Capital in BIP Poland was $34.8 million.
(g) BIP Chile
TINTA owns general and limited partnership interests in BIP
Chile of 0.5% and 79.5%, respectively. BCI Chile, Inc. ("BCI
Chile"), an entity in which the TCI Ventures Group has no
ownership interest, owns a 20% general partnership interest in
BIP Chile. BCI Chile is the managing partner of BIP Chile. BIP
Chile has an indirect 50% ownership interest in Cordillera
Comunicaciones Limitada ("Cordillera"). Due to the veto powers
of BCI Chile, the TCI Ventures Group accounts for its
investment in BIP Chile using the equity method of accounting.
The functional currency of BIP Chile is the U.S. dollar, while
the functional currency of Cordillera is the Chilean peso.
(continued)
II-290
<PAGE> 393
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 certain definitive agreements (the "Chile Restructuring
Agreements") that provided for, among other matters, the
contribution of all the cable customers within each party's
cable systems to a new Chilean company called
Metropolis-Intercom S.A. ("Metropolis-Intercom"). Cordillera
owns a 60% interest in Metropolis-Intercom and CTC, Comercial
Canelo S.A. and Empresa El Mercurio S.A.P. own jointly a
combined 40% interest. The Chile Restructuring Agreements also
provided that all of the cable distribution assets excluding
the headends (the "Acquired Distribution Assets") of
Cordillera be sold to CTC. In June 1996, the parties finalized
the transactions contemplated by the Chile Restructuring
Agreements and the Acquired Distribution Assets were sold to
CTC for cash proceeds of approximately $120 million.
Approximately $30 million of such cash proceeds (of which $17
million was received in 1996 and $13 million was received in
1997) was used to reduce the amounts owed by BIP Chile to
TINTA pursuant to a subordinated loan agreement, as described
below.
TINTA has loaned funds to BIP Chile pursuant to a 12%
subordinated credit note (the "Chile Subordinated Credit
Note") due December 31, 2004. The outstanding principal
pursuant to the Chile Subordinated Credit Note of $60.8
million and $61.8 million was included in TINTA's investment
in BIP Chile at December 31, 1997 and 1996, respectively.
As there is no obligation on the part of BCI Chile to
proportionately fund losses in excess of its investment, the
TCI Ventures Group recognizes 100% of BIP Chile's net losses
to the extent that such losses are in excess of BCI Chile's
investment in BIP Chile. Interest income on the Chile
Subordinated Credit Note is eliminated against the
corresponding interest expense that is included in the TCI
Ventures Group's share of BIP Chile's net losses.
(h) JPC
In February 1996, TINTA and Sumitomo formed a joint venture to
create Japan's first multi-channel programming company. The
new company, JPC, is owned equally (50/50) by TINTA and
Sumitomo. As of December 31, 1997, TINTA has made
contributions to JPC of (Y)3.9 billion ($33.3 million using
the applicable exchange rate). Additionally, during 1996,
TINTA and Sumitomo contributed their respective 18% and 82%
ownership interests in the Cable Soft Network to JPC. TINTA
made an equalizing payment in the amount of (Y)444 million
($4.0 million using the applicable exchange rate) in
connection with the above-described contribution of the Cable
Soft Network.
(i) Flextech Affiliates
Due to the January 1, 1997 deconsolidation of Flextech
described in (a) above, Flextech's equity method affiliates
(the "Flextech Affiliates") are no longer included with the
Other Affiliates, but are included with Flextech.
(continued)
II-291
<PAGE> 394
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Other
In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures 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 (before deducting deferred income tax expense of
approximately $12 million) 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. As a result of this
transaction, the TCI Ventures Group holds an approximate 16% ownership
interest in Antec. The TCI Ventures Group accounts for its investment
in Antec using the cost method.
On September 26, 1997, TINTA sold its indirect 13% interest in Sky
Network Television New Zealand, Ltd. ("Sky") for cash proceeds of $53.0
million. TINTA owned its interest in Sky through a 25.5% ownership
interest in HKP Partners of New Zealand. TINTA's basis in its interest
in Sky prior to the sale had been taken to a negative $5.4 million and,
as a result, TINTA recognized a gain of $58.4 million on such sale.
On December 31, 1997, TINTA surrendered all of its shares of Asia
Business News (Singapore) PTE Ltd. ("ABN") in exchange for a $25
million unsecured note receivable from ABN (the "ABN Note"). The ABN
Note is due on December 31, 2012. Interest accrues on the ABN Note
beginning December 31, 1999 at the rate of 7% per annum. Due to
uncertainty regarding collection of the ABN Note, TINTA recorded the
ABN Note at an amount equal to its investment in ABN as of the date of
conversion. No gain was recognized on the above transaction.
The following table reflects the TCI Ventures Group's share of losses
of the Other Affiliates:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Jupiter $ (23,371) (14,415) (7,137)
JPC (17,995) (5,759) --
Liberty/TINTA (16,153) (14,895) (950)
Flextech (15,678) -- --
MultiThematiques (12,383) (3,176) (282)
ABN (12,314) (9,427) (7,054)
BIP Chile (4,087) (5,395) (5,939)
BIP Poland (3,383) (4,185) (1,270)
Flextech Affiliates -- (2,726) (13,510)
Other (5,462) (14,963) (24,809)
--------- --------- ---------
$(110,826) (74,941) (60,951)
========= ========= =========
</TABLE>
(continued)
II-292
<PAGE> 395
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized combined financial information of the Other Affiliates by
geographic region for the periods in which the TCI Ventures Group used
the equity method to account for its investments in the Other
Affiliates are as follows:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------
Latin
America
Asia and and The United
Europe (a) Australia Caribbean (b) States (c) Total
---------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
amounts in thousands
Combined Financial Position
Property and equipment,
net $ 55,580 193,880 -- 49,035 298,495
Intangible assets, net 248,722 29,340 670 -- 278,732
Other assets 750,874 159,461 92,433 10,541 1,013,309
---------- ---------- ---------- ---------- ----------
Total assets $1,055,176 382,681 93,103 59,576 1,590,536
========== ========== ========== ========== ==========
Debt $ 183,530 173,285 60,746 20,926 438,487
Other liabilities 157,506 75,685 3,833 26,559 263,583
Owners' equity (deficit) 714,140 133,711 28,524 12,091 888,466
---------- ---------- ---------- ---------- ----------
Total liabilities and
equity $1,055,176 382,681 93,103 59,576 1,590,536
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------
Latin
America
Asia and and The United
Europe (a) Australia Caribbean (b) States (c) Total
---------- --------- ------------- ---------- ----------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Combined Financial Position
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>
(continued)
II-293
<PAGE> 396
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
<TABLE>
<CAPTION>
Year ended December 31, 1997
-------------------------------------------------------------------
Latin
America
Asia and and The United
Europe (a) Australia Caribbean States (b) Total
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
amounts in thousands
Combined Operations
Revenue $ 279,755 269,349 4,660 12,742 566,506
Operating expenses (329,295) (308,507) (3,091) (14,811) (655,704)
Depreciation and amortization (21,153) (18,335) (1,361) (5,529) (46,378)
--------- --------- --------- --------- ---------
Operating income (loss) (70,693) (57,493) 208 (7,598) (135,576)
Interest income (expense), net 5,326 (13,700) (6,481) (2,332) (17,187)
Other, net (3,650) (26,171) (33,122) (5,342) (68,285)
--------- --------- --------- --------- ---------
Net income (loss) $ (69,017) (97,364) (39,395) (15,272) (221,048)
========= ========= ========= ========= =========
</TABLE>
(continued)
II-294
<PAGE> 397
"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 (a) Australia Caribbean (c) States (b) Total
---------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
amounts in thousands
Combined Operations
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 (a) Australia Caribbean (c) States (b) Total
---------- --------- ------------- ---------- ---------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Combined Operations
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>
------------------
(a) The summarized combined financial position at December 31,
1997 includes the financial position of Flextech. The
summarized combined operations for the year ended December 31,
1997 includes the results of operations of Flextech but
excludes the results of operations of the Flextech Affiliates.
The summarized combined financial position at December 31,
1996 includes the financial position of the Flextech
Affiliates. The summarized combined operations for the years
ended December 31, 1996 and 1995 include the results of the
Flextech Affiliates. See related discussion above.
(b) The summarized combined financial position at December 31,
1996 includes the financial position of TSX. The summarized
operating results of TSX are included in the combined
operations through its February 1997 combination with Antec.
See related discussion above.
(c) The summarized operating results of Torneos are included in
the combined operations through April 29, 1996, the date of
TINTA's contribution of its 35% ownership interest in Torneos
to Fox Sports International.
(continued)
II-295
<PAGE> 398
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(14) Debt
The components of debt are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
-------- --------
amounts in thousands
<S> <C> <C>
Debentures (a) $345,000 345,000
Puerto Rico Subsidiary debt (b) 45,042 --
Cablevision debt (c) -- 152,115
Other 18,532 29,139
-------- --------
$408,574 526,254
======== ========
</TABLE>
(a) On February 8, 1996, TINTA 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 TINTA Series A
common stock at a price of $27.30 per share of TINTA 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 TINTA in whole or in part, at any time on or after
February 15, 1999. Pending its use by TINTA, the net proceeds
from the sale of the Debentures were loaned to TCI pursuant to
an unsecured promissory note. See note 15.
(b) TINTA's Puerto Rico subsidiary (the "Puerto Rico Subsidiary")
entered into a reducing revolving bank facility which is
unsecured and provides for maximum borrowing commitments of
$100 million (the "Puerto Rico Bank Facility"). 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 through March 31, 2006. At December 31,
1997 borrowings under the Puerto Rico Bank Facility totaled
$45.0 million. Borrowings under the Puerto Rico Bank
Facility bear interest at variable rates (6.5% at December
31, 1997). 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 TINTA 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)
II-296
<PAGE> 399
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) Effective October 1, 1997, TINTA ceased to consolidate
Cablevision and began to account for Cablevision under the
equity method of accounting. Accordingly, Cablevision's debt
is no longer included in the combined financial position of
the TCI Ventures Group. See note 5.
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):
1998 $ 18,542
1999 8
2000 8
2001 8
2002 8
With the exception of the Debentures, which had a fair value of $295
million at December 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 December 31, 1997.
(15) Combined Equity
General
Holders of TCI Ventures Group Series A Stock each have one vote per
share and the holders of TCI Ventures Group Series B Stock each have
ten votes per share. Each share of TCI Ventures Group Series B Stock is
convertible, at the option of the holder, into one share of TCI
Ventures Group Series A 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 Group Stock.
At December 31, 1997, 36,237,000 shares of TCI Ventures Group Series A
Stock were reserved for issuance upon exchange of certain outstanding
convertible notes issued by a subsidiary of TCI and upon exercise of
certain stock options.
(continued)
II-297
<PAGE> 400
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On June 16, 1997, TCI exchanged (the "Exchange") 30,545,864 shares of
TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness
Estate"), the late founder and former Chairman of the Board of TCI.
Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
shares of TCI Group Series A Stock received in the Exchange, together
with approximately 1.5 million shares of TCI Group Series A Stock that
the Magness Estate previously owned (collectively, the "Option
Shares"), to two investment banking firms (the "Investment Bankers")
for approximately $530 million (the "Sale Price"). Subsequent to the
Sale, TCI entered into an agreement with the Investment Bankers whereby
TCI has the option, but not the obligation, to purchase the Option
Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, TCI and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of
the Option Shares in an account at the Investment Bankers. If the
market value of the Option Shares exceeds the Investment Bankers' cost,
Option Shares with a fair value equal to the difference between the
market value and cost will be segregated from the other Option Shares.
If the market value of the Option Shares is less than the Investment
Bankers' cost, TCI, at its option, will settle such difference with
shares of TCI Group Series A Stock or, subject to certain conditions,
with cash or letters of credit. In addition, TCI is required to pay the
Investment Bankers a quarterly fee equal to the LIBOR plus 1% on the
Sale Price, as adjusted for payments made by TCI pursuant to any
quarterly settlement with the Investment Bankers. Due to TCI's ability
to settle quarterly price fluctuations and fees with shares of TCI
Group Series A Stock and TCI Ventures Group Series A Stock, TCI records
all amounts received or paid under this arrangement as increases or
decreases, respectively, to equity. During the fourth quarter of 1997,
TCI repurchased 4,000,000 shares of TCI Group Series A Stock from one
of the Investment Bankers for an aggregate cash purchase price of $66
million. Additionally, as a result of the Exchange Offers and certain
open market transactions, the Investment Bankers disposed of 4,210,308
shares of TCI Group Series A Stock and acquired 23,407,118 shares (as
adjusted for the Ventures Stock Dividend) of TCI Ventures Group Series
A Stock during the last half of 1997 such that the Option Shares were
comprised of 16,402,082 shares of TCI Group Series A Stock and
23,407,118 shares (as adjusted for the Ventures Stock Dividend) of TCI
Ventures Series A Stock at December 31, 1997. At December 31, 1997, the
market value of the Option Shares exceeded the Investment Bankers' cost
by $325 million. In connection with the Exchange and Sale, Dr. Malone
agreed to forgo the exercise of certain options rights, and in
consideration, TCI granted to Dr. Malone the right (the "Malone Right")
to acquire 30,545,864 shares of TCI Group Series B Stock.
On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness
Estate.
(continued)
II-298
<PAGE> 401
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A
Stock and 11,666,506 shares (as adjusted for the Ventures Stock
Dividend) of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares. TCI then issued to the Magness Estate
10,017,145 shares of TCI Group Series B Stock and 12,034,298 shares (as
adjusted for the Ventures Stock Dividend) of TCI Ventures Group Series
B Stock.
On February 9, 1998, in connection with the Magness Settlement, TCI,
entered into a call agreement (the "Malone Call Agreement") with Dr.
John C. Malone, TCI's Chairman and Chief Executive Office, and Dr.
Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones grant to TCI the right to acquire the Malones' high-voting
shares, currently consisting of an aggregate of approximately 60
million shares (as adjusted for stock dividends) of Series B Stock (the
"High-Voting Shares"), upon Dr. Malone's death or upon a contemplated
sale of the High-Voting Shares (other than a minimal amount) to third
persons. In either such event, TCI has the right to acquire the shares
at a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones
also agreed that if TCI were ever to be sold to another entity, then
the maximum premium that the Malones would receive on their High-Voting
Shares would be no greater than a ten percent premium over the price
paid for the relevant shares of Series A Stock. TCI paid $150 million
to the Malones for agreeing to the terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for
entering into the Magness Call Agreement. Additionally, on February 9,
1998, the Magness Family entered into a shareholders' agreement (the
"Shareholders' Agreement") with the Malones and TCI under which (i) the
Magness Family and the Malones agree to consult with each other in
connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree
on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for TCI's Board of Directors and Dr.
Malone has agreed to vote his High Voting Shares for such nominee and
(iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in
favor of the Malones. In addition, the Malone Right granted by TCI to
Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock has
been reduced to an option to acquire 14,511,570 shares of TCI Group
Series B Stock. Pursuant to the terms of the Shareholders' Agreement,
the Magness Family has the right to participate in the reduced Malone
Right on a proportionate basis with respect to 12,406,238 shares of the
14,511,570 shares subject to the Malone Right.
(continued)
II-299
<PAGE> 402
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") will be
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to the 1998 Liberty Stock Dividend and the
Ventures Group Stock Dividend) that are subject to the Malone Call
Agreement and the Magness Call Agreement. TCI Venture's share of the
Call Payments will be $76 million.
During the fourth quarter of 1997, TCI entered into a Total Return
Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
Equity Swap Facility, TCI has the right to direct the counterparty (the
"Counterparty") to use the Equity Swap Facility to purchase shares
("Equity Swap Shares") of TCI Group Series A Stock and TCI Ventures
Group Series A Stock with an aggregate purchase price of up to $300
million. TCI has the right, but not the obligation, to purchase Equity
Swap Shares through the September 30, 2000 termination date of the
Equity Swap Facility. During such period, TCI is to settle periodically
any increase or decrease in the market value of the Equity Swap Shares.
If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from
the other Equity Swap Shares. If the market value of Equity Swap Shares
is less than the Counterparty's cost, TCI, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, the Company is required to periodically
pay the Counterparty a fee equal to a LIBOR-based rate on the
Counterparty's cost to acquire the Equity Swap Shares. Due to TCI's
ability to issue shares to settle periodic price fluctuation and fees
under the Equity Swap Facility, TCI records all amounts received or
paid under this arrangement as increases or decreases, respectively, to
equity. As of December 31, 1997, the Equity Swap Facility has acquired
345,000 shares of TCI Group Series A Stock and 380,000 shares of TCI
Ventures Group Series A Stock at an aggregate cost that was
approximately $3 million less than the fair value of such Equity Swap
Shares at December 31, 1997.
Transactions with Related Parties
The components of due to (from) related parties are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
-------------- ------------
1997 1996
--------- ---------
amounts in thousands
<S> <C> <C>
TCI Note Receivable (a) $ (88,707) (176,501)
Intercompany account (b) 110,212 --
--------- ---------
$ 21,505 (176,501)
========= =========
</TABLE>
(continued)
II-300
<PAGE> 403
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
--------------------
(a) Amounts outstanding under the TCI Note Receivable between the
TCI Ventures Group and TCI bear interest at variable rates
based on TCI's weighted average cost of bank borrowings of
similar maturities (6.7% at December 31, 1997). Principal and
interest is due and payable as mutually agreed from time to
time by TCI and the TCI Ventures Group. During the years ended
December 31, 1997 and 1996, interest income related to the TCI
Note Receivable aggregated $5.8 million and $14.0 million,
respectively.
(b) The non-interest bearing intercompany account includes certain
income tax and stock compensation allocations that are to be
settled at some future date. All other amounts included in the
intercompany account are to be settled within thirty days
following notification. In connection with the Exchange
Offers, the September 10, 1997 balance of the intercompany
account between the TCI Group and the TCI Ventures Group was
reclassified to "Combined Equity."
The TCI Ventures Group is expected to require additional advances from
the TCI Group for some period of time. To satisfy this need, the TCI
Group has provided a revolving loan facility (the "Revolving Credit
Facility") to the TCI Ventures Group for a five-year period commencing
on September 10, 1997. Such facility permits aggregate borrowings at
any one time outstanding of up to $500 million (subject to reduction as
provided below), which borrowings 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 is payable by the TCI Ventures Group to the
TCI Group on a quarterly basis. Such credit facility fees aggregated
$600,000 during the year ended December 31, 1997. 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 Sprint PCS Partnerships
subsequent to the TCI Ventures Exchange is less than $300 million. No
borrowings were outstanding pursuant to the Revolving Credit Facility
at December 31, 1997. In March 1998, TCI Ventures Group, LLC entered
into a bank credit facility with a term of one year which provides for
aggregate borrowings of up to $400 million.
During 1996, TCI Group transferred, subject to regulatory approval,
certain distribution equipment to a subsidiary of TINTA in exchange for
a 15 million pound ($23 million using the applicable exchange rate)
principal amount promissory note (the "TVG LLC Promissory Note"). The
TVG LLC Promissory Note was contributed by TCI Group to TVG LLC in
connection with the September 10, 1997 consummation of the Exchange
Offers. The distribution equipment was subsequently leased back to TCI
Group over a five year term with semi-annual payments of $2 million,
plus expenses. Effective October 1, 1997, such distribution equipment
was transferred back to TCI Group and the related lease and the TVG LLC
Promissory Note were canceled. During the years ended December 31, 1997
and 1996, (i) the U.S. dollar equivalent of interest expense with
respect to the TVG LLC Promissory Note was $1 million and less than $1
million, respectively and (ii) the U.S. dollar equivalent of the lease
revenue under the above-described lease agreement aggregated $3 million
and $1 million, respectively.
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,
1997, 1996 and 1995, TCI Ventures Group was allocated $10,265,000,
$7,918,000 and $4,120,000, respectively, in corporate general and
administrative costs by the TCI Group.
(continued)
II-301
<PAGE> 404
"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. For
example, @Home has entered into arrangements for the distribution of
its @Home service with TCI Group and other 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.
In addition to the foregoing entities, WTCI and NDTC, each of which is
a wholly-owned subsidiary of TCI, 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.
During each of the years ended December 31, 1997 and 1996, programming
revenue earned by UVSG from TCI Group was $8.1 million. Additionally,
TCI Group purchased system integration services from UVSG totaling $1.2
million and $3.1 million during 1997 and 1996, respectively. UVSG
purchases programming from Liberty Media Group and certain affiliates.
These purchases totaled $36.8 million and $34.1 million for the years
ended December 31, 1997 and 1996, respectively, and are included in
operating costs.
Amounts included in revenue for services provided to the other Groups
by WTCI and NDTC are $38.6 million, $27.1 million and $20.9 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
DigiVentures, LLC ("DigiVentures"), a member of the TCI Ventures Group,
leases certain digital boxes under a capital lease. During 1997, such
digital boxes were subleased to TCI Group under an operating lease. TCI
Ventures Group recognized revenue of $15.4 million from TCI Group
during the year ending December 31, 1997 in connection with such lease.
In January 1998, the TCI Ventures Group's interest in DigiVentures was
transfered to TCI Group. In connection therewith, TCI Group assumed
DigiVentures' capital lease obligations totaling $176 million and paid
$7 million in cash to the TCI Ventures Group. Such transfer will be
accounted for at historical cost due to the related party nature of the
transaction.
(continued)
II-302
<PAGE> 405
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
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 $6.0 million, $4.3 million and $3.4 million
during the years ended December 31, 1997, 1996 and 1995, respectively.
Through December 31, 1995, the Puerto Rico Subsidiary also had
management arrangements with certain subsidiaries of the TCI Group
whereby such subsidiaries' management provided administrative services.
As compensation for these services, the Puerto Rico Subsidiary paid a
monthly fee calculated on a per-subscriber basis. Charges for such
services were $680,000 during the year ended December 31, 1995. The
above-described programming and management fee charges are included in
operating costs in the accompanying combined statements of operations.
During the third quarter of 1997, TCI Ventures Group sold certain
assets (the "SUMMITrak Assets") to CSG Systems, Inc. ("CSG") for cash
consideration of $106 million, plus five-year warrants to purchase up
to 1.5 million shares of CSG common stock at $24 per share (the "CSG
Warrants") and $12 million in cash, once certain numbers of TCI
affiliated customers are being processed on a CSG billing system. Under
certain circumstances, TCI may also be eligible to receive certain
other contingent royalties. In connection with the sale of the
SUMMITrak Assets, TCI Group committed to purchase billing services from
CSG through 2012. In light of such commitment, TCI Ventures Group has
reflected the $47 million excess (before deducting deferred income
taxes of $17 million) of the cash received over the book value of the
SUMMITrak Assets as an increase to "Combined Equity." TCI Group, in
turn, recorded an offsetting decrease to "Combined Equity" and a $47
million deferred gain to be amortized over the expected 15-year life of
the CSG billing services commitment.
During the fourth quarter of 1997, the TCI Ventures Group's remaining
assets in TCI SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were
transfered to the TCI Group in exchange for a $19 million reduction of
the intercompany amount owed by TCI Ventures Group to TCI Group. Such
transfer was accounted for at historical cost due to the related party
nature of the transaction.
Certain subsidiaries of the 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 the TCI Group whereby the TCI Ventures Group will
indemnify the TCI Group for any loss, claim or liability that the TCI
Group may incur by reason of certain guarantees and credit enhancements
made by the TCI Group on the TCI Ventures Group's behalf.
(continued)
II-303
<PAGE> 406
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(16) Income Taxes
The TCI Ventures Group and its 80%-or-more-owned domestic businesses
which have been attributed to the TCI Ventures Group (the "TCI Ventures
Tax Group") 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
Tax Group ("intercompany tax allocation") and any income taxes of
attributed entities 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.
A tax sharing agreement (the "Old Tax Sharing Agreement") among the
TCI, the TCI Ventures Group and certain subsidiaries of TCI was
implemented effective July 1, 1995. The Old Tax Sharing Agreement
formalized 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. Under the Old Tax Sharing Agreement, the TCI Ventures Group
was responsible to TCI for its share of consolidated income tax
liabilities (computed as if TCI were not liable for the alternative
minimum tax) determined in accordance with the Old Tax Sharing
Agreement, and TCI was responsible to the TCI Ventures Group to the
extent that the income tax attributes generated by the TCI Ventures Tax
Group were utilized by TCI to reduce its consolidated income tax
liabilities (computed as if TCI were not liable for the alternative
minimum tax). The tax liabilities and benefits of such entities so
determined are charged or credited to an intercompany account between
TCI and the TCI Ventures Group. Such intercompany account is required
to be settled only upon the date that an entity ceases to be a member
of TCI's consolidated group for federal income tax purposes. Under the
Old Tax Sharing Agreement, TCI retains the burden of any alternative
minimum tax and has the right to receive the tax benefits from any
alternative minimum tax credit attributable to any tax period beginning
on or after July 1, 1995 and ending on or before October 1, 1997.
(continued)
II-304
<PAGE> 407
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by the TCI Group,
the Liberty Media Group and the TCI Ventures Group. Effective for
periods on and after the Effective Date, federal income taxes will be
computed based upon the type of tax paid by TCI (on a regular tax or
alternative minimum tax basis) on a separate basis for each Group.
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 TCI based on its allocable share of
TCI's consolidated federal income tax liabilities (on a regular tax or
alternative minimum tax basis, as applicable) attributable to such
Group and actually used by TCI in reducing its consolidated federal
income tax liability. Tax attributes 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 TCI pays alternative
minimum tax, the federal income tax benefits of each Group, computed as
if such Group were subject to regular tax, would be inventoried and
tracked for payment to or payment by each Group in years that TCI
utilizes the alternative minimum tax credit associated with such
taxable period. The Group generating the unutilized tax benefits would
receive a cash payment only if, and when, the unutilized taxable losses
of the other Group are actually utilized. If the unutilized taxable
losses expire without ever being utilized, the Group generating the
utilized tax benefits will never receive payment for such benefits.
Pursuant to the New 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
TCI's combined or unitary tax liability is allocated among the Groups
based upon such separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement as amended.
(continued)
II-305
<PAGE> 408
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the creation of the TCI Ventures Group, it was
determined that the net amount of the balance of each TCI Group
intercompany account under the Old Tax Sharing Agreement that is
attributable to entities included in the TCI Ventures Group for the
period beginning July 1, 1995 and ending on September 10, 1997 (the
consummation date of the Exchange Offers) will be reflected as an
adjustment of TCI Ventures Group's combined equity. Tax liabilities and
benefits, as determined under the Old Tax Sharing Agreement, that are
generated by the entities comprising the TCI Ventures Group for the
period beginning on September 10, 1997 and ending on September 30, 1997
will be credited or debited to an intercompany account between the TCI
Group and the TCI Ventures Group in accordance with the Old Tax Sharing
Agreement. The intercompany tax account existing between TCI and TINTA
for the period beginning July 1, 1995 and ending September 30, 1997
will be required to be settled between the TCI Ventures Group and TINTA
if and when TINTA ceases to be a member of TCI's consolidated group for
federal income tax purposes. A tax sharing arrangement between the TCI
Ventures Group and TINTA covering periods subsequent to September 30,
1997 is currently being negotiated. The terms of such arrangement are
not expected to be significantly different than the terms contained in
the New Tax Sharing Agreement.
Income tax benefit (expense) attributable to the TCI Ventures Group's
pre-tax earnings (loss) for the years ended December 31, 1997, 1996 and
1995 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in thousands
<S> <C> <C> <C>
December 31, 1997:
Intergroup tax allocation $ 159,066 -- 159,066
Federal -- 84,862 84,862
State and local (2,065) (13,637) (15,702)
Foreign (9,924) 4,382 (5,542)
--------- --------- ---------
$ 147,077 75,607 222,684
========= ========= =========
December 31, 1996:
Intergroup 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:
Intergroup tax allocation $ 55,941 -- 55,941
Federal -- (27,689) (27,689)
State and local -- (2,715) (2,715)
Foreign (9,081) (14,659) (23,740)
--------- --------- ---------
$ 46,860 (45,063) 1,797
========= ========= =========
</TABLE>
(continued)
II-306
<PAGE> 409
"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) differs from the amounts computed by applying
the U.S. federal income tax rate of 35%, as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Computed "expected" tax benefit
(expense) $ 288,118 129,069 (20,385)
Effect of foreign tax rate differential on
earnings of foreign subsidiary 772 1,051 4,516
Minority interest in earnings
of attributed subsidiaries 39,695 4,657 (8,130)
Increase in valuation allowance (85,820) (23,552) (7,935)
Adjustment to deferred tax assets and
liabilities for enacted change in foreign
income tax rate -- (952) --
Amortization not deductible for tax
purposes (7,835) (6,232) (5,150)
Gain of sale of subsidiary stock 21,000 -- 42,931
Effect of deconsolidations on deferred tax
expenses (11,549) -- --
State taxes, net of federal tax effect (10,206) 1,116 (1,743)
Other, net (11,491) 5,188 (2,307)
--------- --------- ---------
$ 222,684 110,345 1,797
========= ========= =========
</TABLE>
II-307
<PAGE> 410
"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, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
amounts in thousands
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 173,826 98,633
Cost of distribution agreement 70,200 --
Less-valuation allowance (100,931) (62,288)
Investments in affiliates, due principally
to losses of affiliates recognized for
financial statement purposes in excess of
losses recognized for tax purposes -- 35,556
Future deductible amount attributable to
accrued stock appreciation rights and
deferred compensation 29,770 1,622
Future deductible amounts, principally
due to accruals not currently deductible 12,499 14,110
Other -- --
--------- ---------
Net deferred tax assets 185,364 87,633
--------- ---------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (16,621) (91,626)
Franchise costs, not deductible for income tax
purposes (6,285) (188,635)
Foreign currency translation adjustments
included in equity but not recognized for
income tax purposes (3,036) (13,328)
Unrecognized gain on sale of assets -- (14,128)
Investments in affiliates, due principally to
losses of affiliates recognized for tax in
excess of losses recognized for financial
statement purposes (70,440) --
Other (3,245) (222)
--------- ---------
Total gross deferred tax liabilities (99,627) (307,939)
--------- ---------
Net deferred tax asset (liability) $ 85,737 (220,306)
========= =========
</TABLE>
The valuation allowance relates principally to deferred tax assets
arising from @Home for the cost of a distribution agreement and net
operating loss carryforwards. Management considers it more likely than
not that TCI Ventures Group will realize the full amount of its other
net deferred tax assets as a result of certain investments having an
estimated fair value in excess of their related tax basis and the
availability of potential tax planning strategies that management
considers both prudent and feasible.
(continued)
II-308
<PAGE> 411
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At December 31, 1997, the TCI Ventures Group had federal net operating
loss carryforwards for income tax purposes aggregating approximately
$504 million which, if not utilized to reduce taxable income in future
periods, will begin to expire at various dates beginning in the year
2004.
In addition, the TCI Ventures Group has net operating loss
carryforwards of approximately $13 million available in the Puerto Rico
tax jurisdiction. If unused, these net operating loss carryforwards
expire at various dates over the next 7 years.
(17) Commitments and Contingencies
As previously described in note 10, TCI Telephony is obligated to make
cash capital contributions to the Sprint PCS Partnerships.
TINTA 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, TINTA
believes that the aggregate payments pursuant to such obligations could
be significant. If TINTA were to fail to fulfill its obligations under
the guarantee, the beneficiaries have the right to demand an aggregate
payment from TINTA of approximately $46 million. Although TINTA has not
had to perform under such guarantee to date, TINTA cannot be certain
that it will not be required to perform under such guarantee in the
future.
TINTA is contingently obligated under the Standby Commitment and TINTA
and the TCI Ventures Group have other commitments and contingent
obligations with respect to the Other Affiliates. See note 13.
TINTA has formed strategic partnerships with News Corp., Organizacoes
Globo and Group Televisa S.A. to develop and operate a direct-to-home
satellite service for Latin America, Mexico, and various Central and
South American countries (collectively, the "DTH Ventures"). Through
December 31, 1997, TINTA had contributed $24.9 million to the DTH
Ventures. It is anticipated that TINTA could be required to make
additional cash contributions in connection with the DTH Ventures.
The entities attributed to the TCI Ventures Group lease business
offices, have entered into pole rental and transponder lease
agreements, and use certain equipment under lease arrangements. Rental
costs under such arrangements amounted to $60 million, $62 million and
$41 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
(continued)
II-309
<PAGE> 412
"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, 1997 follows:
<TABLE>
<CAPTION>
Years ending December 31: Operating Capital
--------- -------
amounts in thousands
<S> <C> <C>
1998 $ 40,247 $ 71,432
1999 39,947 70,322
2000 30,591 65,328
2001 26,041 59,278
2002 25,443 57,787
Thereafter 65,086 204,680
-------- --------
$227,355 528,827
======== 142,061
Less amounts representing interest --------
Capital lease obligations $386,766
========
</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 1997.
(continued)
II-310
<PAGE> 413
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Ventures Group records stock compensation expense relating to
restricted stock awards, options and/or stock appreciation rights
(collectively, "Awards") granted (i) by TCI to certain TCI employees
and/or directors who are involved with the TCI Ventures Group and (ii)
by TINTA, UVSG, and @Home to employees and/or directors of such
entities. Stock compensation with respect to Awards granted by TCI
includes amounts related to TCI common stock and to common stock of
certain non-public subsidiaries of TCI and is allocated to TCI Ventures
Group based on the Awards held by TCI employees and/or directors who
are involved with TCI Ventures Group. Estimated compensation relating
to stock appreciation rights has been recorded through December 31,
1997 pursuant to APB Opinion No. 25. Such estimate is subject to future
adjustment based upon vesting and market value, and ultimately, on the
final determination of market value when such rights are exercised. Had
TCI Ventures 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.
Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators, including HITS' affiliates, that may be designated
from time to time by NDTC ("Approved Purchasers"), entered into an
agreement (the "Digital Terminal Purchase Agreement") with General
Instrument Corporation (formerly NextLevel Systems, Inc., "GI") to
purchase advanced digital set-top devices. The hardware and software
incorporated into these devices will be designed and manufactured to be
compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's
research and development consortium, in November 1997. NDTC has agreed
that Approved Purchasers will purchase, in the aggregate, a minimum of
6.5 million set-top devices over the next three years at an average
price of $318 per set-top device. GI agreed to provide NDTC and its
Approved Purchasers the most favorable prices, terms and conditions
made available by GI to any customer purchasing advanced digital
set-top devices. In connection with NDTC's purchase commitment, GI
agreed to grant warrants to purchase its common stock proportional to
the number of devices ordered by each organization, which as of the
effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted
basis). It is anticipated that the value associated with such equity
interest would be attributed to TCI Group upon purchase and deployment
of the digital set-top devices.
Also in December 1997, NDTC entered into a memorandum of understanding
(the "GI MOU") with GI which contemplates the sale to GI of certain of
the assets of NDTC's set-top authorization business, the license of
certain related technology to GI, and an additional cash payment in
exchange for approximately 21.4 million shares of stock of GI. In
connection therewith, NDTC would also enter into a service agreement
pursuant to which it will provide certain services to GI's set-top
authorization business. The transaction is subject to the signing of
definitive agreements; accordingly, there can be no assurance that it
will be consummated.
NDTC has the right to terminate the Digital Terminal Purchase Agreement
if, among other reasons, the transactions related to the GI MOU are not
consummated or if GI fails to meet a material milestone designated in
the Digital Terminal Purchase Agreement with respect to the
development, testing and delivery of advanced digital set-top devices.
(continued)
II-311
<PAGE> 414
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During 1997, TCI began an enterprise-wide comprehensive review of its
computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information.
The systems being evaluated include all internal use software and
devices and those systems and devices that manage the distribution of
TCI's, as well as third parties' products. Additionally, TCI has
initiated a program of communications with its significant suppliers,
customers and affiliated companies to determine the readiness of third
parties and the impact on TCI Ventures Group if those third parties
fail to remediate their own year 2000 issues.
Over the past three years, TCI began an effort to convert a
substantial portion of its financial applications to commercial
products, which are anticipated to be year 2000 ready or to outsource
portions of financial applications to third party vendors who are
expected to be year 2000 ready. Notwithstanding such effort, TCI is in
the process of finalizing its assessment of the impact of year 2000.
TCI is utilizing both internal and external resources to identify,
correct or reprogram, and test systems for year 2000 readiness. To
date, TCI has inventoried substantially all of its systems and is
currently evaluating the results of such inventory. Confirmations have
been received from certain primary suppliers indicating that they are
either fully compliant or have plans in place to ensure readiness. As
part of TCI's manual assessment of its year 2000 issue, it is
evaluating the level of validation it will require of third parties to
ensure their year 2000 readiness. TCI's assessment of the impact of
the year 2000 date change should be complete by mid-1998.
Management of TCI has not yet determined the cost associated with its
year 2000 readiness efforts and the related potential impact on TCI
Ventures Group's results of operations. Amounts expended to date have
not been material, although there can be no assurance that costs
ultimately required to be paid to ensure TCI Ventures Group's year 2000
readiness will not have an adverse effect on TCI Ventures Group's
financial position. Additionally, there can be no assurance that the
systems of other companies on which TCI Ventures Group relies will be
converted in time or that any such failure to convert by another
company will not have an adverse effect on TCI Ventures Group's
financial condition or position.
II-312
<PAGE> 415
PART III.
The information required by Part III (Items 10, 11, 12 and 13) has been
incorporated herein by reference to the Company's definitive Proxy Statement
(the "1998 Proxy Statement") to be used in connection with the 1998 Annual
Meeting of Stockholders as set forth below, in accordance with General
Instruction G(3) of Form 10-K.
Item 10. Directors and Executive Officers of the Registrant.
Information relating to directors and executive officers of the Company is
set forth in the sections entitled "Election of Directors Proposal" and
"Concerning Management" in the 1998 Proxy Statement and is incorporated herein
by reference.
Item 11. Executive Compensation.
Information regarding compensation of officers and directors of the Company
is set forth in the section entitled "Executive Compensation" in the 1998 Proxy
Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding ownership of certain of the Company's securities is
set forth in the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the 1998 Proxy Statement and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions with
the Company is set forth in the section entitled "Certain Relationships and
Related Transactions" in the 1998 Proxy Statement and is incorporated herein by
reference.
III-1
<PAGE> 416
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
Included in Part II of this Report:
Tele-Communications, Inc.:
Independent Auditors' Report II-71
Consolidated Balance Sheets,
December 31, 1997 and 1996 II-72 to II-73
Consolidated Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-74 to II-75
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995 II-76 to II-78
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-79
Notes to Consolidated Financial Statements,
December 31, 1997, 1996 and 1995 II-80 to II-152
"TCI Group":
Independent Auditors' Report II-153
Combined Balance Sheets,
December 31, 1997 and 1996 II-154 to II-155
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-156
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-157 to II-159
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-160
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-161 to II-210
</TABLE>
IV-1
<PAGE> 417
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
"Liberty Media Group":
Independent Auditors' Report II-211
Combined Balance Sheets,
December 31, 1997 and 1996 II-212 to II-213
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-214
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-215
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-216
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-217 to II-250
"TCI Ventures Group":
Independent Auditors' Report II-251
Combined Balance Sheets,
December 31, 1997 and 1996 II-252 to II-253
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-254
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-255 to II-256
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-257 to II-258
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-259 to II-312
</TABLE>
IV-2
<PAGE> 418
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed:
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
Independent Auditors' Report IV-16
Schedule I - Condensed Information as to the
Financial Position of the Registrant,
December 31, 1997 and 1996; Condensed Information
as to the Operations and Cash Flows of the
Registrant, Years ended
December 31, 1997, 1996 and 1995 IV-17 to IV-19
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1997, 1996 and 1995 IV-20
(ii) Separate financial statements for Sprint Spectrum
Holding Company, L.P. and Subsidiaries
Consolidated Financial Statements
Independent Auditors' Report IV-21
Consolidated Balance Sheets IV-22
Consolidated Statements of Operations IV-23
Consolidated Statements of Changes in
Partners' Capital IV-24
Consolidated Statements of Cash Flows IV-25
Notes to Consolidated Financial Statements IV-26 to IV-44
(iii) Separate financial statements for Telewest
Communications plc:
Consolidated Financial Statements
Independent Auditors' Report IV-45
Consolidated Statements of Operations IV-46 to IV-47
Consolidated Balance Sheets IV-48
Consolidated Statements of Cash Flows IV-49
Consolidated Statement of Shareholders' Equity IV-50
Notes to Consolidated Financial Statements IV-51 to IV-81
</TABLE>
IV-3
<PAGE> 419
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
3.1 The Restated Certificate of Incorporation, dated August 4, 1994,
as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995,
August 3, 1995, January 25, 1996, January 25, 1996, April 7,
1997, August 28, 1997, December 30, 1997 and December 30, 1997.
3.2 The Bylaws as adopted June 16, 1994.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, as
amended by Form 10-K/A (Commission File No. 0-20421).
4 - Instruments Defining the Rights of Security Holders, including Indentures:
4.1 Form of Rights Agreement among Tele-Communications, Inc., TCI
Music, Inc. and the Bank of New York, as Rights Agent.
Incorporated by reference to Exhibit 4.3 to the Registration
Statement of Form S-4 of TCI Music and TCI (Reg. File Nos.
333-28613 and 333-28613-001).
10 - Material Contracts:
10.1 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.2 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.3 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.4 Restated and Amended Employment Agreement, dated as of November
1, 1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.5 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
as amended by Form 10-K/A (Commission File No. 0-20421).
(continued)
IV-4
<PAGE> 420
10 - Material contracts, continued:
10.6 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., John C. Malone and Leslie Malone.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.7 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., Gary Magness, both individually and
as representative, Kim Magness, both individually and as
representative, the Estate of Bob Magness, the Estate of Betsy
Magness and any individual or entity which thereafter becomes a
party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.8 Stockholders Agreement, dated February 9, 1998, by and among
Tele-Communications, Inc., John C. Malone, Leslie Malone, Gary
Magness, both individually and as representative, Kim Magness,
both individually and as representative, the Estate of Bob
Magness, the Estate of Betsy Magness and any individual or
entity which thereafter becomes a party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.9 Consulting Agreement, dated as of January 1, 1996, between
Tele-Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.10 Consulting Agreement, dated as March 11, 1995, between
Tele-Communications, Inc. and J.C. Sparkman.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.11 Consulting Agreement, dated as of January 1, 1998, between
Tele-Communications International, Inc. and Fred A. Vierra.
10.12 Deferred Compensation Plan for Non-Employee Directors, effective
on November 1, 1992.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.13 Amended and Restated Employment Agreement, dated as of July 18,
1995, among Tele-Communications, Inc., Tele-Communications
International, Inc. and Fred A. Vierra.*
Incorporated herein by reference to Tele-Communications
International, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-80491).
(continued)
IV-5
<PAGE> 421
10 - Material contracts, continued:
10.14 Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.15 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.16 Form of 1992 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.17 Form of 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.18 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement, dated as of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.19 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to stock appreciation rights granted pursuant
to letter dated September 17, 1991.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.20 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to the assumption of options and related stock
appreciation rights granted under the Liberty Media Corporation
1991 Stock Incentive Plan pursuant to letter dated July 26,
1993.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
IV-6
<PAGE> 422
10 - Material contracts, continued:
10.21 Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and a
director of Tele-Communications, Inc. relating to assumption
of options and related stock appreciation rights granted
outside of an employee benefit plan pursuant to Tele-
Communications, Inc.'s 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.22 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to Tele-Communications,
Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.23 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of grants pursuant to the
Agreement and Plan of Merger dated June 6, 1991 between United
Artists Entertainment Company and Tele-Communications, Inc.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.24 Form of letter dated September 17, 1991 from Liberty Media
Corporation to grantee relating to grant of stock appreciation
rights.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.25 Form of letter dated July 26, 1993 from Liberty Media Corporation
to grantee relating to grant of options and stock appreciation
rights.*
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.26 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights under Tele-Communications, Inc.'s 1992
Stock Incentive Plan pursuant to Tele-Communications, Inc.'s
1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
IV-7
<PAGE> 423
10 - Material contracts, continued:
10.27 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.28 Form of 1994 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.29 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
10.30 Form of Restricted Stock Award Agreement for 1995 Award of Series
A TCI Group Restricted Stock pursuant to the Tele-
Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.31 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Liberty Media Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.32 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1994 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.33 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
IV-8
<PAGE> 424
10 - Material contracts, continued:
10.34 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.35 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1995
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.36 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.37 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.38 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.
10.39 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.
10.40 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.
10.41 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
10.42 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
10.43 The Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to Tele-Communications
International, Inc. Registration Statement on Form S-1
(Commission File No. 33-91876).
(continued)
IV-9
<PAGE> 425
10 - Material contracts, continued:
10.44 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International, Inc. 1995
Stock Incentive Plan.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.45 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.46 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.47 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
10.48 Form of Restricted Stock Award Agreement for 1997 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International. Inc. 1995
Stock Incentive Plan.*
10.49 Restricted Stock Award Agreement, made as of July 1, 1996, among
Tele-Communications, Inc., Brendan Clouston and WestMarc
Communications, Inc. *
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.50 Option Agreement, dated as of December 4, 1996, by and between
TCI Satellite Entertainment, Inc. and Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite
Entertainment, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-21317).
10.51 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.52 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Teleport Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.53 Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc., Grantee
and Tele-Communications, Inc.*
(continued)
IV-10
<PAGE> 426
10 - Material contracts, continued:
10.54 Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*
10.55 Form of Stock Appreciation Right Agreement made as of the 1st day
of December, 1996, by and among TCI Internet Services, Inc.,
Tele-Communications, Inc. and Grantee.*
10.56 Letter Agreement, dated December 26, 1996, by
Tele-Communications, Inc. to purchase WestMarc Series C
Cumulative Compounding Redeemable Preferred Stock from Larry E.
Romrell.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.57 Employee Stock Purchase Plan for Bargaining Unit Employees of
United Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-60839).
10.58 Employee Stock Purchase Plan for Bargaining Unit Employees of
UACC Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64827).
10.59 Employee Stock Purchase Plan for Bargaining Unit Employees of
TCI of Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64831).
10.60 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., dated as of January 31, 1996, among Sprint
Spectrum, L.P., TCI Network Services, Comcast Telephony
Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by Tele-
Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
(continued)
IV-11
<PAGE> 427
10- Material contracts, continued:
10.61 Agreement of Purchase and Sale of Partnership Interest, dated as
of January 31, 1996, among Halcyon Communications, Inc., ECP
Holdings, Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.62 Consent and Amendment of Amended Agreement of Partnership for
Halcyon Communications Partners, dated as of January 31, 1996,
by and among Halcyon Communications, Inc., ECP Holdings, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.63 Assignment and Assumption Agreement, made as of January 31,
1996, between ECP Holdings, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.64 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.65 Agreement of Purchase and Sale of Partnership Interests, dated as
of January 31, 1996, among Halcyon Communications, Inc.,
American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.66 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited
Partnership, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., American Televenture of
Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.67 Assignment and Assumption Agreement, made as of January 31,
1996, between TCI Cablevision of Utah, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
IV-12
<PAGE> 428
10- Material contracts, continued:
10.68 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah,
Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.69 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.70 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.71 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.72 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.73 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.74 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.75 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.
10.76 InterMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997, by
and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
TCI ICM III, Inc.
(continued)
IV-13
<PAGE> 429
10- Material contracts, continued:
10.77 InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.
10.78 Amended and Restated Contribution and Merger Agreement, dated
as of June 6, 1997, among TCI Communications, Inc.,
Cablevision Systems Corporation, CSC Parent Corporation and
CSC Merger Corporation.
Stockholders Agreement dated as of March 4, 1998, by and among
Cablevision Systems Corporation, Tele-Communications, Inc. and
the Class B Entities (as defined therein)
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated March 6, 1998 (Commission File
No. 0-20421).
10.79 Amended and Restated Asset Contribution Agreement, dated
September 25, 1997, by and among Fisher Communications
Associates, L.L.C. and Tempo Cable, Inc., Communications
Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah,
Inc., TCI Cablevision of Arizona, Inc., Tulsa Cable
Television, Inc. and TCI American Cable Holdings III,
L.P. and Peak Cablevision, LLC.
10.80 Amended and Restated Operating Agreement of Peak Cablevision,
LLC, made as of September 25, 1997, by TCI American Cable
Holdings III, L.P. and Fisher Communications Associates,
L.L.C.
10.81 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
10.82 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and American Televentures
of Minersville, Inc.
10.83 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Utah, Inc.
10.84 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and Tempo Cable, Inc.
10.85 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
21 - Subsidiaries of Tele-Communications, Inc.
23 - Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of KPMG Audit Plc.
23.6 Consent of Deloitte & Touche LLP.
27 - Financial data schedule
* Constitutes management contract or compensatory arrangement.
IV-14
<PAGE> 430
(1) Certain exhibits to agreement have been omitted. A copy of any omitted
exhibit or schedule will be furnished supplementally to the Commission
upon request.
(b) Report on Form 8-K filed during the quarter ended December 31, 1997:
None.
IV-15
<PAGE> 431
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
Under date of March 20, 1998, we reported on the consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1997 and 1996, 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,
1997, which are included in the December 31, 1997 annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
IV-16
<PAGE> 432
Schedule I
-----------
Page 1 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Financial Position of the Registrant
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996*
- ------ ------- -------
amounts in millions
<S> <C> <C>
Investments in and advances to consolidated subsidiaries -
eliminated upon consolidation $ 6,785 6,230
Other assets, at cost, net of amortization 18 16
------- -------
$ 6,803 6,246
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued liabilities $ 455 149
Redeemable securities:
Preferred stock 655 658
Common stock 5 --
Stockholders' equity:
Series Preferred Stock, $.01 par value -- --
Convertible Redeemable Participating Preferred Stock,
Series F, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, $.01 par value -- --
Common stock, $1 par value:
Series A TCI Group. Authorized 1,750,000,000 shares;
issued 605,616,143 shares in 1997 and 696,325,478
shares in 1996 606 696
Series B TCI Group. Authorized 150,000,000 shares;
issued 78,203,044 shares in 1997 and 84,647,065
shares in 1996 78 85
Series A Liberty Media Group. Authorized 750,000,000
shares; issued 344,962,521 shares in 1997 and
341,766,655 shares in 1996 345 342
Series B Liberty Media Group. Authorized 75,000,000
shares; issued 35,180,385 shares in 1997 and
31,784,053 shares in 1996 35 32
Series A TCI Ventures Group. Authorized 750,000,000
shares; issued 377,386,032 shares in 1997 377 --
Series B TCI Ventures Group. Authorized 75,000,000
shares; issued 32,532,800 shares in 1997 33 --
Additional paid-in capital 6,304 4,808
Cumulative foreign currency translation adjustment,
net of taxes 4 26
Unrealized holding gains for available-for-sale securities,
net of taxes 774 15
Accumulated deficit (877) (251)
------- -------
7,679 5,753
Treasury stock and common stock held by subsidiaries,
at cost (1,991) (314)
------- -------
Total stockholders' equity 5,688 5,439
------- -------
$ 6,803 6,246
======= =======
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
IV-17
<PAGE> 433
Schedule I
----------
Page 2 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Operations of the Registrant
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Income (expenses):
Selling, general and administrative $ (19) (82) (21)
Stock compensation (73) 13 (21)
Gain on sale of stock by subsidiary -- -- 123
----- ----- -----
Earnings (loss) before share of earnings (loss) of
consolidated subsidiaries (92) (69) 81
Share of earnings (loss) of consolidated subsidiaries (534) 361 (264)
----- ----- -----
Net earnings (loss) (626) 292 (183)
Dividend requirements on preferred stocks (42) (35) (34)
----- ----- -----
Net earnings (loss) attributable to common
stockholders $(668) 257 (217)
===== ===== =====
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
IV-18
<PAGE> 434
Schedule I
Page 3 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to
Cash Flows of the Registrant
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before share of earnings (loss) of
consolidated subsidiaries $ (92) (69) 81
Adjustments to reconcile earnings (loss) to net
cash provided (used) by operating activities:
Stock compensation 73 (13) 21
Payments of obligation relating to stock
compensation (43) (3) --
Gain on sale of subsidiary stock -- -- (123)
Change in accrued liabilities 276 56 53
----- ----- -----
Net cash provided (used) by operating activities 214 (29) 32
----- ----- -----
Cash flows from investing activities:
Reduction in (additional investments in and
advances to) consolidated subsidiaries, net 370 75 (430)
Other investing activities (2) (11) (9)
----- ----- -----
Net cash provided (used) by investing activities 368 64 (439)
----- ----- -----
Cash flows from financing activities:
Payment of preferred stock dividends (42) (35) (24)
Proceeds from issuances of common stock 5 -- 431
Repurchase of common stock (529) -- --
Other financing activities (16) -- --
----- ----- -----
Net cash provided (used) by financing activities (582) (35) 407
----- ----- -----
Change in cash -- -- --
Cash at beginning of year -- -- --
----- ----- -----
Cash at end of year $ -- -- --
===== ===== =====
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
See also note 4 to the consolidated financial statements.
IV-19
<PAGE> 435
Schedule II
-----------
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING PROFIT NET OF AT END
DESCRIPTION OF YEAR AND LOSS RECOVERIES OF YEAR
- ----------- ---------- --------- ---------- --------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
Year ended
December 31, 1997:
Allowance for doubtful
receivables - trade $ 36 96 (98) 34
==== === === ==
Year ended
December 31, 1996:
Allowance for doubtful
receivables - trade $ 34 121 (119) 36
==== === === ==
Year ended
December 31, 1995:
Allowance for doubtful
receivables - trade $ 23 86 (75) 34
==== === === ==
</TABLE>
IV-20
<PAGE> 436
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint Spectrum
Holding Company, L.P. and subsidiaries ("the Partnership") as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
partners' capital and cash flows for the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Partnership'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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum
Holding Company, L.P. and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the three years then ended,
in conformity with generally accepted accounting principles.
The Partnership was in the development stage at December 31, 1996; during the
year ended December 31, 1997, the Partnership completed its development
activities and commenced its planned principal operations.
Deloitte & Touche
February 3, 1998
IV-21
<PAGE> 437
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 117,164 $ 69,988
Accounts receivable, net ................................ 113,507 3,310
Receivable from affiliates .............................. 96,291 12,901
Inventory ............................................... 101,366 72,414
Prepaid expenses and other assets, net .................. 28,495 14,260
Note receivable--unconsolidated partnership ............. -- 226,670
----------- -----------
Total current assets .................................. 456,823 399,543
INVESTMENT IN PCS LICENSES, net ............................ 2,303,398 2,122,908
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIP(S) ............... 273,541 179,085
PROPERTY, PLANT AND EQUIPMENT, net ......................... 3,429,238 1,408,680
MICROWAVE RELOCATION COSTS, net ............................ 264,215 135,802
MINORITY INTEREST .......................................... 56,667 --
OTHER ASSETS, net .......................................... 113,127 77,383
=========== ===========
TOTAL ASSETS ............................................... $ 6,897,009 $ 4,323,401
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners .................................. $ -- $ 167,818
Accounts payable ........................................ 415,944 196,146
Payable to affiliate .................................... 11,933 5,626
Accrued interest ........................................ 56,678 34,057
Accrued expenses ........................................ 231,429 47,173
Current maturities of long-term debt .................... 34,562 49
----------- -----------
Total current liabilities ............................. 750,546 450,869
CONSTRUCTION OBLIGATIONS ................................... 705,280 714,934
LONG-TERM DEBT ............................................. 3,533,954 686,192
OTHER NONCURRENT LIABILITIES ............................... 48,975 11,356
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY .............................................. 13,722 13,397
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital ....................................... 3,964,750 3,003,484
Accumulated deficit ..................................... (2,120,218) (556,831)
----------- -----------
Total partners' capital ............................... 1,844,532 2,446,653
=========== ===========
TOTAL LIABILITIES AND PARTNERS' CAPITAL .................... $ 6,897,009 $ 4,323,401
=========== ===========
</TABLE>
See notes to consolidated financial statements
IV-22
<PAGE> 438
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES .......................... $ 248,607 $ 4,175 $ --
OPERATING EXPENSES:
Cost of revenues ......................... 555,030 36,076 --
Selling, general and administrative ...... 696,911 312,697 66,340
Depreciation and amortization ............ 307,400 11,275 211
----------- ----------- -----------
Total operating expenses ............... 1,559,341 360,048 66,551
----------- ----------- -----------
LOSS FROM OPERATIONS ........................ (1,310,734) (355,873) (66,551)
OTHER INCOME (EXPENSE):
Interest income .......................... 26,456 8,593 460
Interest expense ......................... (121,844) (323) --
Other income ............................. 5,474 1,586 38
Equity in loss of unconsolidated
partnerships ........................... (168,935) (96,850) (46,206)
----------- ----------- -----------
Total other income (expense) ........... (258,849) (86,994) (45,708)
----------- ----------- -----------
NET LOSS BEFORE MINORITY INTEREST ........... (1,569,583) (442,867) (112,259)
MINORITY INTEREST ........................... 6,196 (227) 1,830
----------- ----------- -----------
NET LOSS .................................... $(1,563,387) $ (443,094) $ (110,429)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
IV-23
<PAGE> 439
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, January 1, 1995 .......... $ 123,438 $ (3,308) $ 120,130
Contributions of capital .......... 2,168,368 -- 2,168,368
Net loss .......................... -- (110,429) (110,429)
----------- ----------- -----------
BALANCE, December 31, 1995 ........ 2,291,806 (113,737) 2,178,069
Contributions of capital .......... 711,678 -- 711,678
Net loss .......................... -- (443,094) (443,094)
----------- ----------- -----------
BALANCE, December 31, 1996 ........ 3,003,484 (556,831) 2,446,653
Contributions of capital .......... 973,001 -- 973,001
Net loss .......................... -- (1,563,387) (1,563,387)
Return of capital ................. (11,735) -- (11,735)
----------- ----------- -----------
BALANCE, December 31, 1997 ........ $ 3,964,750 $(2,120,218) $ 1,844,532
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
IV-24
<PAGE> 440
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $(1,563,387) $ (443,094) $ (110,429)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity in loss of unconsolidated partnership .................. 168,935 96,850 46,206
Minority interest ............................................. (6,196) 227 (1,830)
Depreciation and amortization ................................. 307,930 11,275 242
Amortization of debt discount and issuance costs ............. 49,061 14,008 --
Changes in assets and liabilities, net of effects
of acquisition of APC:
Receivables ................................................. (182,882) (15,871) (340)
Inventory ................................................... (24,870) (72,414) --
Prepaid expenses and other assets ........................... (12,497) (21,608) (178)
Accounts payable and accrued expenses ....................... 371,168 231,754 47,503
Other noncurrent liabilities ................................ 37,619 9,500 1,856
----------- ----------- -----------
Net cash used in operating activities ................. (855,119) (189,373) (16,970)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (2,041,313) (1,386,346) (31,763)
Proceeds on sale of equipment ................................. -- -- 37
Microwave relocation costs, net ............................... (116,278) (135,828) --
Purchase of PCS licenses ...................................... -- -- (2,006,156)
Purchase of APC, net of cash acquired ......................... (6,764) -- --
Investment in unconsolidated partnerships ..................... (191,171) (190,390) (131,752)
Loan to unconsolidated partnership ............................ (111,468) (231,964) (655)
Payment received on loan to unconsolidated partnership ........ 246,670 5,950 --
----------- ----------- -----------
Net cash used in investing activities ................. (2,220,324) (1,938,578) (2,170,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from partners ........................................ -- 167,818 --
Net borrowing under revolving credit agreement ................ 605,000 -- --
Proceeds from issuance of long-term debt ...................... 1,763,045 674,201 --
Change in construction obligations ............................ (9,654) 714,934
Payments on long-term debt .................................... (170,809) (24) --
Debt issuance costs ........................................... (20,000) (71,791) --
Partner capital contributions ................................. 966,772 711,678 2,183,368
Return of capital ............................................. (11,735) -- --
----------- ----------- -----------
Net cash provided by financing activities ............. 3,122,619 2,196,816 2,183,368
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................... 47,176 68,865 (3,891)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 69,988 1,123 5,014
=========== =========== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 117,164 $ 69,988 $ 1,123
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
o Interest paid, net of amount capitalized .................. $ 35,629 $ 323 $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
o Accrued interest of $51,673 related to vendor
financing was converted to long-term debt during
the year ended December 31, 1997.
o A PCS license covering the Omaha MTA and valued
at $6,229 was contributed to the Company by Cox
Communications during the year ended
December 31, 1997.
</TABLE>
See notes to consolidated financial statements
IV-25
<PAGE> 441
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. ("Holdings" or the "Company") is a limited
partnership formed in Delaware on March 28, 1995, by Sprint Enterprises, L.P.,
TCI Spectrum Holdings, Inc., Cox Telephony Partnership and Comcast Telephony
Services (together the "Partners"). Holdings was formed pursuant to a
reorganization of the operations of an existing partnership, WirelessCo, L.P.
("WirelessCo") which transferred certain operating functions to Holdings. The
Partners are subsidiaries of Sprint Corporation ("Sprint"), Tele-Communications,
Inc. ("TCI"), Cox Communications, Inc. ("Cox"), and Comcast Corporation
("Comcast", and together with Sprint, TCI and Cox, the "Parents"), respectively.
The Company and certain other affiliated partnerships offer services as Sprint
PCS.
The Partners of the Company have the following ownership interests as of
December 31, 1997, and 1996:
<TABLE>
<S> <C>
Sprint Enterprises, L.P. 40%
TCI Spectrum Holdings, Inc. 30%
Cox Telephony Partnership 15%
Comcast Telephony Services 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest and
a 1% limited partnership interest.
The Company is consolidated with its subsidiaries, including NewTelco, L.P.
("NewTelco") and Sprint Spectrum L.P., which, in turn, has several subsidiaries.
Sprint Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"), Sprint Spectrum Realty Company, L.P. ("RealtyCo"), Sprint
Spectrum Finance Corporation ("FinCo"), and WirelessCo. RealtyCo and EquipmentCo
were organized on May 15, 1996 for the purpose of holding personal
communications service ("PCS") network-related real estate interests and assets.
FinCo was formed on May 20, 1996 to be a co-obligor of the debt obligations
discussed in Note 5. Additionally, the results of American PCS, L.P. ("APC") are
consolidated from November 1997, the date the Federal Communications Commission
("FCC") approved Holdings as the new managing partner (Note 4). APC, through
subsidiaries, owns a PCS license for and operates a broadband GSM (global system
for mobile communications) in the Washington D.C./Baltimore Major Trading Area
("MTA"), and is in the process of building a code division multiple access
("CDMA") overlay for its existing GSM PCS system. APC includes American PCS
Communications, LLC, APC PCS, LLC, APC Realty and Equipment Company, LLC and
American Personal Communications Holdings, Inc. MinorCo, L.P. ("MinorCo") holds
the minority ownership interests in NewTelco, Sprint Spectrum L.P., EquipmentCo,
RealtyCo and WirelessCo at December 31, 1997 and 1996, and APC at December 31,
1997.
VENTURE FORMATION AND AFFILIATED PARTNERSHIPS - A Joint Venture Formation
Agreement (the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by the Parents, pursuant to which the Parents agreed to form certain
entities to (i) provide national wireless telecommunications services, including
acquisition and development of PCS licenses, (ii) develop a PCS wireless system
in the Los Angeles-San Diego MTA, and (iii) take certain other actions.
IV-26
<PAGE> 442
On October 24, 1994, WirelessCo was formed and on March 28, 1995, additional
partnerships were formed consisting of Holdings, MinorCo, NewTelco, and Sprint
Spectrum L.P. The Partners' ownership interests in WirelessCo were initially
held directly by the Partners as of October 24, 1994, the formation date of
WirelessCo, but were subsequently contributed to Holdings and then to Sprint
Spectrum L.P. on March 28, 1995.
SPRINT SPECTRUM HOLDING COMPANY, L.P. PARTNERSHIP AGREEMENT - The Amended and
Restated Agreement of Limited Partnership of MajorCo, L.P. (the "Holdings
Agreement"), dated as of January 31, 1996, among Sprint Enterprises, L.P., TCI
Spectrum Holdings, Inc., Comcast Telephony Services and Cox Telephony
Partnership provides that the purpose of the Company is to engage in wireless
communications services.
The Holdings Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
The Holdings Agreement provides for planned capital contributions by the
Partners ("Total Mandatory Contributions") of $4.2 billion, which includes
agreed upon values attributable to the contributions of certain additional PCS
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set forth
in approved annual budgets. The partnership board of Holdings may request
capital contributions to be made in the absence of an approved budget or more
quickly than provided for in an approved budget, but always subject to the Total
Mandatory Contributions limit. The proposed budget for fiscal 1998 has not yet
been approved by the partnership board, which has resulted in the occurrence of
a Deadlock Event (as defined) under the Holdings Agreement as of January 1,
1998. If the 1998 proposed budget is not approved through resolution procedures
set forth in the Holdings Agreement, certain specified buy/sell procedures may
be triggered which may result in a restructuring of the partners' interest in
the Company or, in limited circumstances, liquidation of the Company. As of
December 31, 1997, approximately $4.0 billion of the Total Mandatory
Contributions had been contributed by the Partners to Holdings and its
affiliated partnerships, of which approximately $3.3 billion had been
contributed to Sprint Spectrum L.P.
EMERGENCE FROM DEVELOPMENT STAGE COMPANY - Prior to the third quarter of 1997,
the Company reported its operations as a development stage enterprise. The
Company has commenced service in all of the MTAs in which it owns a license. As
a result, the Company is no longer considered a development stage enterprise,
and the balance sheets and statements of operations and of cash flows are no
longer presented in development stage format.
Management believes that the Company will incur additional losses in 1998 and
require additional financial resources to support the current level of
operations and the remaining network buildout for the year ended December 31,
1998. Management believes the Company has the ability to obtain the required
levels of financing through additional financing arrangements or additional
equity funding from the Partners.
IV-27
<PAGE> 443
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The assets, liabilities, results of operations and cash
flows of entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
MINORITY INTERESTS - MinorCo, the limited partner in NewTelco, has been
allocated approximately $0.3 million and $0.2 million in income for the years
ended December 31, 1997, and 1996, respectively. Losses of $1.8 million for the
year ended December 31, 1995 incurred by NewTelco as losses in excess of the
general partner's capital accounts (which consisted of $1,000) are to be
allocated to the limited partner to the extent of its capital account.
In November 1997, concurrent with the acquisition discussed in Note 4, American
Personal Communications II, L.P. ("APC II") became the minority owner in APC.
APC II has been allocated approximately $6.5 million in losses in APC since the
date of acquisition. Prior to November 1997, APC II, as majority owner, had been
allocated approximately $50 million in losses in excess of its investment. At
December 31, 1997, after consolidation of APC, the total of such losses,
approximately $56.7 million, was recorded as minority interest in the Company's
consolidated balance sheet. This treatment reflects that APC II continued to be
responsible for funding its share of losses until January 1, 1998 when the
Company acquired the remaining interest in APC.
TRADEMARK AGREEMENT - Sprint(R) is a registered trademark of Sprint
Communications Company L.P. and Sprint(R) and Sprint PCS(R) are licensed to the
Company on a royalty-free basis pursuant to a trademark license agreement
between the Company and Sprint Communications Company L.P.
REVENUE RECOGNITION - Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is delivered to a customer or an unaffiliated agent.
COST OF EQUIPMENT - The Company uses multiple distribution channels for its
inventory, including third-party retailers, Company-owned retail stores, its
direct sales force and telemarketing. Cost of equipment varies by distribution
channel and includes the cost of multiple models of handsets, related accessory
equipment, and warehousing and shipping expenses.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
with original maturities of three months or less to be cash equivalents. The
Company maintains cash and cash equivalents in financial institutions with the
highest credit ratings.
ACCOUNTS RECEIVABLE - Accounts receivable are net of an allowance for doubtful
accounts of approximately $9.0 million and $0.2 million at December 31, 1997 and
1996, respectively.
INVENTORY - Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at lower of cost (on a first-in, first-out basis)
or replacement value. Any losses on the sales of handsets are recognized at the
time of sale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost
or fair value at the date of acquisition. Construction work in progress
represents costs incurred to design and construct the PCS network. Repair and
maintenance costs are charged to expense as incurred. When network equipment is
retired, or otherwise disposed of, its book value, net of salvage, is charged to
accumulated depreciation.
IV-28
<PAGE> 444
When non-network equipment is sold, retired or abandoned, the cost and
accumulated depreciation are relieved and any gain or loss is recognized.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3 to
20 years.
EQUIPMENT UNDER CAPITAL LEASES - APC leases certain of its office and other
equipment under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the assets under lease. Assets under these capital leases are
depreciated over their estimated useful lives of 5 to 7 years. Depreciation
related to capital leases is included within depreciation expense.
INVESTMENT IN PCS LICENSES - During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service areas.
The FCC grants licenses for terms of up to ten years, and generally grants
renewals if the licensee has complied with its license obligations. The Company
believes it will be able to secure renewal of the PCS licenses held by its
subsidiaries. PCS licenses are amortized over estimated useful lives of 40 years
once placed in service. Accumulated amortization for PCS licenses totaled
approximately $45.2 million and $1.7 million as of December 31, 1997, and 1996,
respectively. There was no amortization in 1995.
MICROWAVE RELOCATION COSTS - The Company has also incurred costs associated with
microwave relocation in the construction of the PCS network. Microwave
relocation costs are amortized over estimated useful lives of 40 years once
placed in service. Accumulated amortization for microwave relocation costs
totaled approximately $5.2 million as of December 31, 1997. There was no
amortization in 1996 or 1995.
INTANGIBLE ASSETS - The ongoing value and remaining useful life of intangible
assets are subject to periodic evaluation. The Company currently expects the
carrying amounts to be fully recoverable. Impairments of intangibles and
long-lived assets are assessed based on an undiscounted cash flow methodology.
CAPITALIZED INTEREST - Interest costs associated with the construction of
capital assets (including the PCS licenses) incurred during the period of
construction are capitalized. The total interest costs capitalized in 1997 and
1996 were approximately $98.6 million and $30.5 million, respectively. There
were no amounts capitalized in 1995.
DEBT ISSUANCE COSTS - Included in other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Accumulated amortization for the years ended December 31, 1997
and 1996 were approximately $13.4 million and $1.9 million, respectively. There
was no amortization in 1995.
OPERATING LEASES - Rent expense is recognized on the straight-line basis over
the life of the lease agreement, including renewal periods. Lease expense
recognized in excess of cash expended is included in non-current liabilities in
the consolidated balance sheet.
MAJOR CUSTOMER - The Company markets its products through multiple distribution
channels, including Company-owned retail stores and third-party retail outlets.
The Company's subscribers are disbursed throughout the United States. Sales to
one third-party retail customer represented approximately 21% and 88% of
operating revenue in the consolidated statements of operations for the years
ended December
IV-29
<PAGE> 445
31, 1997 and 1996, respectively. The Company reviews the credit history of
retailers prior to extending credit and maintains allowances for potential
credit losses. The Company believes that its risk from concentration of credit
is limited.
INCOME TAXES - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
FINANCIAL INSTRUMENTS - The carrying value of the Company's short-term financial
instruments, including cash and cash equivalents, receivables from customers and
affiliates and accounts payable approximates fair value. The fair value of the
Company's long-term debt is based on quoted market prices for the same issues or
current rates offered to the Company for similar debt. A summary of the fair
value of the Company's long-term debt at December 31, 1997 and 1996 is included
in Note 5.
The fair value of the interest rate contracts is the estimated net amount that
APC would pay to terminate the contracts at the balance sheet date. The fair
value of the fixed rate loans is estimated using discounted cash flow analysis
based on APC's current incremental borrowing rate at which similar borrowing
agreements would be made under current conditions.
DERIVATIVE FINANCIAL INSTRUMENTS - Derivative financial instruments (interest
rate contracts) are utilized by APC to reduce interest rate risk. APC has
established a control environment which includes risk assessment and management
approval, reporting and monitoring of derivative financial instrument
activities. APC does not hold or issue derivative financial instruments for
trading purposes.
The differentials to be received or paid under interest rate contracts that are
matched against underlying debt instruments and qualify for settlement
accounting are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts are recognized as other income or expense when terminated in
conjunction with the retirement of associated debt. Gains and losses on
terminations of interest rate contracts not associated with the retirement of
debt are deferred and amortized to interest expense over the remaining life of
the associated debt to the extent that such debt remains outstanding.
USE OF 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1996 and
1995 consolidated financial statements to conform to the 1997 consolidated
financial statement presentation.
IV-30
<PAGE> 446
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,444 $ 905
Buildings and leasehold improvements 618,281 86,467
Fixtures and office furniture 165,998 68,210
Network equipment 2,265,213 255,691
Telecommunications plant - construction work in progress 632,922 1,006,990
----------- -----------
3,683,858 1,418,263
Less accumulated depreciation (254,620) (9,583)
----------- -----------
$ 3,429,238 $ 1,408,680
=========== ===========
</TABLE>
Depreciation expense on property, plant and equipment was approximately $244.9
million, $ 9.6 million, and $0.2 million for the years ended December 31, 1997,
1996 and 1995, respectively.
4. INVESTMENTS IN PARTNERSHIPS
APC - On January 9, 1995, WirelessCo acquired a 49% limited partnership interest
in APC. In September 1997, Holdings increased its ownership in APC to a 58.3%
through additional capital contributions of $30 million, and became the managing
partner upon FCC approval in November, 1997. As of January 1, 1998, Holdings and
MinorCo increased their ownership percentages to 99.75% and 0.25%, respectively,
of the partnership interests for approximately $30 million.
The acquisition increasing ownership to 58.3% was accounted for as a purchase
and, accordingly, the operating results of APC has been included in the
Company's consolidated financial statements since the date of the FCC's approval
of the acquisition. The purchase price was allocated to the assets acquired and
the liabilities assumed based on a preliminary estimate of fair value. The
following table reflects the total of APC's assets and liabilities at the date
of acquisition:
<TABLE>
<S> <C>
Assets acquired $ 503
Cash paid (30)
Minority interest 50
-----
Liabilities assumed $ 523
=====
</TABLE>
The ultimate allocation of the purchase price may differ from the initial
estimate.
IV-31
<PAGE> 447
The following unaudited pro forma financial information assumes the acquisition
had occurred on January 1 of each year and that the Company had owned 100% of
APC and consolidated its results in the financial statements:
Proforma - Sprint Spectrum Holding Company, L.P.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales ................................... $ 355,038 $ 76,013
Net loss (before minority interest) ........ (1,646,551) (553,274)
</TABLE>
Pro forma data does not purport to be indicative of the results that would have
been obtained had these events actually occurred at the beginning of the periods
presented and is not intended to be a projection of future results.
Prior to acquisition of controlling interest, the Company's investment in APC
was accounted for under the equity method. The partnership agreement between the
Company and APC II specified that losses were allocated based on percentage
ownership interests and certain other factors. In January 1997, the Company and
APC II amended the APC partnership agreement with respect to the allocation of
profits and losses. For financial reporting purposes, profits and losses were
allocated in proportion to Holdings' and APC II's respective partnership
interests, except for costs related to stock appreciation rights and interest
expense attributable to the FCC interest payments which were allocated entirely
to APC II. Losses of approximately $60 million, $97 million and $46 million for
the years ended December 31, 1997, 1996 and 1995, respectively, are included in
equity in losses of unconsolidated subsidiaries during the period prior to the
acquisition of controlling interest.
COX COMMUNICATIONS PCS, L.P. - On December 31, 1996, the Company acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Cox
Pioneer Partnership ("CPP") holds a 50.5% general and a 0.5% limited partner
interest and is the general and managing partner. The investment in Cox PCS is
accounted for under the equity method. Under the terms of the partnership
agreement, CPP and the Company are obligated to, among other things: (a) upon
FCC consent to the assumption and recognition of the license payment obligations
by Cox PCS, CPP is obligated to make capital contributions in an amount equal to
such liability and related interest (the PCS license covering the Los
Angeles-San Diego MTA was contributed to Cox PCS in March 1997) (b) the Company
is obligated to make capital contributions of approximately $368.9 million to
Cox PCS; (c) the Company is not obligated to make any cash capital contributions
upon the assumption by Cox PCS of the FCC payment obligations until CPP has
contributed cash in an amount equal to the aggregate principal and interest of
such obligations; and, (d) CPP and the Company are obligated to make additional
capital contributions in an amount equal to such partner's percentage interest
times the amount of additional capital contributions being requested.
As of December 31, 1997, approximately $348.2 million in equity, including $2.45
million to PCS Leasing Co, L.P. ("LeasingCo"), a subsidiary of Cox PCS, had been
contributed to Cox PCS by the Company. Through December 31, 1996, $168 million
had been contributed to Cox PCS. Losses are allocated to the partners based on
their ownership percentages. Subsequent to December 31, 1997, the Company
completed its funding obligation to Cox PCS under the partnership agreement.
Concurrent with this funding, the Company paid approximately $33.2 million in
interest that had accrued on the unfunded capital obligation.
IV-32
<PAGE> 448
Additionally, the Company acquired a 49% limited partner interest in LeasingCo.
LeasingCo was formed to acquire, construct or otherwise develop equipment and
other personal property to be leased to Cox PCS. The Company is not obligated to
make additional capital contributions to LeasingCo beyond the initial funding of
approximately $2.45 million .
Under the partnership agreement, CPP has the right to require that Holdings
acquire all or part of CPP's interest in Cox PCS based on fair market value at
the time of the transaction. Subsequent to December 31, 1997, CPP elected to
exercise this right. As a result, the Company intends to acquire 10.2% of Cox
PCS, subject to FCC approval, which will give the Company controlling interest.
The purchase price, currently estimated at $80 million, will be based on the
fair market value of Cox PCS as determined by independent appraisals. Through
December 2008, CPP may put any remaining interest in Cox PCS to the Company.
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following as of December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
11% Senior Notes due in 2006 $ 250,000 $ 250,000
12-1/2% Senior Discount Notes due in 2006, net of
unamortized discount of $177,720 and $214,501 at
December 31, 1997 and 1996, respectively 322,280 285,499
Credit Facility - term loans 300,000 150,000
Credit Facility - revolving credit 605,000 --
Vendor Financing 1,612,914 --
APC Senior Secured Term Loan Facility 220,000 --
APC Senior Secured Reducing Revolving Credit --
Facility 141,429
Due To FCC, net of unamortized discount of --
$11,989 90,355
Other 26,538 742
---------- ----------
Total debt 3,568,516 686,241
Less current maturities 34,562 49
---------- ----------
Long-term debt $3,533,954 $ 686,192
========== ==========
</TABLE>
SENIOR NOTES AND SENIOR DISCOUNT NOTES - In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 1997. Cash interest will not accrue or
be payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes
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<PAGE> 449
will accrue at a rate of 12 1/2% per annum and will be payable semi-annually in
arrears on each February 15 and August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
SENIOR DISCOUNT
SENIOR NOTES NOTES
YEAR REDEMPTION PRICE REDEMPTION PRICE
---- ---------------- ----------------
<S> <C> <C>
2001 105.500% 110.000%
2002 103.667% 106.500%
2003 101.833% 103.250%
2004 and thereafter 100.000% 100.000%
</TABLE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes with the net proceeds of one or
more public equity offerings, provided that at least 65% of the originally
issued principal amount at maturity of the Senior Notes and Senior Discount
Notes would remain outstanding immediately after giving effect to such
redemption. The redemption price of the Senior Notes is equal to 111.0% of the
principal amount of the Senior Notes so redeemed, plus accrued and unpaid
interest, if any, to the redemption date. The redemption price of the Senior
Discount Notes is equal to 112.5% of the accreted value at the redemption date
of the Senior Discount Notes so redeemed.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries.
BANK CREDIT FACILITY -Sprint Spectrum L.P. (the "Borrower") entered into an
agreement with The Chase Manhattan Bank ("Chase") as agent for a group of
lenders for a $2 billion bank credit facility dated October 2, 1996. The
proceeds of this facility are to be used to finance working capital needs,
subscriber acquisition costs, capital expenditures and other general Borrower
purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment.. In November 1997, certain terms relating to
the financial and operating conditions were amended. As of December 31, 1997,
$605 million had been drawn at a weighted average interest rate of 8.42%, with
$1.1 billion remaining available. There were no borrowings under the revolving
credit commitment as of December 31, 1996. Commitment fees for the revolving
portion of the agreement are payable quarterly based on average unused revolving
commitments. As of February 15, 1998, the Company had borrowed an additional
$225 million under the revolving credit facility.
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<PAGE> 450
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2002 to the extent that the Borrower meets certain financial conditions.
The term loans are due in sixteen consecutive quarterly installments beginning
January 2002 in aggregate principal amounts of $125,000 for each of the first
fifteen payments with the remaining aggregate outstanding principal amount of
the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Borrower's option. The interest rate may be adjusted downward
for improvements in the bond rating and/or leverage ratios. Interest on ABR
Loans and Eurodollar Loans with interest period terms in excess of 3 months is
payable quarterly. Interest on Eurodollar Loans with interest period terms of
less than 3 months is payable on the last day of the interest period. As of
December 31, 1997 and 1996, the weighted average interest rate on the term loans
was 8.39% and 8.19%, respectively.
Borrowings under the Bank Credit Facility are secured by the Borrower's
interests in WirelessCo, RealtyCo and EquipmentCo and certain other personal and
real property (the "Shared Lien"). The Shared Lien equally and ratably secures
the Bank Credit Facility, the Vendor Financing agreements (discussed below) and
certain other indebtedness of the Borrower. The credit facility is jointly and
severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse
to the Parents and the Partners.
The Bank Credit Facility agreement and Vendor Financing agreements contain
certain restrictive financial and operating covenants, including (among other
requirements) maximum debt ratios (including debt to total capitalization),
limitations on capital expenditures, limitations on additional indebtedness and
limitations on dividends and other payment restrictions affecting certain
restricted subsidiaries. The loss of the right to use the Sprint(R) trademark,
the termination or non-renewal of any FCC license that reduces population
coverage below specified limits, or certain changes in controlling interest in
the Borrower, as defined, among other provisions, constitute events of default.
VENDOR FINANCING - As of October 2, 1996, the Company entered into financing
agreements with Northern Telecom, Inc. ("Nortel") and Lucent Technologies, Inc.
("Lucent" and together with Nortel, the "Vendors") for multiple drawdown term
loan facilities totaling $1.3 billion and $1.8 billion, respectively. The
proceeds of such facilities are to be used to finance the purchase of goods and
services provided by the Vendors. Additionally, the commitments allow for the
conversion of accrued interest into additional principal. Such conversions do
not reduce the availability under the commitments. Interest accruing on the debt
outstanding at December 31, 1997, can be converted into additional principal
through February 8, 1999 and March 30, 1999, for Lucent and Nortel,
respectively.
On April 30, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Nortel. The amendments provide for a syndication of the
financing commitment between Nortel, several banks and other vendors (the
"Nortel Lenders"), and the modification of certain operating and financial
covenants. The commitment provides financing in two phases. During the first
phase, the Nortel Lenders will finance up to $800 million. Under the second
phase, the Nortel Lenders will finance up to an additional $500 million upon the
achievement of certain operating and financial conditions, as amended. As of
December 31, 1997, $630 million, including converted accrued interest of
IV-35
<PAGE> 451
$18.6 million, had been borrowed at a weighted average interest rate of 8.98%
with $189 million remaining available under the first phase. In addition, the
Company paid $20 million in origination fees upon the initial drawdown under the
first phase and will be obligated to pay additional origination fees on the date
of the initial drawdown loan under the second phase. As of February 15, 1998,
the Company had borrowed an additional $47.0 million under the Nortel facility.
There were no borrowings under the Nortel facility at December 31, 1996.
On May 29, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Lucent. The amendments provide for a syndication of the
financing commitment between Lucent, Sprint and other banks and vendors (the
"Lucent Lenders"), and the modification of certain operating and financial
covenants. The Lucent Lenders have committed to financing up to $1.5 billion
through December 31, 1997, and up to an aggregate of $1.8 billion thereafter.
The Company pays a facility fee on the daily amount of certain loans outstanding
under the agreement, payable quarterly. The Lucent agreement terminates June 30,
2001. As of December 31, 1997, the Company had borrowed approximately $983
million, including converted accrued interest of $33.1 million, under the Lucent
facility at a weighted average interest rate of 8.94%, with $850 million
remaining available. As of February 15, 1998, the Company had borrowed an
additional $104.1 million under the Lucent facility. There were no borrowings
under the Lucent facility at December 31, 1996.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing Year"
(defined in the agreements as any one of the five consecutive 12-month periods
following the date of the initial drawdown of the loan). The aggregate amount
due each year is equal to percentages ranging from 10% to 30% multiplied by the
total principal amount of loans during each Borrowing Year.
The agreements provide two borrowing rate options. During the first phase of the
Nortel agreement and throughout the term of the Lucent agreement "ABR Loans"
bear interest at the greater of the prime rate or 0.5% plus the Federal Funds
effective rate, plus 2%. "Eurodollar Loans" bear interest at the London
interbank (LIBOR) rate (any one of the 30-, 60- or 90-day rates, at the
discretion of the Company), plus 3%. During the second phase of the Nortel
agreement, ABR Loans bear interest at the greater of the prime rate or 0.5% plus
the Federal Funds effective rate, plus 1.5%; and Eurodollar loans bear interest
at the LIBOR rate plus 2.5%. Interest from the date of each loan through one
year after the last day of the Borrowing Year is added to the principal amount
of each loan. Thereafter, interest is payable quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien. The Vendor
Financing is jointly and severally guaranteed by WirelessCo, RealtyCo, and
EquipmentCo and is non-recourse to the Parents and the Partners.
Certain amounts included under construction obligations on the consolidated
balance sheets may be financed under the Vendor Financing agreements.
DUE TO FCC - APC became obligated to the FCC for $102 million upon receipt of
the commercial PCS license covering the Washington D.C./Baltimore MTA. In March
1996, the FCC determined that interest on the amount due would begin to accrue
on March 8, 1996, at an interest rate of 7.75%. Beginning with the first payment
due in April 1996, the FCC granted two years of interest-only payments followed
by three years of principal and interest payments. Based on the interest and
payment provisions determined by the FCC and APC's incremental borrowing rate
for similar debt at the time the debt was issued, APC has accrued interest
beginning upon receipt of the license at an effective rate of 13%.
IV-36
<PAGE> 452
In connection with the acquisition discussed in Note 4, Holdings became
responsible for making principal and interest payments under the APC's
obligation to the FCC.
APC SENIOR SECURED CREDIT FACILITIES - As of February 7, 1997, American PCS
Communications, LLC entered into credit facilities of $420 million, consisting
of a term loan facility of $220 million and a reducing revolving credit facility
of $200 million (together, the "Credit Agreement"). The Credit Agreement is
secured by first priority liens on all the equity interests held by American PCS
Communications LLC in its direct subsidiaries, including the equity interests of
the subsidiaries which will hold APC's PCS license and certain real property
interest and equipment and a first priority security interest in, and mortgages
on, substantially all other intangible and tangible assets of APC and
subsidiaries. The Credit Agreement matures February 7, 2005, with an interest
rate of LIBOR plus 2.25%. The interest rate may be stepped down over the term of
the credit agreement based on the ratio of outstanding debt to earnings before
interest, tax, depreciation and amortization. Proceeds from the Credit Agreement
were used to repay the outstanding financing from Holdings as of the closing
date of the credit agreement, capital expenditures for the communications
systems, general working capital requirements, and net operating losses.
The Credit Agreement contains covenants which require APC to maintain certain
levels of wireless subscribers, as well as other financial and non-financial
requirements.
In January 1998 APC completed negotiations with its lenders to amend the Credit
Agreement. As amended, the Credit Agreement contains certain covenants which,
among other things, contain certain restrictive financial and operating
covenants including, maximum debt ratios (including debt to total
capitalization) and limitations on capital expenditures. The covenants require
American PCS Communications, LLC to enter into interest rate contracts on a
quarterly basis to protect and limit the interest rate on 40% of its aggregate
debt outstanding.
OTHER DEBT - At December 31, 1997, other debt included a note payable to Lucent
for the financing of debt issuance costs, a note payable for certain leasehold
improvements, and capital leases acquired in the purchase of APC. Maturities on
the debt range from 3 to 10 years, at interest rates from 8.32% to 21%.
INTEREST RATE CONTRACTS - As of December 31, 1997, APC had entered into nine
interest rate contracts (swaps and a collar), with an aggregate notional amount
of $122 million. Under the agreements APC pays a fixed rate and receives a
variable rate such that it will protect APC against interest rate fluctuations
on a portion of its variable rate debt. The fixed rates paid by APC on the
interest rate swap contracts range from approximately 5.97% to 6.8%. Option
features contained in certain of the swaps operate in a manner such that the
interest rate protection in some cases is effective only when rates are outside
a certain range. Under the collar arrangement, APC will receive 6.19% when LIBOR
falls below 6.19% and pay 8% when LIBOR exceeds 8%. The contracts expire in
2001. The fair value of the interest rate contracts at December 31, 1997 was an
unrealized loss of approximately $1.3 million. The notional amounts represent
reference balances upon which payments and receipts are based and consequently
are not indicative of the level of risk or cash requirements under the
contracts. APC has exposure to credit risk to the counterparty to the extent it
would have to replace the interest rate swap contract in the market when and if
a counterparty were to fail to meet its obligations. The counterparties to all
contracts are primary dealers that meet APC's criteria for managing credit
exposures.
IV-37
<PAGE> 453
FAIR VALUE - The estimated fair value of the Company's long-term debt at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
11% Senior Notes $250,000 $280,650 $250,000 $270,625
12 1/2% Senior Discount Notes 322,280 389,300 285,499 337,950
Credit facility - term loans 300,000 300,000 150,000 151,343
Credit facility - revolver 605,000 605,000 -- --
Vendor facility - Lucent 983,299 983,299 -- --
Vendor facility - Nortel 629,615 629,615 -- --
APC Senior Secured Term Loan
Facility 220,000 220,000 -- --
APC Senior Secured Reducing Revolving
Credit Facility 141,429 141,429 -- --
FCC debt 90,355 98,470 -- --
</TABLE>
At December 31, 1997, scheduled maturities of long-term debt and capital leases
during each of the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
Long-term Capital
Debt Leases
--------- -------
<S> <C> <C>
1998 $ 29,800 $ 5,411
1999 40,425 3,667
2000 53,624 591
2001 395,291 42
2002 583,113 -
-------
9,711
Less interest (898)
-------
Present value of minimum
lease payments 8,813
=======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - Minimum rental commitments as of December 31, 1997, for all
noncancelable operating leases, consisting principally of leases for cell and
switch sites and office space, for the next five years, are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 135,124
1999 131,279
2000 104,658
2001 63,379
2002 21,254
</TABLE>
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<PAGE> 454
Gross rental expense for cell and switch sites aggregated approximately $92.1
million and $13.1 million for the years ended December 31, 1997 and 1996,
respectively. Gross rental expense for office space approximated $33.2 million,
$11.4 million, and $0.7 million for the years ended December 31, 1997, 1996, and
1995, respectively. Certain cell and switch site leases contain renewal options
(generally for terms of 5 years) that may be exercised from time to time and are
excluded from the above amounts.
PROCUREMENT CONTRACTS - On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent ) and Nortel for the engineering and construction of a PCS network. Each
contract provides for an initial term of ten years with renewals for additional
one-year periods. The Vendors must achieve substantial completion of the PCS
network within an established time frame and in accordance with criteria
specified in the procurement contracts. Pricing for the initial equipment,
software and engineering services has been established in the procurement
contracts. The procurement contracts provide for payment terms based on delivery
dates, substantial completion dates, and final acceptance dates. In the event of
delay in the completion of the PCS network, the procurement contracts provide
for certain amounts to be paid to the Company by the Vendors. The minimum
commitments for the initial term are $0.8 billion and $1.0 billion from Lucent
and Nortel, respectively, which include, but are not limited to, all equipment
required for the establishment and installation of the PCS network.
HANDSET PURCHASE AGREEMENTS - In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1997
and 1996, the Company purchased $332.7 million and $85 million under the
agreement, respectively. The total purchase commitment must be satisfied by
April 30, 1998.
In September, 1996, the Company entered into another three-year purchase and
supply agreement with a second vendor for the purchase of handsets and other
equipment totaling more than $600 million, with purchases that commenced in
April, 1997. During 1997, the Company purchased $147.6 million under the
agreement. The total purchase commitment must be satisfied by April 2000.
SERVICE AGREEMENTS - The Company has entered into an agreement with a vendor to
provide PCS call record and retention services. Monthly rates per subscriber are
variable based on overall subscriber volume. If subscriber fees are less than
specified annual minimum charges, the Company will be obligated to pay the
difference between the amounts paid for processing fees and the annual minimum.
Annual minimums range from $20 million to $60 million through 2001. The
agreement extends through December 31, 2001, with two automatic, two-year
renewal periods, unless terminated by the Company. The Company may terminate the
agreement prior to the expiration date, but would be subject to specified
termination penalties.
The Company has also entered into an agreement with a vendor to provide prepaid
calling services. Monthly rates per minute of use are based on overall call
volume. If the average minutes of use are less than monthly specified minimums,
the Company is obligated to pay the difference between the average minutes used
at the applicable rates and the monthly minimum. Monthly minimums range from
$40,000 to $50,000 during the initial term. Certain installation and setup fees
for processing and database centers are also included in the agreement and are
dependent upon a need for such centers. The agreement extends through July 1999,
with successive one-year term renewals, unless terminated by the Company. The
Company may terminate the agreement prior to the expiration date, but would be
subject to specified termination penalties.
IV-39
<PAGE> 455
In January 1997, the Company entered into a four and one-half year contract for
consulting services. Under the terms of the agreement, consulting services will
be provided at specified hourly rates for a minimum number of hours. The total
commitment is approximately $125 million over the term of the agreement.
LITIGATION - The Company is involved in various legal proceedings incidental to
the conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the outcome
of such proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition or results of operations.
7. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint through
December 31, 1995. Amounts paid to Sprint relating to pension expense and
employer contributions to the Sprint Corporation 401(k) plan for these employees
approximated $0.3 million in 1995.
The Company maintains short-term and long-term incentive plans. All salaried
employees of Sprint Spectrum L.P. are eligible for the short-term incentive plan
commencing at date of hire. Employees of APC are covered by the APC plans.
Short-term incentive compensation is based on incentive targets established for
each position based on the Company's overall compensation strategy. Targets
contain both an objective Company component and a personal objective component.
Charges to operations for the short-term plan approximated $20.0 million, $12.3
million, and $3.5 million for the years ended December 31, 1997, 1996, and 1995,
respectively.
LONG-TERM COMPENSATION OBLIGATION - The Company has two long-term incentive
plans, the 1996 Plan and the 1997 Plan. Employees meeting certain eligibility
requirements are considered to be participants in each plan. Participants in the
1996 Plan will receive 100% of the pre-established targets for the period from
July 1, 1995 to June 30, 1996 (the "Introductory Term"). Participants in the
1996 Plan elected either a payout of the amount due or converted 50% or 100% of
the award to appreciation units. Unless converted to appreciation units, payment
for the Introductory Term of the 1996 Plan will be made in the third quarter of
1998. Under the 1996 plan, appreciation units vest 25% per year commencing on
the second anniversary of the date of grant and expire after a term of ten
years. The 1997 Plan appreciation units vest 25% per year commencing on the
first anniversary of the date of the grant and also expire after ten years. For
the years ended December 31, 1997, 1996, and 1995, $18.1 million, $9.5 million,
and $1.9 million, respectively, has been expensed under both plans. At December
31, 1997 a total of approximately 103 million units have been authorized for
grant for both plans. The Company has applied APB Opinion No. 25, "Accounting
for Stock Issued to Employees" for 1997 and 1996. No significant difference
would have resulted if SFAS No. 123, "Accounting for Stock-Based Compensation"
had been applied.
SAVINGS PLAN - Effective January, 1996, the Company established a savings and
retirement program (the "Savings Plan") for certain employees, which qualifies
under Section 401(k) of the Internal Revenue Code. Most permanent full-time, and
certain part-time, employees are eligible to become participants in the plan
after one year of service or upon reaching age 35, whichever occurs first.
Participants make contributions to a basic before tax account and supplemental
before tax account. The maximum contribution for any participant for any year is
16% of such participant's compensation. For each eligible employee who elects to
participate in the Savings Plan and makes a contribution to the basic before tax
account, the Company makes a matching contribution. The matching contributions
equal 50%
IV-40
<PAGE> 456
of the amount of the basic before tax contribution of each participant up to the
first 6% that the employee elects to contribute. Contributions to the Savings
Plan are invested, at the participant's discretion, in several designated
investment funds. Distributions from the Savings Plan generally will be made
only upon retirement or other termination of employment, unless deferred by the
participant. Expense under the Savings Plan approximated $4.9 million and $1.1
million in 1997 and 1996, respectively.
APC also has an employee savings plan that qualifies under Section 401(k) of the
Internal Revenue code. All APC employees completing one year of service are
eligible and may contribute up to 15% of their pretax earnings. APC matches 100%
of the first 3% of the employee's contribution. Employees are immediately fully
vested in APC's contributions. In addition, APC makes discretionary
contributions on behalf of eligible participants in the amount of 2% of
employee's compensation. Expenses relating to the employee savings plan have not
been significant since the date of acquisition.
PROFIT SHARING (RETIREMENT) PLAN - Effective January, 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts of
the Company's retirement plan. Vesting occurs once a participant completes five
years of service. For the years ended December 31, 1997 and 1996, expense under
the profit sharing plan approximated $2.5 million and $0.7 million,
respectively.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES - Effective January, 1997, the Company
established a non-qualified deferred compensation plan which permits certain
eligible executives to defer a portion of their compensation. The plan allows
the participants to defer up to 80% of their base salary and up to 100% of their
annual short-term incentive compensation. The deferred amounts earn interest at
the prime rate. Payments will be made to participants upon retirement,
disability, death or the expiration of the deferral election under the payment
method selected by the participant.
8. RELATED PARTY TRANSACTIONS
BUSINESS SERVICES - The Company reimburses Sprint for certain accounting and
data processing services, for participation in certain advertising contracts,
for certain cash payments made by Sprint on behalf of the Company and other
management services. The Company is allocated the costs of such services based
on direct usage.
Allocated expenses of approximately $10.5 million, $11.9 million, and
$2.6 million are included in selling, general and administrative expense in the
consolidated statements of operations for 1997, 1996, and 1995, respectively. In
addition to the miscellaneous services agreement described above, the Company
has entered into agreements with Sprint for invoicing services, operator
services, and switching equipment. The Company is also using Sprint as its
interexchange carrier, with the agreement for such services covered under the
Holdings partnership agreement. Charges are based on the volume of services
provided, and are similar to those that would be incurred with an unrelated
third-party vendor.
APC - The Company entered into an affiliation agreement with APC in January 1995
which provides for the reimbursement of certain allocable costs and payment of
affiliation fees. For the year ended December 31, 1997, the reimbursement of
allocable costs of approximately $14.0 million is included in selling, general
and administrative expenses. There were no reimbursements recognized in 1996 or
1995. Additionally, affiliation fees are recognized based on a percentage of
APC's net revenues. During the year ended December 31, 1997, affiliation fees of
$4.2 million are included in other income.
IV-41
<PAGE> 457
COX PCS - Concurrent with the execution of the partnership agreement, the
Company entered into an affiliation agreement with Cox PCS which provides for
the reimbursement of certain allocable costs and payment of affiliate fees. For
the years ended December 31, 1997 and 1996, allocable costs of approximately
$20.0 million and $7.3 million, respectively, are netted against selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Of these total allocated costs, approximately $1.6 million and
$7.3 million were included in receivables from affiliates in the consolidated
balance sheets. In addition, the Company purchases certain equipment, such as
handsets, on behalf of Cox PCS. Receivables from affiliates for handsets and
related equipment were approximately $31.2 million and $6 million at December
31, 1997 and 1996, respectively.
PHILLIECO, L.P. - The Company provides various services to PhillieCo, L.P.
("PhillieCo"), a limited partnership organized by and among subsidiaries of
Sprint, TCI and Cox. PhillieCo owns a PCS license for the Philadelphia MTA.
During the year ended December 31, 1997, costs for services incurred during 1996
and 1997 of $36.3 million were allocated to PhillieCo. and are included as a
reduction of selling, general and administrative expenses in the accompanying
consolidated statements of operations. Additionally, affiliation fees are
recognized based on a percentage of PhillieCo's net revenues. During the year
ended December 31, 1997, affiliation fees of $0.3 million are included in other
income in the accompanying consolidated statements of operations. The allocated
costs and affiliate fees of $36.6 million are included in receivable from
affiliates at December 31, 1997 and were paid during January 1998.
There were no such costs at December 31, 1996.
IV-42
<PAGE> 458
SPRINTCOM, INC. - The Company provides services to SprintCom, Inc.
("SprintCom"), an affiliate of Sprint. The Company is currently building out the
network infrastructure in certain BTA markets where SprintCom was awarded
licenses. Such services include engineering, management, purchasing, accounting
and other related services. For the year ended December 31, 1997, costs for
services provided of $29.1 million were allocated to SprintCom, and are included
as a reduction of selling, general and administrative expenses in the
accompanying consolidated statements of operations. Of the total allocated
costs, approximately $14.0 million are included in receivables from affiliates
at December 31, 1997. No such costs were incurred in 1996.
PAGING SERVICES - In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company and Sprint Communications
Company L.P. ("Sprint Communications"). For the years ended December 31, 1997
and 1996, Sprint Communications received agency fees of approximately $10.6
million and $4.9 million, respectively.
ADVANCES FROM PARTNERS - In December 1996, the Partners advanced approximately
$168 million to the Company, which was contributed to Cox PCS (Note 4). The
advances were repaid in February 1997.
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<PAGE> 459
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 First Second Third Fourth
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating revenues ........... $ 9,467 $ 25,386 $ 72,534 $141,220
Operating expenses ........... 200,281 303,098 455,236 600,726
Net loss ..................... 188,884 287,664 420,914 665,925
1996
----
Operating revenues ........... $ -- $ -- $ -- $ 4,175
Operating expenses ........... 30,978 46,897 87,135 195,038
Net loss ..................... 67,425 90,770 101,497 183,402
</TABLE>
10. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company reorganized operations under which
certain field offices will be consolidated. Costs associated with this
reorganization are expected to be recorded in the first quarter of 1998 and will
consist primarily of severance pay, write-off of certain leasehold improvements
and termination payments under lease agreements.
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<PAGE> 460
Independent Auditors' Report
To the Board of Directors and Shareholders of
Telewest Communications plc
We have audited the accompanying consolidated balance sheet of Telewest
Communications plc and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telewest
Communications plc and subsidiaries as of December 31, 1997 and 1996, 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 in the United States of America.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
March 19, 1998
London, England
IV-45
<PAGE> 461
Telewest Communications - US GAAP
Consolidated statements of operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1997 1996 1995
$'000 L. '000 L. '000 L. '000
(NOTE 2)
<S> <C> <C> <C> <C>
REVENUE
Cable television 262,698 159,918 121,224 64,740
Telephony - residential 273,748 166,645 125,013 57,597
Telephony - business 72,085 43,882 34,562 17,449
Other (L. 3,573, L. 1,600 and L. 1,451 in 1997, 1996 and 1995,
respectively, from related parties) 26,370 16,053 9,467 4,998
-------- -------- -------- --------
634,901 386,498 290,266 144,784
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Programming (153,496) (93,441) (69,906) (32,194)
Telephony (82,373) (50,145) (52,572) (29,526)
Selling, general, and administrative (including L. 1,170, L. 2,560
and L. 3,257 in 1997, 1996 and 1995, respectively, to related
parties) (317,591) (193,335) (167,323) (105,388)
Depreciation (291,318) (177,341) (129,716) (60,019)
Amortization of goodwill (43,359) (26,395) (26,149) (7,854)
-------- -------- -------- --------
(888,137) (540,657) (445,666) (234,981)
-------- -------- -------- --------
OPERATING LOSS (253,236) (154,159) (155,400) (90,197)
OTHER INCOME/(EXPENSE):
Interest income (including L. 3,178, L. 1,723 and L. 1,583 in 1997,
1996 and 1995, respectively, from related parties) 13,074 7,959 16,651 15,645
Interest expense (232,805) (141,721) (105,172) (26,649)
Loss on disposal of interest rate swaps -- -- -- (8,609)
Foreign exchange losses, net (38,676) (23,544) (2,838) (14,575)
Share of net losses of affiliates (35,640) (21,696) (15,973) (12,777)
Gain/(loss) on disposal of assets 1,871 1,139 571 (419)
Minority interests in profits of consolidated subsidiaries, net (482) (293) (180) (16)
Other, net -- -- -- 82
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (545,894) (332,315) (262,341) (137,515)
Income tax expense (note 14) (225) (137) (50) (16)
-------- -------- -------- --------
NET LOSS (546,119) (332,452) (262,391) (137,531)
-------- -------- -------- --------
</TABLE>
IV-46
<PAGE> 462
Telewest Communications - US GAAP
Consolidated statements of operations (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1997 1996 1995
$* L. * L. * L. *
(EXCEPT NUMBER (except number
OF SHARES) of shares)
<S> <C> <C> <C> <C>
BASIC AND DILUTED LOSS PER ORDINARY SHARE
Weighted average number of ordinary shares
outstanding 927,567,600 927,567,600 925,425,473 861,424,848
BASIC AND DILUTED LOSS PER ORDINARY SHARE (0.59) (0.36) (0.28) (0.16)
</TABLE>
See accompanying notes to the consolidated financial statements
* EXCEPT NUMBER OF SHARES
IV-47
<PAGE> 463
Telewest Communications - US GAAP
Consolidated balance sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1997 1996
$'000 L. '000 L. '000
ASSETS (note 2)
<S> <C> <C> <C>
Cash and cash equivalents 48,595 29,582 79,116
Trade receivables (net of allowance for doubtful accounts of
L. 6,507 and L. 5,405) 60,167 36,627 29,305
Other receivables (note 7) 43,050 26,207 32,394
Prepaid expenses 12,526 7,625 5,168
Investment in affiliates, accounted for under the equity method,
and related receivables (note 8) 98,081 59,707 69,420
Other investments, at cost 42,162 25,666 25,666
Property and equipment (less accumulated depreciation of
L. 481,451 and L. 308,240) (note 9) 2,801,658 1,705,520 1,447,194
Goodwill (less accumulated amortization of L. 64,301 and L. 37,907 ) 765,342 465,905 491,290
Other assets (less accumulated amortization of L. 10,140 and L. 4,162)
(note 11) 92,833 56,513 62,387
---------- ---------- ----------
TOTAL ASSETS 3,964,414 2,413,352 2,241,940
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 43,877 26,710 46,855
Other liabilities (note 12) 326,345 198,664 190,200
Debt (note 13) 2,255,516 1,373,054 879,351
Capital lease obligations (note 17) 124,080 75,534 54,390
---------- ---------- ----------
TOTAL LIABILITIES 2,749,818 1,673,962 1,170,796
---------- ---------- ----------
MINORITY INTERESTS 1,051 640 347
---------- ---------- ----------
SHAREHOLDERS' EQUITY (note 15)
Convertible preference shares, 10p par value; 661,000,000 shares
authorized and 496,066,708 shares issued and outstanding 81,489 49,607 49,607
Ordinary shares, 10p par value; 2,010,000,000 shares authorized;
927,567,600 issued and outstanding in 1997 and 1996 152,372 92,757 92,757
Additional paid-in capital 2,189,533 1,332,887 1,332,887
Accumulated deficit (1,206,661) (734,560) (402,108)
---------- ---------- ----------
1,216,733 740,691 1,073,143
Ordinary shares held in trust for the Telewest Restricted Share
Scheme (note 16) (3,188) (1,941) (2,346)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,213,545 738,750 1,070,797
---------- ---------- ----------
Commitments and contingencies (note 17)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,964,414 2,413,352 2,241,940
---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements
IV-48
<PAGE> 464
Telewest Communications - US GAAP
Consolidated statements of cash flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1997 1996 1995
$'000 L. '000 L. '000 L. '000
(NOTE 2)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (546,119) (332,452) (262,391) (137,531)
Adjustments to reconcile Net loss to net
cash provided by / (used in) operating
activities:
Depreciation 291,318 177,341 129,716 60,019
Amortization of goodwill 43,359 26,395 26,149 7,854
Amortization of deferred financing costs and issue discount
on senior discount debentures 127,280 77,482 74,104 16,605
Accrued interest on senior debentures -- -- -- 5,451
Unrealized loss on foreign currency translation 38,676 23,544 2,838 14,575
Loss on disposal of interest rate swaps -- -- -- 8,609
Share of net losses of affiliates 35,640 21,696 15,973 12,777
(Gain)/loss on disposals of assets (1,871) (1,139) (571) 419
Minority interests in profits of consolidated subsidiaries 482 293 180 16
Changes in operating assets and liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (7,011) (4,268) (15,908) (5,282)
Change in prepaid expenses (4,036) (2,457) 953 (3,367)
Change in accounts payable (11,648) (7,091) (4,575) (5,603)
Change in other liabilities 38,825 23,635 51,668 19,206
Other -- -- -- (356)
-------- -------- -------- --------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 4,895 2,979 18,136 (6,608)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (714,635) (435,037) (464,367) (254,453)
Cash paid for acquisition of subsidiaries (999) (608) (14,167) (3,232)
Additional investments in and loans to affiliates (14,825) (9,025) (2,728) (9,143)
Additions to other investments -- -- (5,000) --
Proceeds from disposals of assets 9,962 6,066 3,059 688
Other investing activities -- -- -- 335
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (720,497) (438,604) (483,203) (265,805)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for credit facility arrangement costs -- -- (18,400) --
Proceeds from debenture issue -- -- -- 754,812
Cash paid for foreign currency option -- -- -- (88,070)
Repayment of borrowings (3,901) (2,375) (937) (157,930)
Cash paid for debenture issue costs -- -- (829) (20,574)
Cash paid for share issue costs -- -- -- (6,141)
Proceeds from borrowings 644,760 392,500 100,400 --
Capital element of finance lease repayments (6,523) (3,971) (1,231) (1,291)
-------- -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 634,336 386,154 79,003 480,806
-------- -------- -------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (81,266) (49,471) (386,064) 208,393
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (103) (63) 362 8,423
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 129,964 79,116 464,818 248,002
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR 48,595 29,582 79,116 464,818
-------- -------- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements
IV-49
<PAGE> 465
Telewest Communications - US GAAP
Consolidated statement of shareholders' equity
<TABLE>
<CAPTION>
Convertible Shares Additional Accumulated
preference Ordinary held Paid-in deficit
shares shares in trust Capital Total
L. '000 L. '000 L. '000 L. '000 L. '000 L. 'OOO
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 15,300 84,824 (7,280) 686,276 (2,186) 776,934
Conversion of ordinary shares into
convertible preference shares (see note 15) 11,227 (11,227) -- -- -- --
Shares issued in connection with the
acquisition of TCMN (see notes 5 and 15) 23,080 18,399 -- 636,695 -- 678,174
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- 5,171 -- -- 5,171
Net Loss -- -- -- -- (137,531) (137,531)
BALANCE AT DECEMBER 31, 1995 49,607 91,996 (2,109) 1,322,971 (139,717) 1,322,748
Ordinary shares issued -- 761 -- 9,916 -- 10,677
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- (237) -- -- (237)
Net loss -- -- -- -- (262,391) (262,391)
BALANCE AT DECEMBER 31, 1996 49,607 92,757 (2,346) 1,332,887 (402,108) 1,070,797
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- 405 -- -- 405
Net loss -- -- -- -- (332,452) (332,452)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 49,607 92,757 (1,941) 1,332,887 (734,560) 738,750
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
IV-50
<PAGE> 466
Telewest Communications - US GAAP
Notes to the consolidated financial statements
Years ended December 31, 1997 and 1996
1) ORGANIZATION AND HISTORY
Telewest Communications plc ("the Company") is a cable television and
telephony operator which offers these services to business and
residential customers in the United Kingdom ("UK"). The Company derives
its cable television revenues from installation fees, monthly basic and
premium service fees and advertising charges. The Company derives its
telephony revenues from connection charges, monthly line rentals, call
charges, special residential service charges and interconnection fees
payable by other operators. The cable television and telephony services
account for approximately 41% and 54%, respectively, of the Company's
revenue. This revenue is predominantly derived from residential, rather
than business, customers.
The Company was incorporated on October 20, 1994 under the laws of
England and Wales in preparation for the October 2,1995 internal
reorganization of Telewest Communications Cable Limited ("TCCL"), then
called Telewest Communications plc, and its subsidiaries whereby the
entire issued share capital of TCCL was transferred to the Company in
exchange for fully paid up shares of the Company. TCCL had traded since
November 22, 1994 when affiliates of Tele-Communications, Inc. (the "TCI
Affiliates") and affiliates of US WEST (the "US WEST Affiliates")
contributed their UK cable interests to TCCL (the "Contribution"). These
interests were previously held by the TCI Affiliates and US WEST
Affiliates through TCI/US Cable Communications Group, a general
partnership. TCI/US WEST Cable Communications Group and its subsidiaries
collectively are referred to herein as the "Joint Venture" and the TCI
Affiliates and US WEST Affiliates collectively are referred to herein as
the "Joint Venturers".
2) BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America ("US GAAP"). The preparation of financial statements in
conformity with US GAAP 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
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The economic environment and currency in which the Company operates is
the UK and hence its reporting currency is Pounds Sterling (L.).
Certain financial information for the year ended December 31, 1997 has
also been translated into US Dollars, with such US Dollar amounts being
unaudited and presented solely for the convenience of the reader, at the
rate of $1.6427 = L. 1.00, the Noon Buying Rate of the Federal
Reserve Bank of New York on December 31, 1997. The presentation of the
US Dollar amounts should not be construed as a representation that the
Pounds Sterling amounts could be so converted into US Dollars at the
rate indicated or at any other rate.
IV-51
<PAGE> 467
Telewest Communications - US GAAP
Notes to consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and those of all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated upon
consolidation.
All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and
affiliates acquired in the year are included in the consolidated
statement of operations from the date of acquisition.
Impairment of Long-Lived Assets. Effective January 1, 1996, the company
adopted Statement of Financial Accounting Standards No. 121 (FAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of." FAS 121 requires that long-lived assets and certain
identifiable intangibles, including goodwill, to be held and used by an
entity, to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Upon adoption of this standard, the company evaluated its
long-lived assets using projected undiscounted future cash flows and
operating income for each subsidiary and determined that no material
impairment of these assets existed at January 1, 1996, and, accordingly,
no loss was recognized. The company believes that no material impairment
existed at December 31, 1997.
Goodwill arising on consolidation (representing the excess of the fair
value of the consideration given over the fair value of the identifiable
net assets acquired) is amortized over the acquisition's useful life or
over a maximum period of 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted future operating cash flows of
the acquired operations. The assessment of the recoverability of
goodwill will be impacted if projected future operating cashflows are
not achieved. The amount of goodwill impairment, if any, is measured
based on the projected discounted future operating cashflows using a
discount rate reflecting the Company's cost of funds.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with
original maturities of three months or less that are readily convertible
into cash.
IV-52
<PAGE> 468
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do
not require, the Company to exchange foreign currencies at a future date
with another party at a contracted exchange rate. The Company also
enters into combined foreign currency and interest rate swap contracts
("Foreign Currency Swaps"). Such contracts are used to hedge against
adverse changes in foreign currency exchange rates associated with
obligations denominated in foreign currency. The foreign currency option
and Foreign Currency Swaps are recorded on the balance sheet in other
assets or other liabilities at their fair value at the reporting period
with changes in their fair value during the reporting period being
reported as part of the foreign exchange gain or loss in the
consolidated statement of operations. Such gains and losses are offset
against foreign exchange gains and losses on the obligations denominated
in foreign currencies which have been hedged.
Interest swap agreements which are used to manage interest rate risk on
the Company's borrowings are accounted for using the accruals method,
Net income or expense resulting from the differential between floating
and fixed rate interest payments is recorded on an accruals basis. To
the extent that the interest rate swap agreements are delaying starting,
net income or expense is not recognized until the effective date of the
agreement.
Other interest rate swaps which are held as trading assets are recorded
on the consolidated balance sheet at their fair value at the end of each
reporting period with changes in their fair value being recorded as
gains and losses in the consolidated statement of operations.
INVESTMENTS
Investments in partnerships, joint ventures and subsidiaries in which
the Company's voting interest is 20% to 50%, and others where the
Company has significant influence, are accounted for using the equity
method. Investments which do not have a readily determinable fair value,
in which the Company's voting interest is less than 20%, and in which
the Company does not have significant influence, are carried at cost and
written down to the extent that there has been an other-than-temporary
diminution in value.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising
costs expensed was L. 25,920,000, L. 24,846,000, and L. 10,246,000 for
the years ended 31 December 1997, 1996, and 1995, respectively.
IV-53
<PAGE> 469
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the historical
carryover basis cost from the Contribution. Except during the
pre-maturity period as described below, depreciation is provided to
write off the cost, less estimated residual value, of property and
equipment by equal installments over their estimated useful economic
lives as follows:
<TABLE>
<S> <C>
Freehold and long leasehold buildings 50 years
Cable and ducting 20 years
Electronic equipment
- Systems electronics 8 years
- Switching equipment 8 years
- Subscriber electronics 5 years
- Headend, studio, and playback facilities 5 years
Other equipment
- Office furniture and fittings 5 years
- Motor vehicles 4 years
</TABLE>
During the pre-maturity period, depreciation of cable and ducting and
system electronics is charged monthly to write off the estimated cost at
the end of the pre-maturity phase over a useful life of 20 and 8 years,
respectively. In accordance with Statement of Financial Accounting
Standard ("SFAS") No 51, "Financial Reporting by Cable Television
Companies", the monthly charge is scaled down by a ratio of average
customers in the current period to the estimated customer base at the
end of the pre-maturity period. The pre-maturity period covers the
period between connecting the first customer and substantial completion
of the network.
Pre-construction costs which are included within cable and ducting are
amortized over the life of the franchise from the date of the first
customer.
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under SFAS No 51.
The estimated useful lives of cable and ducting and systems electronics
were reassessed with effect from January 1, 1996, and were changed from
25-30 years and 10 years to 20 years and 8 years,
IV-54
<PAGE> 470
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
respectively. The net book value of these assets are being written off
over their revised estimated remaining lives.
In 1997, the treatment of activation costs was reviewed. With effect
from 1 January 1997, activation labour was reclassified from cable and
ducting to electronics to be consistent with the classification of
activation materials. The assets are now depreciated over 8 years rather
than 20 years.
FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licences
is included in property and equipment and is amortized over the
remaining life of the original franchise term. Costs relating to
unsuccessful applications are charged to the consolidated statement of
operations.
DEFERRED FINANCING COSTS
Costs incurred in raising debt are deferred and recorded on the
consolidated balance sheet in other assets. The costs are amortized to
the consolidated statement of operations at a constant rate to the
carrying value of the debt over the life of the obligation.
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the equity of those consolidated subsidiaries.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of
exchange in effect at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the balance sheet date and the gains or
losses on translation are included in the consolidated statement of
operations.
REVENUE RECOGNITION
Revenue is recognized as services are delivered. Other revenues include
connection fees which are recognized in the period of connection to the
extent that the fee is offset by direct selling costs. The remainder is
recognized over the estimated average period that customers are expected
to remain connected to the system.
PENSION COSTS
The Company operates a defined contribution scheme or contributes up to
specified limits to third-party schemes on behalf of the employees. The
amount included in losses in 1997, 1996 and 1995 of L. 2,801,000, L.
2,580,000, and L. 1,538,000, respectively, represents the contributions
payable to the selected schemes in respect of the relevant accounting
periods.
IV-55
<PAGE> 471
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Under the asset and liability method of SFAS No 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered.
SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for share-based
employee compensation plans at fair value. The Company has chosen to
continue to account for share-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for share options is measured as the
excess, if any, of the quoted market price of the Company's share at the
date of the grant over an employee must pay to acquire the shares.
Share purchased by the trustees in connection with the Telewest
Restricted Share Scheme, are valued at the market price on the date on
which they are purchased and are reflected as a reduction of
shareholders' equity in the consolidated balance sheet. This equity
account is reduced when the shares are awarded to employees based on the
original cost of the shares to the trustees. The value of awards of
ordinary shares to be made to employees in future years is charged to
the consolidated statement of operations to the extent that the awards
have been awarded to and earned by employees in the current accounting
period. The value of shares which have been awarded to, but have not
been earned by employees is included as deferred compensation expense
within other assets.
NEW ACCOUNTING STANDARDS APPLICABLE TO THE COMPANY
EARNINGS PER SHARE AND CAPITAL STRUCTURE
The Company adopted the provisions of SFAS No. 128, "Earnings per
Share." This Statement required that all prior-period earnings per
share calculations be restated to conform with the provisions of this
statement. Basic earnings per share has been computed by dividing net
income available to ordinary shareholders by the weighted average number
of ordinary shares outstanding during the period. Diluted earnings per
share is computed by adjusting the weighted average number of ordinary
shares outstanding during the period for all dilutive potential ordinary
shares outstanding during the period and adjusting the net loss for any
changes in income or loss that would result from the conversion of such
potential ordinary shares. There is no difference in net income and
number of shares used for basic and diluted net income per ordinary
share, as potential ordinary share equivalents are not included in the
computation as their effect would be to decrease the loss per share.
IV-56
<PAGE> 472
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
for comparative purposes is required. It requires that all items that
are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of the statement of financial position. The Company is currently
reviewing the likely impact on the classification of items included in
the shareholders' equity.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997. In the initial year of
application comparative information for earlier years is to be restated.
It requires that companies disclose segment data based on how management
makes decisions about allocating resources to segments and measuring
their performance. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in
which it holds assets and reports revenues, and its major customers. The
Company is currently reviewing the likely impact on the level of
disclosure currently provided in its financial statements.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosure about Pensions and other Post-retirement Benefits" (SFAS No.
132" ). SFAS No. 132 revises disclosure requirements about employers'
pension and other post-retirement benefit plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The
company has not determined the impact that SFAS No. 132 will have on its
pension and other post-retirement benefit disclosures.
IV-57
<PAGE> 473
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS
FOREIGN CURRENCY OPTION CONTRACT
At December 31, 1997, the Company held a Pounds Sterling put option to
purchase US$1,537,000,000 to hedge its exposure to adverse fluctuations
in exchange rates on the principal amount at maturity of its US
Dollar-denominated Senior Discount Debentures due 2007 ("Senior Discount
Debentures"). The expiration date of this option contract is September
28, 2000. The put option has a strike price at expiration of L. 1.00 =
US$1.4520. The foreign currency option has been included in other assets
at its fair value on December 31, 1997.
FOREIGN CURRENCY SWAP
The Company has entered into a Foreign Currency Swap to hedge its
exposure to adverse fluctuations in exchange rates on the principal
amount of its US Dollar-denominated Senior Debentures due 2006 ("Senior
Debentures"). The terms of the contract provided for the Company to make
an initial exchange of principal of US$300,000,000 in exchange for
L. 196,078,000. On expiration on October 1, 2000, the initial principal
amounts will be re-exchanged. The interest element of the Foreign
Currency Swap requires the Company to make Pounds Sterling fixed-rate
interest payments and to receive US Dollar fixed-rate interest payments
on the initial exchange amounts on a semi annual basis. The foreign
currency swap contract has been included in other liabilities at its
fair value on December 31, 1997.
INTEREST RATE SWAPS
The Company has also entered into certain delayed-starting interest rate
swap agreements in order to manage interest rate risk on its senior
secured credit facility ("Senior Secured Facility"). The effective dates
of the swap agreements are January 2, 1997 and March 3, 1997, and the
agreements mature on December 31, 2001 and March 28, 2002. The aggregate
notional principal amount of the swaps adjusts upwards on a semi-annual
basis to a maximum of L. 750 million. In accordance with the swap
agreements, the Company receives interest at the six month LIBOR rate
and pays a fixed interest rate in the range of 7.835-7.975%.
IV-58
<PAGE> 474
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" requires disclosure of an estimate of
the fair values of certain financial instruments. SFAS No. 119 defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties other than in a forced sale. Fair value estimates are made at a
specific point in time, based upon relevant market information and
information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgement, and therefore cannot be determined precisely.
Changes in assumptions could significantly affect the estimates.
At 31 December 1997, the Company's significant financial instruments
include cash and cash equivalents, trade receivables, a foreign currency
option contract, a Foreign Currency Swap, interest rate swap agreements,
trade payables and long-term borrowings. The following table summarizes
the fair value of the foreign currency option contract, the Foreign
Currency Swap, the interest rate swap agreement, the Senior Discount
Debentures and the Senior Debentures. The fair value of the other
financial instruments held by the Company approximates their recorded
carrying amount due to the short maturity of these instruments and these
instruments are not presented in the following table.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 At December 31, 1996
CARRYING FAIR VALUE Carrying Fair value
AMOUNT amount
L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C>
Assets:
Foreign currency option
contract 26,145 26,145 25,828 25,828
Liabilities:
Interest rate swap agreements -- 25,543 -- 4,776
Foreign Currency Swap 18,039 18,039 26,481 26,481
Senior Discount Debentures 696,954 729,532 600,799 621,367
Senior Debentures 182,626 189,931 175,203 179,582
</TABLE>
IV-59
<PAGE> 475
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of the foreign currency option contract, the
interest rate swap agreements and the Foreign Currency Swap are based on
quotations received from independent, third party financial institutions
and represent the net amount receivable or payable to terminate the
position, taking into consideration market rates and counter-party
credit risk. The estimated fair values of the Senior Discount Debentures
and the Senior Debentures are also based on quotations from independent
third party financial institutions and are based on discounting the
future cash flows to net present values using appropriate market
interest rates prevailing at the year end.
MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments
to changes in related currency and interest rates. Generally, the
Company is not exposed to such market risk because gains and losses on
the financial instruments are offset by gains and losses on the
underlying assets and liabilities.
The Company may be exposed to potential losses due to the credit risk of
non-performance by the counter-parties to its foreign currency option,
interest rate swap agreements and Foreign Currency Swap contract,
however such losses are not anticipated as these counter-parties are
major international financial institutions.
Temporary cash investments also potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risks." The Company
places its temporary cash investments with major international financial
institutions and limits the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers
comprising the Company's customer base.
At December 31, 1997, the Company had no significant concentration of
credit risk.
IV-60
<PAGE> 476
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(5) BUSINESS COMBINATIONS
On January 10, 1996, the Company acquired the entire issued share
capital of Telewest Communications (Worcester) Limited, then called Bell
Cablemedia (Worcester) Limited and owner of the Worcester cable
franchise for cash consideration of L. 9,849,000. Telewest
Communications (Worcester) Limited was otherwise a dormant company with
net assets of L. 2 representing its called up share capital. This
acquisition had been accounted for under the purchase method of
accounting. The goodwill arising on acquisition was L. 9,849,000 and
is being amortised on a straight-line basis over 20 years.
During 1996, the Company made various other minor acquisitions, largely
for share consideration. The goodwill arising on these acquisitions was
L. 11,708,000 and is being amortised on a straight-line basis over
20 years.
On October 3, 1995, the Company acquired the entire share capital of
Telewest Communications Midlands & North West) Limited ("TCMN"), then
called SBC CableComms (UK), a company which holds cable television and
telephony interests in the UK, from an affiliate of Cox Communications,
Inc. and affiliates of SBC Communications, Inc. in exchange for an
aggregate of 183,994,960 ordinary shares of 10 pence each and
230,790,208 convertible preference shares of 10 pence each. The value
attributable to the shares issued was L. 1.635 per share, being the
market price of the shares on June 8, 1995, the day the terms of the
acquisition were agreed to and announced. The fair value of the share
consideration using this share price was L. 678,174,000. The
aggregate cost of acquisition was L. 689,878,000 including the costs
of acquisition. This acquisition has been accounted for under the
purchase method of accounting. The goodwill arising on acquisition is
L. 464,872,000 and is being amortized on a straight-line basis over
20 years.
IV-61
<PAGE> 477
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(6) SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was L. 63,479,000, L. 25,795,000 and L. 6,041,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Significant non-cash investing activities of the Company are described
below. The amounts stated for 1996 represent the purchase of former
minority shareholders' interests in certain UK cable interests held by
the Company. The amounts stated for 1995 represent the purchase of TCMN
for largely share consideration as described in Note 5 to the
consolidated financial statements.
<TABLE>
<CAPTION>
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Purchase/contribution of cable interests:
Assets -- -- 428,080
Liabilities assumed -- -- (45,144)
Debt assumed -- -- (157,930)
-------- -------- --------
Net assets acquired/contributed -- -- 225,006
Goodwill on acquisition -- 9,874 464,872
-------- -------- --------
-- 9,874 689,878
-------- -------- --------
Share consideration/capital contribution -- 9,869 678,174
Costs of acquisition -- 5 11,704
-------- -------- --------
-- 9,874 689,878
-------- -------- --------
</TABLE>
IV-62
<PAGE> 478
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(7) OTHER RECEIVABLES
<TABLE>
<CAPTION>
At December 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Value Added Tax refund 4,567 10,633
Interconnection receivables 1,505 3,865
Interest receivable 807 63
Accrued income 8,290 4,356
Prepaid expenses 3,161 5,714
Other 7,877 7,763
------ ------
26,207 32,394
------ ------
</TABLE>
(8) INVESTMENTS
The Company has investments in affiliates accounted for under the equity
method at December 31, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
Percentage ownership
At December 31,
1997 1996
<S> <C> <C>
Cable London plc 50.00% 50.00%
Birmingham Cable Corporation Limited 27.47% 27.47%
London Interconnect Limited 16.67% 16.67%
Central Cable Sales Limited 50.00% 50.00%
Front Row Television Limited 40.00% --
</TABLE>
The Company has accounted for its investment in London Interconnect
Limited under the equity method because it is in a position to exercise
a significant influence over London Interconnect Limited.
IV-63
<PAGE> 479
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Summarized combined financial information for such affiliates which
operate principally in the cable television and telephony industries is
as follows:
COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
AT DECEMBER 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Property and equipment, net 429,161 391,183
Intangible assets, net 4,859 3,845
Other assets, net 30,249 105,475
------- -------
TOTAL ASSETS 464,269 500,503
------- -------
Debt 293,492 281,500
Other liabilities 98,758 91,947
Owners' equity 72,019 127,056
------- -------
TOTAL LIABILITIES AND EQUITY 464,269 500,503
------- -------
</TABLE>
COMBINED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
L. '000 L. '000
<S> <C> <C>
Revenue 120,468 98,329
Operating expenses (150,768) (124,358)
-------- --------
Operating loss (30,300) (26,029)
Interest expense (26,311) (15,945)
-------- --------
NET LOSS (56,611) (41,974)
-------- --------
</TABLE>
The Company's investments in affiliates are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
L. '000 L. '000
<S> <C> <C>
Loans 39,863 29,089
Share of net assets 19,844 40,331
------ ------
59,707 69,420
------ ------
</TABLE>
IV-64
<PAGE> 480
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Any excess of the purchase cost over the value of the net assets
acquired is treated as goodwill and amortized over 20 years on a
straight-line basis.
(9) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
CABLE AND ELECTRONIC OTHER
LAND BUILDINGS DUCTING EQUIPMENT EQUIPMENT TOTAL
L. '000 L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1997 4,223 45,956 1,101,961 489,835 113,459 1,755,434
Reclassification -- (62) (118,331) 117,954 439 --
Additions 11 8,683 280,814 101,204 49,882 440,594
Disposals -- -- (182) (556) (8,319) (9,057)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 4,234 54,577 1,264,262 708,437 155,461 2,186,971
---------- ---------- ---------- ---------- ---------- ----------
ACCUMULATED DEPRECIATION
Balance at January 1, 1997 -- 7,378 121,181 130,483 49,198 308,240
Reclassification -- -- (12,792) 12,792 -- --
Charge for year -- 3,824 59,324 88,502 25,691 177,341
Disposals -- -- (182) (229) (3,719) (4,130)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 -- 11,202 167,531 231,548 71,170 481,451
---------- ---------- ---------- ---------- ---------- ----------
1997 NET BOOK VALUE 4,234 43,375 1,096,731 476,889 84,291 1,705,520
---------- ---------- ---------- ---------- ---------- ----------
ACQUISITION COSTS
Balance at January 1, 1996 4,223 36,005 766,866 359,617 79,239 1,245,950
Additions -- 9,951 335,844 130,783 39,012 515,590
Disposals -- -- (749) (565) (4,792) (6,106)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 4,223 45,956 1,101,961 489,835 113,459 1,755,434
---------- ---------- ---------- ---------- ---------- ----------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 -- 4,920 74,532 70,810 31,880 182,142
Charge for year -- 2,458 47,374 60,220 19,664 129,716
Disposals -- -- (725) (547) (2,346) (3,618)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 -- 7,378 121,181 130,483 49,198 308,240
---------- ---------- ---------- ---------- ---------- ----------
1996 NET BOOK VALUE 4,223 38,578 980,780 359,352 64,261 1,447,194
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
IV-65
<PAGE> 481
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Cable and ducting consists principally of civil engineering and fibre optic
costs. In addition, cable and ducting includes net book value of
pre-construction and franchise costs of L. 9,807,000 and L. 13,220,000
as of December 31, 1997 and 1996, respectively. Electronic equipment includes
the Company's switching, headend and converter equipment. Other equipment
consists principally of motor vehicles, office furniture and fixtures, leasehold
improvements.
(10) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED
TO
BALANCE AT ACQUISITION OF COSTS AND BALANCE AT
JANUARY 1 TCMN EXPENSES DEDUCTIONS DECEMBER 31
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
1997
Allowance for
doubtful accounts 5,405 -- 8,815 (7,713) 6,507
------ ------ ------ ------ ------
1996
Allowance for
doubtful accounts 4,695 -- 9,020 (8,310) 5,405
------ ------ ------ ------ ------
1995
Allowance for
doubtful accounts 1,736 1,063 5,920 (4,024) 4,695
------ ------ ------ ------ ------
</TABLE>
(11) OTHER ASSETS
The components of other assets, net of amortization, are as follows:
<TABLE>
<CAPTION>
At December 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Deferred financing costs of debentures 13,770 17,510
Deferred financing costs of Senior Secured Facility 15,963 18,186
Foreign currency option contract 26,145 25,828
Other 635 863
------ ------
56,513 62,387
------ ------
</TABLE>
(12) OTHER LIABILITIES
Other liabilities are summarised as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Amounts due to affiliated or other related parties 61 1,901
Accrued interest 13,641 8,921
Accrued construction costs 30,235 36,397
Accrued expenses and deferred income 112,198 82,938
Foreign Currency Swap 18,039 26,481
Other liabilities 24,490 33,562
------- -------
198,664 190,200
</TABLE>
IV-66
<PAGE> 482
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(13) DEBT
Debt is summarized as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted average 1997 1996
interest rate L. '000 L. '000
1997 1996
<S> <C> <C> <C> <C>
Senior Debentures 9.625% 9.625% 182,626 175,203
Senior Discount Debentures 11.000% 11.000% 696,954 600,799
Senior Secured Facility 9.071% 8.281% 492,500 100,000
Other debt 8.719% 7.790% 974 3,349
-------- --------
1,373,054 879,351
-------- --------
</TABLE>
SENIOR DEBENTURES
In October 1995, the Company issued US$300,000,000 principal amount of
Senior Debentures with a yield to maturity of 9.625%. The cash
consideration received at the date of issue was L. 188,703,000. The
Senior Debentures mature on October 1, 2006. Interest on the Senior
Debentures accrues semi annually and is payable in arrears. The Senior
Debentures are redeemable, in whole or in part, at the option of the
Company at any time on or after October 1, 2000 at the redemption price
of 104.813% of the principal amount during the year commencing October
1, 2000, 102.406% of the principal amount during the year commencing
October 1, 2001, and thereafter at 100% of the principal amount plus
accrued and unpaid interest.
The Senior Debentures and the Senior Discount Debentures, which are
described below, were issued to finance working capital, capital
expenditure, foreign currency swap and options to hedge against adverse
fluctuations in exchange rates, and additional investments in affiliated
companies. A portion of the net proceeds of the issue also was used to
repay the L. 157,930,000 indebtedness outstanding under the loan
facility held by TCMN at the date that it was acquired by the Company.
The indenture under which the Senior Debentures were issued contains
various covenants which among other things, restrict the ability of the
Company to incur additional indebtedness, pay dividends, create certain
liens, enter into certain transactions with shareholders or affiliates,
or sell certain assets. The Company was in compliance with the covenants
at December 31, 1997.
IV-67
<PAGE> 483
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(13) DEBT (CONTINUED)
The Company has entered into a Foreign Currency Swap to hedge its
exposure to adverse fluctuations in exchange rates on the principal
amount which will be outstanding on October 1, 2000, the earliest
redemption date, and the associated interest payments of the Senior
Debentures. The terms of the Foreign Currency Swap are described in Note
4 to the consolidated financial statements.
The Senior Debentures are unsecured liabilities of the Company.
SENIOR DISCOUNT DEBENTURES
In October 1995, the Company issued US$1,536,413,000 principal amount at
maturity of Senior Discount Debentures with a yield to maturity of 11%.
The cash consideration received at the date of issue was L. 566,109,000
(US$900,000,000). At December 31, 1997, the unamortized portion of the
discount on issue was L. 238,344,000 (US$391,528,000). The Senior
Discount Debentures mature on October 1, 2007. Interest on the Senior
Discount Debentures accrues semi annually. Cash interest will not accrue
on the Senior Discount Debentures prior to October 1, 2000 and is
thereafter payable in arrears on April 1 and October 1 of each year at a
rate of 11% per annum. The Senior Discount Debentures are redeemable, in
whole or in part, at the option of the Company at any time on or after
October 1, 2000 at the redemption price of 100% of the principal amount
plus accrued and unpaid interest.
The indenture under which the Senior Discount Debentures were issued
contains various covenants as set out for the Senior Debentures above
and the Company was in compliance with such covenants at December 31,
1997.
The Company has purchased a five year Pounds Sterling put option to
purchase US$1,537,000,000 to hedge its exposure to adverse fluctuations
in exchange rates on the principal amount which will be outstanding on
October 1, 2000, the earliest redemption date, of the Senior Discount
Debentures. The terms of the foreign currency option contract are
described in Note 4 to the consolidated financial statements.
The Senior Discount Debentures are unsecured liabilities of the Company.
SENIOR SECURED FACILITY
During 1996 a subsidiary of the Company entered into a senior secured
facility (the "Senior Secured Facility") with a syndicate of banks. The
facility is available to finance the capital expenditure, working
capital requirements and other permitted related activities involving
the construction and operation of all the Company's owned and operated
franchises, to pay cash interest on the Company's unsecured debentures,
to fund the repayment of existing secured borrowings in respect of the
London South and South West Regional Franchise Areas, to fund loans to
or investments in affiliated companies, to bid for or purchase, and
subsequently construct, licenses or franchises which may become
available and to refinance advances and the payment of interest, fees,
and expenses in respect of the Senior Secured Facility.
IV-68
<PAGE> 484
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
The facility is divided into two tranches: the first portion (Tranche A)
is available on a revolving basis for up to L. 300 million, reducing to
L. 100 million by June 30, 1998 with full repayment by December 31,
1998; the second portion (Tranche B) is available on a revolving basis
concurrently with Tranche A for an amount up to 6.5 times the trailing,
rolling six month annualised consolidated net operating cash flow,
gradually reducing throughout the period of the facility to 4 times by
January 1, 2000. Thereafter, the amount outstanding under the facility
converts to a term loan amortising over 5 years. The aggregate drawing
at any time under both tranches cannot exceed L. 1.2 billion. At
December 31, 1997 L. 125 million (1996:$100 million) was outstanding
under Tranche A, and L. 367.5 million under Tranche B (1996:$nil)
Borrowings under the facility are secured by the assets of the Company,
including the partnership interests and shares of subsidiaries, and bear
interest at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875%
above LIBOR (depending on the ratio of borrowings to the trailing,
rolling six month annualized consolidated net operating cash flow) for
Tranche B.
(13) DEBT (CONTINUED)
Since 31 December 1997, this facility has been restructured with revised
financial covenants, a reduction in the amount available under the
facility from $1,200 million to $1,000 million, and a supplementary
L. 100 million revolving credit facility secured with a second fixed and
floating charge, and interest costs on the latter ranging from 3.5% -
5.5% above LIBOR
The Company's ability to borrow under the facility is subject to, among
other things, its compliance with the financial and other covenants and
borrowing conditions contained therein.
The Company was in compliance with the covenants at December 31,1997.
OTHER DEBT
Other debt is represented by property loans which are secured on
freehold land and buildings held by the Company which matures from 1998
onwards. The property loans bear interest at a rate of between 1.00% and
1.50% above LIBOR.
IV-69
<PAGE> 485
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(14) INCOME TAXES
Loss before income taxes is solely attributable to the UK:
The provisions for income taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Currently payable 137 50 16
--- --- ---
</TABLE>
A reconciliation of income taxes determined using the statutory UK rate
of 31.5% (1996:33%) to the effective rate of income tax is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
% % %
<S> <C> <C> <C>
Corporate tax at UK statutory rates (31.5) (33) (33)
Permanent differences 0.5 1 3
Valuation allowance and other temporary differences 29 30 26
Share of losses of affiliates 2 2 4
-------- ------- -------
-- -- --
======== ======= =======
</TABLE>
IV-70
<PAGE> 486
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(14) INCOME TAXES (continued)
Deferred income tax assets and liabilities at December 31, 1997 and 1996
are summarised as follows:
<TABLE>
<CAPTION>
1997 1996
L. '000 L. '000
<S> <C> <C>
Deferred tax assets relating to:
Fixed assets 79,100 --
Net operating loss carried forward 181,800 310,300
Other 2,400 3,400
-------- --------
Deferred tax asset 263,300 313,700
Valuation allowance (247,400) (175,200)
-------- --------
Deferred tax liabilities relating to: 15,900 138,500
-------- --------
Fixed assets -- (110,600)
Other (15,900) (27,900)
-------- --------
Deferred tax liabilities (15,900) (138,500)
-------- --------
DEFERRED TAX ASSET PER BALANCE SHEET -- --
-------- --------
</TABLE>
At December 31 1997 the company estimates that it has subject to Inland
Revenue agreement, net operating losses ("NOLS") of L. 587,000,000
available to relieve against future profits. This excludes capital
allowances on assets which were available to the company, but had not
been claimed.
Due to a history of operating losses the company has established a
valuation allowance with respect to deferred tax assets, except to the
extent of deferred tax liabilities.
The NOLs have an unlimited carry-forward period under UK tax law, but
are limited to their use to the type of business which has generated the
loss.
IV-71
<PAGE> 487
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(15) SHAREHOLDERS' EQUITY
MOVEMENTS IN SHARE CAPITAL
In 1996 the Company issued 7,604,200 ordinary shares at 10 pence each
for the following consideration: an additional 0.25% of the ordinary
shares of Cable London plc, the surrender by Trans-Global (UK) Limited
of is option to acquire 9.9% of equity in the South East Regional
Franchise Area, and the remaining 20% of the ordinary shares of Telewest
Communications (Cotswolds) Limited held by a minority interest.
On October 3, 1995, the Company acquired the entire share capital of
TCMN from its former shareholders in exchange for an aggregate of
183,994,960 ordinary shares of 10 pence each and 230,790,208 convertible
preference shares of 10 pence each. On October 2, 1995, pursuant to a
court-approved scheme of arrangement (the "Scheme of Arrangement"), the
Company exchanged 735,468,440 ordinary shares of 10 pence each and
265,276,500 convertible preference shares of 10 pence each in
consideration for the transfer of shares of TCCL to the Company.
Dealings in ordinary shares and ADSs representing ordinary shares of
TCCL ceased on the London Stock Exchange and NASDAQ National Market
immediately prior to the execution of the Scheme of Arrangement and upon
completion of the Scheme of Arrangement, dealings in the ordinary shares
and ADSs representing ordinary shares of the Company commenced.
Immediately prior to the execution of the Scheme of Arrangement on
October 2, 1995, TCCL restructured its share capital by converting
112,276,500 ordinary shares of 10 pence each into 112,276,500
convertible preference shares of 10 pence each.
CONVERTIBLE PREFERENCE SHARES
The convertible preference shares are convertible into fully paid up
ordinary shares at any time on the basis of one ordinary share for every
convertible preference share provided that, immediately following the
conversion, the percentage of the issued ordinary share capital of the
Company held by members of the public, as defined by the listing rules
of the London Stock Exchange, does not fall below 25%. The ordinary
shares arising on conversion will rank pari passu in all respects with
the ordinary shares then in issue.
The holders of the convertible preference shares are entitled to receive
a dividend of such amount as is declared and paid in relation to each
ordinary share, subject to the dividend to be paid not exceeding 20
pence per share net of any associated tax credit.
In the event of a winding-up of the Company or other return of capital,
the assets of the Company available for distribution will be paid first
to the holders of the convertible preference shares up to the sum of
capital paid-up or credited as paid-up unless the right of election upon
a winding-up of the Company has been exercised in respect of the
convertible preference shares ("the Elected Shares"). If the election
has been exercised, the holders of the ordinary shares and the Elected
Shares will receive any surplus in accordance with the amount paid-up or
credited as paid-up on the shares held.
The holders of the convertible preference shares are not entitled to
vote at any general meeting of the Company unless the meeting includes
the consideration of a resolution for winding up the Company or a
resolution modifying the rights or privileges attaching to the
convertible preference shares.
IV-72
<PAGE> 488
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE-BASED COMPENSATION PLANS
At December 31, 1997, the Company operates five types of share-based
compensation plans: the Telewest Executive Share Option Schemes, the
Telewest Sharesave Schemes, and the Telewest Restricted Share Scheme, as
replaced in 1997 by the Telewest Long Term Incentive Plan ("LTIP") and
an Equity Participation Plan ("EPP").
The Company applies APB Opinion Bulletin No. 25 and related
interpretations in accounting for its share-based compensation plans.
Accordingly, no compensation cost has been charged to the consolidated
statement of operations in respect of performance-based option grants
since the options do not have exercise prices less than the market value
of the Company's ordinary shares. Compensation cost has been recognized
for fixed option grants since the options have exercise prices less than
the market value of the Company's ordinary shares at the date of grant.
Compensation cost has also been recognized for awards over ordinary
shares made in under the Telewest Restricted Share Scheme since the
awards have no exercise price. Compensation cost recognized for fixed
option grants and awards under the Telewest Restricted Share Scheme was
(L.496,000), L.1,380,000, and L.1,334,000 for 1997, 1996, and 1995,
respectively. If compensation costs for share option grants and awards
under the Telewest Restricted Share Scheme and LTIP Scheme had been
determined based on their fair value at the date of grant for 1997 and
1996 consistent with the method prescribed by SFAS 123 "Accounting for
Stock-Based Compensation", the Company's net loss and basic and diluted
loss per share would have been adjusted to the pro forma amounts set out
below:
<TABLE>
<CAPTION>
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Net loss - As reported (332,452) (262,391) (137,531)
- Proforma (336,737) (264,579) (138,468)
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
L. L. L.
<S> <C> <C> <C>
Loss per share - As reported (0.36) (0.28) (0.16)
- Proforma (0.36) (0.29) (0.16)
</TABLE>
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS
The Company has two performance-based share option plans: the Telewest
1995 (No. 1) Executive Share Option Scheme and the Telewest 1995 (No. 2)
Executive Share Option Scheme. Under both plans, certain officers and
key employees are granted options to purchase ordinary shares of the
Company. The exercise price of each option generally equals the market
price of the Company's ordinary shares on the date of grant. The options
are exercisable between three and ten years after the date of the grant
with exercise conditional on the Company's shares outperforming by
price the FT-SE100 Index over any three year period preceding exercise.
The Company may grant options for up to 92,000,000 ordinary shares.
IV-73
<PAGE> 489
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with a weighted-average
risk-free interest rate of 6.8, 8.1 and 8.3 percent used for grants in
1997, 1996 and 1995, respectively, and an expected volatility of between
30 and 45 percent used for grants in these years. The Company does not
expect to pay a dividend on its ordinary shares at any time during the
expected life of the option.
A summary of the status of the Company's performance-based share option
plan as of December 31, 1997, 1996, and 1995, the first year in which
the options were granted, and changes during the years ended on those
dates is presented below:
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS (continued)
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number average Number average
OF EXERCISE of exercise of exercise
SHARES PRICE shares price shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 11,238,852 153.0p 8,645,229 160.4p -- --
Granted 8,994,654 83.7p 4,121,474 140.9p 8,871,398 160.3p
Forfeited (1,205,075) 147.1p (1,527,851) 162.6p (226,169) 158.0p
----------- ----------- -----------
Outstanding at end of year 19,028,431 120.6p 11,238,852 153.0p 8,645,229 160.4p
----------- ----------- -----------
Options exercisable at year-end 3,375,739 152.3p 1,023,042 154.3p -- --
Weighted-average fair value of
options granted during the year 50.4p 75.6p 86.0p
</TABLE>
IV-74
<PAGE> 490
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
The following table summarizes information about the Company's
performance-based share option plans outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Number Weighted- Number
Range of outstanding at average Weighted- exercisable at Weighted-
exercise prices 31 December remaining average 31 December average
1997 contractual life exercise price 1997 exercise price
<S> <C> <C> <C> <C> <C> <C>
71.0-73.0p 2,666,913 7.4 years 72.6p
82.5p-83.0p 5,297,509 7.6 years 82.9p
117.5-118.0p 765,847 9.2 years 117.5p
135.0-141.0p 3,674,467 6.2 years 140.6p 1,293,086 140.8p
154.5-155.5p 4,842,914 4.8 years 154.5p 1,502,527 154.6p
171.5-173.5p 1,780,781 5.9 years 172.4p 580,126 171.9p
71.0-173.5P 19,028,431 6.5 years 120.6P 3,375,739 152.3P
</TABLE>
FIXED SHARE OPTION COMPENSATION PLANS
The Company also operates the Telewest Sharesave Scheme, a fixed share
option compensation scheme. Under this plan, the Company grants options
to employees to purchase ordinary shares at a 20% discount to market
price. These options can be exercised only with funds saved by employees
over time in a qualified savings account. The options are exercisable
between 37 and 66 months after the date of grant.
IV-75
<PAGE> 491
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
FIXED SHARE OPTION COMPENSATION PLANS (continued)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with a weighted-average
risk-free interest rate of 6.95 percent, 7.4 percent, and 7.2 percent,
used for grants in 1997, 1996 and 1995, respectively and an expected
volatility of between 30 and 45 percent. The Company does not expect to
pay a dividend on its ordinary shares at any time during the expected
life of the option.
A summary of the status of the Company's fixed share option plan as of
December 31, 1997, 1996, and 1995 and the changes during the years ended
on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
NUMBER WEIGHTED Number Weighted Number Weighted
OF AVERAGE of average of average
SHARES EXERCISE shares exercise shares exercise
PRICE price price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 4,076,635 119.8p 3,345,941 139.6p 1,666,534 150.0p
Granted 5,341,783 58.0p 2,165,009 102.5p 2,168,157 134.0p
Forfeited (2,450,243) 120.7p (1,434,315) 139.8p (488,750) 150.0p
---------- ----------- ----------
Outstanding at end of year 6,968,175 72.1p 4,076,635 119.8p 3,345,941 139.6p
---------- ----------- ----------
Options exercisable at year-end -- -- --
Weighted-average fair value of
options granted during the
year 42.7p 49.7p 79.3p
</TABLE>
The following table summarizes information about the Company's fixed
share options outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options outstanding
Number Weighted-average
outstanding at Remaining
Exercise price 31 December 1997 Contractual life
<S> <C> <C> <C>
58.0p 5,341,783 3.6 years
102.5p 941,444 2.6 years
134.0p 404,256 3.6 years
150.0p 280,692 2.6 years
--------------- ------------- -------------
58.0P - 150.0 p 6,968,175 3.4 YEARS
</TABLE>
IV-76
<PAGE> 492
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
TELEWEST RESTRICTED SHARE SCHEME
The Company operates the Telewest Restricted Share Scheme in conjunction
with an employment trust, the Telewest Employees Share Ownership Plan
Trust (the "Telewest ESOP"), which has been designed to provide
incentives to executives of the Company based on the performance of the
Company. Under the Telewest Restricted Share Scheme, executives may be
granted awards over ordinary shares of the Company based on a percentage
of salary. The awards made for no consideration. The awards generally
vest three years after the date of the award and are exercisable for up
to seven years after the date when they vest. Awards granted under the
Telewest Restricted Share Scheme may be made over a maximum of 4,000,000
ordinary shares of the Company.
The fair value of each award is the share price of the ordinary shares
on the date the award was made.
A summary of the status of the Company's Restricted Share Scheme at
December 31, 1997, 1996, and 1995 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
NUMBER OF Number of Number of
SHARES shares shares
<S> <C> <C> <C>
Outstanding at beginning of year 2,648,433 2,616,857 --
Granted 377,975 328,297 2,857,191
Exercised (1,123,324) (62,920) --
Forfeited (155,922) (233,801) (240,334)
---------- ---------- ----------
Outstanding at end of year 1,747,162 2,648,433 2,616,857
---------- ---------- ----------
924,008 646,341 49,867
Awards exercisable at year end -- -- --
WEIGHTED-AVERAGE FAIR VALUE OF AWARDS
GRANTED DURING THE YEAR 1.25 1.47 1.72
</TABLE>
At December 31, 1997, the 1,747,162 awards outstanding and the 924,008
awards exercisable have weighted average remaining contractual lives of
6.7 years and 6.6 years respectively.
The Telewest Restricted Share Scheme has been replaced with a Long-Term
Incentive Plan ("LTIP") for share awards to executive Directors and
senior executives. Under the LTIP, an executive will be awarded the
provisional right to receive, for no payment, a number of Telewest
shares with a value equating to a percentage of base salary. The shares
will not vest unless certain performance criteria, based on total
shareholder return assessed over a three year period are met. The
percentage of salary will be determined by the Remuneration Committee
and will be up to 100% of base salary for executive Directors.
IV-77
<PAGE> 493
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
TELEWEST LONG TERM INCENTIVE PLAN ("LTIP")
A summary of the status of the Company's Long Term Incentive Plan at
December 31, 1997 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1997
NUMBER OF
SHARES
<S> <C>
Outstanding at beginning of year --
Granted 574,309
-------
Outstanding at end of year 574,309
-------
Awards exercisable at year end --
-------
Weighted-average fair value of awards
granted during the year 0.81
</TABLE>
At December 31, 1997, the 574,309 awards outstanding have weighted
average remaining contractual lives of 9.8 years.
IV-78
<PAGE> 494
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(17) COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Company leases a number of assets under arrangements accounted for
as capital leases, as follows:
<TABLE>
<CAPTION>
Acquisition Accumulated Net book
costs Depreciation Value
L. '000 L. '000 L. '000
<S> <C> <C> <C>
At December 31, 1997
Electronic equipment 58,465 (16,061) 42,404
Other equipment 40,207 (8,050) 32,157
At December 31, 1996
Electronic equipment 46,634 (8,376) 38,258
Other equipment 8,780 (1,900) 6,880
</TABLE>
Depreciation charged on these assets was L. 10,889,000 and L. 7,106,000
for the years ended 31 December, 1997 and 1996 respectively
The Company leases business offices and uses certain equipment under
lease arrangements accounted for as operating leases. Minimum rental
expense under such arrangements amounted to L. 3,198,000, L. 3,065,000
and L. 2,276,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1997:
<TABLE>
<CAPTION>
Capital leases Operating leases
L. '000 L. '000
<S> <C> <C>
1998 15,712 3,059
1999 14,488 2,989
2000 12,740 2,939
2001 11,883 2,885
2002 8,741 2,884
2003 and thereafter 38,413 14,323
--------
101,977
Imputed interest (26,443)
--------
Total 75,534
--------
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced.
Contingent liabilities
The Company is a party to various legal proceedings in the ordinary
course of business which it does not believe will result, in aggregate,
in a material adverse effect on its financial condition.
IV-79
<PAGE> 495
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(18) RELATED PARTY TRANSACTIONS
The Company, in the normal course of providing cable television
services, purchases certain of its programming from certain UK
affiliates of TCI. Such programming is purchased on
commercially-available terms. Total purchases in the year amounted to L.
9,681,000.
The Company has management agreements with TCI and US WEST under which
amounts are paid by the Company relating to TCI and US WEST employees
who have been seconded to the Company. For the years ended December 31,
1997, 1996, and 1995, fees paid by the Company under the agreements were
L. 968,000, L. 2,185,000 and L. 3,042,000 respectively. The Company has
similar management agreements with Cox Communications, Inc and SBC
Communications, Inc. For the years ended December 31,1997, and 1996,
fees paid by the Company under these agreements were L. 202,000 and L.
374,000.
The Company has entered into consulting agreements with its affiliates
pursuant to which the Company provides consulting services related to
telephony operations. Under the agreements, the Company receives an
annual fee from each affiliate based upon the affiliate's revenues. Fees
received for the years ended December 31,1997, 1996 and 1995 were L.
786,000, L. 642,000 and L. 566,000, respectively. The Company also
receives a fee for providing switching support services, comprising of a
fixed element based on a number of switches, and a variable element
based on a number of lines. Fees received for the years ended December
31, 1997, 1996 and 1995, were L. 740,000, L. 741,000 and L. 827,000,
respectively.
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997
FOURTH THIRD SECOND First
TOTAL QUARTER QUARTER QUARTER quarter
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
Revenue 386,498 104,972 100,087 91,052 90,390
Operating loss (154,159) (39,578) (41,394) (36,421) (36,766)
Finance expenses, net (156,167) (29,604) (43,613) (30,992) (51,958)
Net loss (332,452) (74,887) (90,780) (72,902) (93,883)
Basic and diluted loss per
ordinary share (36 pence) (8 pence) (10 pence) (8 pence) (10 pence)
</TABLE>
<TABLE>
<CAPTION>
1996
FOURTH THIRD SECOND First
TOTAL QUARTER QUARTER QUARTER quarter
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
Revenue 290,266 83,663 73,123 68,320 65,160
Operating loss (155,400) (46,095) (34,512) (38,536) (36,257)
Finance expenses, net (90,788) 28,222 (30,710) (54,503) (33,797)
Net loss (262,391) (22,361) (69,303) (97,080) (73,647)
Basic and diluted loss per
ordinary share (28 pence) (2 pence) (7 pence) (10 pence) (8 pence)
</TABLE>
IV-80
<PAGE> 496
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
The Company regularly reviews estimated useful lives of its property and
equipment and the estimates in calculating the capitalised overheads
which relate to the construction of the cable network. With effect from
January 1, 1996, the company has revised the estimated lives of certain
assets as set out in Note 3 to the consolidated financial statements and
certain estimates used in calculating capitalizable overheads. The
impact of these revisions was to increase the depreciation charge for
1996 from L. 110,223,000 to L. 129,716,000 and to increase the basic and
diluted loss per ordinary share for the year by 2 pence, and to increase
the capitalization of overheads in 1996 from L. 38,812,000 to L.
54,019,000 and to reduce the basic and diluted loss per share for the
year by 2 pence. The impact was principally accounted for in the fourth
quarter of 1996. In 1997, the treatment of activation costs was
reviewed. With effect from 1 January 1997, activation labour was
reclassified from Cable and Ducting to Electronics to be consistent with
the classification of activation materials. The impact of this change,
was an additional depreciation charge of L. 10,359,000, with activation
labour now depreciated over 8 years rather than 20 years.
Finance expenses include foreign exchange gains and losses on the
retranslation or valuation of non sterling denominated financial
instruments using period end exchange rates and market valuations.
IV-81
<PAGE> 497
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
Dated: March 23, 1998 By /s/ John C. Malone
-----------------------------
John C. Malone
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chairman of the Board, March 23, 1998
- ------------------------------- Chief Executive
John C. Malone Officer and Director
/s/ Leo J. Hindery, Jr. Director, President and Chief March 23, 1998
- ------------------------------- Operating Officer
Leo J. Hindery, Jr.
/s/ Donne F. Fisher Director March 23, 1998
- -------------------------------
Donne F. Fisher
/s/ Jerome H. Kern Director March 23, 1998
- -------------------------------
Jerome H. Kern
/s/ Paul A. Gould Director March 23, 1998
- -------------------------------
Paul A. Gould
/s/ Stephen M. Brett Executive Vice President, March 23, 1998
- ------------------------------- General Counsel and
Stephen M. Brett Secretary
/s/ Bernard W. Schotters Senior Vice President and March 23, 1998
- ------------------------------- Treasurer (Principal
Bernard W. Schotters Financial Officer)
/s/ Gary K. Bracken Executive Vice President and March 23, 1998
- ------------------------------- Controller of TCI
Gary K. Bracken Communications, Inc.
(Principal Accounting Officer)
</TABLE>
IV-82
<PAGE> 498
APPENDIX A
GLOSSARY OF DEFINED TERMS
Set forth below are certain defined terms used in Items 1 through 7 of
this Annual Report on Form 10-K. The definitions provided herein are for
informational purposes only. Reference should be made to the discussion of
such terms in the sections indicated within this Report. As used in this
glossary, section references are abbreviated as follows:
GDB - Item 1. General Development of Business
TCIG - Item 1. General Development of Business - TCI Group
LMG - Item 1. General Development of Business - Liberty Media
Group
TCIVG - Item 1. General Development of Business - TCI Ventures
Group
Item 5 - Item 5. Market for Registrants Common Equity and Related
Stock Matters
Item 6 - Item 6. Selected Financial Data
MDA - Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
@HOME: At Home Corporation. GDB
@HOME CABLE PARTNERS: TCI, Comcast, Cox and CSC. TCIVG
@HOME IPO: The July 1997 initial public offering of @Home's Series A common stock. GDB
1984 CABLE ACT: The Cable Communications Policy Act of 1984. TCIG
1992 CABLE ACT: The Cable Television Consumer Protection and Competition Act of 1992. TCIG
1996 TELECOM ACT: The Telecommunications Act of 1996. TCIG
1998 LIBERTY STOCK DIVIDEND: A one for two stock dividend to holders of Liberty Group Stock GDB
effective February 6, 1998.
ABN: Asia Business News (Singapore) Private. TCIVG
ACC: ACC Corp. TCIVG
ADSL: Asymmetric Digital Subscriber Line. TCIVG
ANTEC: Antec Corporation. MDA
APC: American PCS, L.P. TCIVG
ARC: Affiliated Regional Communications Ltd. LMG
AT&T: AT&T Corporation. TCIVG
BASIC-TV: TCI Group's limited basic cable service primarily comprised of local broadcast signals TCIG
and public, educational and governmental access channels.
BBC: British Broadcasting Corporation. LMG
BBC JOINT VENTURES: Two separate joint ventures between Flextech and BBC Worldwide formed in April 1997. TCIVG
</TABLE>
A-1
<PAGE> 499
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
BBC WORLDWIDE: BBC Worldwide Limited. MDA
BDTV-I: BDTV INC. LMG
BDTV-II: BDTV II INC. LMG
BDTV-III: BDTV III INC. LMG
BDTV-IV: BDTV IV INC. LMG
BET: BET Holdings, Inc. LMG
BIZTEL: BizTel Communications, Inc. TCIVG
BOARD: Board of Directors of TCI. GDB
BOX MERGER: A merger whereby a subsidiary of TCI Music was merged with and into The Box Worldwide, with LMG
The Box Worldwide becoming the surviving corporation.
BSKYB: British Sky Broadcast Group plc. TCIVG
BST: The "basic service tier" or lowest level of cable service offerings. TCIG
BTA: Basic trading area. TCIVG
CABLE ACTS: The 1996 Telecom Act and the 1992 Cable Act, collectively. TCIG
CABLEVISION: Cablevision S.A. TCIVG
CABLEVISION SALE: TINTA's sale to CEI and Telefonica of a portion of its interest in Cablevision and an MDA
issuance by Cablevision to CEI and Telefonica of an aggregate of approximately 3.5 million shares of
Cablevision stock.
CALEA: The Communications Assistance for Law Enforcement Act of 1994. TCIVG
CARP: Copyright Arbitration Rate Panel. MDA
C-BAND: A range of frequencies between 3.7-4.2 GHz and 5.925 - 6.425 GHz used primarily for microwave and LMG
satellite communications.
CDMA (Code Division Multiple Access): A digital spread-spectrum technology which allows a large number of TCIVG
users to access a single frequency band that assigns a code to all information bits, sends a scrambled
transmission of the encoded information and reassembles the information to its original format.
CEI: CEI Citicorp Holdings Sociedad Anonima. MDA
CERFNET: CERFnet Services Inc. TCIVG
CLEC (Competitive Local Exchange Carrier): A company that provides local exchange services in competition TCIVG
with the incumbent local exchange carrier.
COMCAST: Comcast Corporation. LMG
COMMUNICATIONS ACT: The Communications Act of 1934, as amended. LMG
</TABLE>
A-2
<PAGE> 500
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
COMPANY: Tele-Communications, Inc. or TCI. GDB
CONGRESS: The United States Congress. TCIG
COURTTV: Courtroom Television Network. LMG
COX: Cox Communications, Inc. TCIVG
COX PCS: Cox Communications PCS, L.P. TCIVG
CPST: Cable programming service tier. TCIG
CSC: Cablevision Systems Corporation. GDB
CSC AGREEMENT: Letter Agreement and Term Sheet, dated as of October 2, 1997, as amended as of October MDA
10, 1997, among @Home, CSC, CSC Parent, Comcast, Cox, KCPB and TCI.
CSC CONTINGENT WARRANT: CSC's contingent warrant to purchase under certain conditions up to 3,071,152 MDA
shares of @Home's Series A common stock at an exercise price of $.50 per share in connection with the
CSC Agreement.
CSC PARENT: CSC Parent Corporation. MDA
CSG: CSG Systems, Inc. TCIVG
CSG WARRANTS: TCI's five year warrants to purchase under certain conditions up to 1.5 million shares MDA
of CSG common stock issued in connection with the sale of the SUMMITrak Assets.
DBS (Direct Broadcast Satellite): Systems using Ku-band frequencies that can be received by TCIG
significantly smaller and less expensive receive terminals than those home satellite dishes that receive
C-Band frequencies.
DIGITAL TERMINAL PURCHASE AGREEMENT: Agreement between NDTC and GI to purchase advanced digital set-top TCIVG
devices.
DIGIVENTURES: DigiVentures, LLC. MDA
DISCOVERY: Discovery Communications, Inc. LMG
DMAS: Designated market areas. LMG
DMX: DMX, Inc. GDB
DMX MERGER: The merger of a wholly-owned subsidiary of TCI Music with and into DMX, where DMX was the GDB
surviving corporation.
DMX SERVICE: Digital Music Express, a premium digital music service. LMG
DTH (Direct-to-home): A service by which television programming is transmitted to individual dwellings, TCIVG
each served by a single satellite receiving dish.
DTH VENTURES: Strategic partnerships formed by TINTA, News Corp., Organizacoes Globo and Grupo Televisa MDA
S.A. to develop and operate a DTH satellite service for Brazil, Mexico, and various Central and South
American countries.
</TABLE>
A-3
<PAGE> 501
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
EASTERN: Eastern TeleLogic Corporation. TCIVG
ECHOSTAR: EchoStar Communications Corp. TCIG
EMC: Encore Media Corporation. MDA
EMG: Encore Media Group. LMG
EMG PROMISSORY NOTE: A $307 million promissory note issued by Liberty Media Group to TCI Group. MDA
ENCORE: A premium movie service of EMG. LMG
EPS: Earnings per share. MDA
ETC: ETC w/tci, Inc., a wholly-owned subsidiary of TCI. TCIVG
EXCHANGE OFFERS: Offers commenced by TCI in August 1997 to exchange shares of TCI Ventures Group Stock GDB
for shares of TCI Group Stock.
EXCHANGEABLE PREFERRED STOCK: 5% Class A Senior Cumulative Exchangeable Preferred Stock of Cable Sub MDA
with a stated value of $100 per share.
FAA: Federal Aviation Administration. TCIVG
FASB: Financial Accounting Standards Board. MDA
FCC: The Federal Communications Commission. TCIG
FKW: Fox Kids Worldwide, Inc. GDB
FKW PREFERRED STOCK: 30 year non-convertible 9% preferred stock of FKW. MDA
FLEXTECH: Flextech p.l.c. TCIVG
FLEXTECH NON-PREFERENCE SHARES: Flextech convertible non-preference shares. MDA
FLEXTECH ORDINARY SHARES: Flextech ordinary shares. MDA
FOX SPORTS: Fox/Liberty Networks LLC, a domestic sports programming venture between Liberty Media GDB
Group and News Corp.
FOX SPORTS INTERNATIONAL: An international sports programming venture between News Corp. and LMG
Liberty/TINTA.
FSN: Fox Sports Net, a sports programming service. LMG
GI: General Instrument Corporation (formerly NextLevel Systems, Inc.) TCIVG
GI MOU: Memorandum of Understanding between GI and NDTC entered into in December 1997. TCIVG
GROUP: Individually, such term may be used to refer to any of the TCI Group, Liberty Media Group or MDA
TCI Ventures Group
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
GROUPS: Collectively, such term may be used to refer to the TCI Group, Liberty Media Group and TCI MDA
Ventures Group.
HFC (Hybrid Fiber Coaxial): A technology consisting of fiber optic distribution facilities and coaxial TCIVG
cable deployed to the home or business. This technology enables the operator to offer a wide variety of
two-way broadband services, including telecommunications and entertainment.
HITS: NDTC's Headend-in-the-Sky service. TCIVG
HOT: Home Order Television. LMG
HSC: Home Shopping Club, Inc. MDA
HSN: Home Shopping Network, Inc. LMG
HSN MERGER: The merger of HSN with a subsidiary of Silver King. LMG
HSNI: HSN, Inc. (formerly HSN and subsequently USA Networks, Inc.) LMG
HYPERION: Hyperion Telecommunications, Inc. TCIVG
IFE: International Family Entertainment, Inc. GDB
IFE CLASS C STOCK: Non-voting class C common stock of IFE. GDB
IFE CONVERTIBLE NOTES: 6% convertible secured notes due 2004, convertible into Class C Stock of IFE. GDB
ILECS (Incumbent Local Exchange Carriers): The established local phone companies, including those TCIVG
affiliated with an RBOC or an independent company (such as GTE), which provide local exchange services.
INTERCONNECTION ORDERS: Several orders, released by the FCC in August 1996, establishing new policies TCIVG
and rules implementing the local interconnection and access provisions of the 1996 Telecom Act.
INTER-GROUP INTEREST: The common stockholders' equity value of TCI Ventures Group or Liberty Media MDA
Group that, at any relevant time, is attributed to TCI Group, and accordingly not represented by
outstanding TCI Ventures Group Stock or Liberty Group Stock, respectively.
INTERZINE: Interzine Productions, Inc. TCIVG
INVESTMENT AGREEMENT: Investment Agreement among Universal Studios, Inc., HSNI, HSN and Liberty Media LMG
Group, dated as of October 19, 1997 and amended and restated as of December 18, 1997.
IPG: Interactive Preview Guide Inc. TCIVG
ISDN (Integrated Services Digital Network): ISDN is an internationally agreed-upon standard which, TCIVG
through special equipment, allows two-way, simultaneous voice and data transmission in digital formats
over the same transmission line. ISDN permits video conferencing over a single line, for example, and
also supports a multitude of value-added switched service applications such as Incoming Calling Line
Identification.
ISN: Internet Shopping Network, Inc. MDA
ISPS: Internet service providers. TCIVG
</TABLE>
A-5
<PAGE> 503
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
IXC (Interexchange Carrier): A telephone company that provides long distance telephone service between TCIVG
local area transport areas ("LATAs") or within a LATA.
JJS: JJS Communications, Inc. LMG
JPC: Jupiter Programming Co., Ltd. TCIVG
JUPITER: Jupiter Telecommunications Co., Ltd. TCIVG
KCFIBER: Kansas City Fiber Network, L.P. TCIVG
KEARNS-TRIBUNE: Kearns-Tribune Corporation. GDB
KNOWLEDGE UNIVERSE: Knowledge Universe, L.L.C. TCIVG
KPCB: Kleiner, Perkins, Caufield & Byers, a venture capital firm. TCIVG
LEC: Local exchange carrier. TCIG
LFAS: Local franchising authorities. TCIG
LIBERTY DISTRIBUTION: The August 10, 1995 distribution of Liberty Group Stock to holders of Item 6
TCI Group Stock.
LIBERTY GROUP SERIES A STOCK: Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par GDB
value $1.00 per share.
LIBERTY GROUP SERIES B STOCK: Tele-Communications, Inc. Series B Liberty Media Group Common Stock, GDB
par value $1.00 per share.
LIBERTY GROUP STOCK: Liberty Group Series A Stock and Liberty Group Series B Stock, collectively. GDB
LIBERTY MEDIA GROUP: The assets attributed to Liberty Media Group include TCI's assets which produce GDB
and distribute domestic programming services. The Liberty Group Stock is intended to reflect the
separate performance of such assets.
LIBERTY TENDER OFFER: A tender offer commenced by Liberty Media Group during the third quarter of 1997 to MDA
purchase an aggregate of 22.5 million shares of Liberty Group Stock at a price of $20 per share through
October 3, 1997.
LIBERTY/TINTA: Liberty/TINTA LLC, a limited liability company formed by TINTA and a subsidiary of Liberty LMG
Media Group.
LIBOR: London Interbank Offered Rate. LMG
LLC SHARES: Common equity shares of USANi LLC, a limited liability company. LMG
LMC SATCOM: LMC Satcom, Inc., a wholly-owned subsidiary of Southern. GDB
LMDS (Local Multipoint Distribution Service): A two-way analog or digital transmission system operating at TCIG
28GHz from a fixed station transmitting to multiple receiving facilities located at fixed points, capable
of providing video, data and voice services. Digital LMDS has not yet been offered on a commercial basis.
</TABLE>
A-6
<PAGE> 504
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
LPTV STATIONS: 26 low-power television stations owned by HSNI. LMG
MAIL ORDER: HSN Mail Order, Inc. MDA
MDUS: Multiple dwelling units. TCIG
MEDIAONE: MediaOne of Delaware, Inc. (formerly Continental Cablevision, Inc.) MDA
MERGER SUB: TCI Merger Sub, a wholly-owned subsidiary of TCI Music which was merged with and into DMX in LMG
connection with the DMX Merger.
MLB: Major League Baseball. LMG
MLP: MacNeil/Lehrer Productions. LMG
MMDS (Multi-channel multi-point distribution system): A one-way radio transmission of television channels TCIG
over microwave frequencies from a fixed station transmitting to multiple receiving facilities located at
fixed points.
MOVIEPLEX: A cable service launched by EMG in 1995 which offers theme-by-day movies. LMG
MSO (Multiple system operator): A cable company which owns multiple cable systems in varying locations, TCIVG
under the control and direction of a single, common management organization. Such an organizational structure
is used to improve operating efficiencies, such as lower programming and equipment costs.
MULTITHEMATIQUES: MultiThematiques, S.A. TCIVG
MUSIC NOTE: An $80 million promissory note issued in connection with the DMX Merger from Liberty Media Group LMG
to TCI.
NATIONAL ADVERTISING PARTNERSHIP: National Advertising Partners, a national advertising representative firm LMG
established as a partnership by Fox Sports and Rainbow to sell certain advertising time.
NATIONAL SPORTS PARTNERSHIP: National Sports Partners, a 50%-50% partnership of Fox Sports and Rainbow LMG
established as part of the Rainbow Transaction, to operate Fox Sports Net.
NBA: National Basketball Association. LMG
NDTC: National Digital Television Center, Inc., a wholly-owned subsidiary of TCI. TCIG
NETLINK: Netlink USA, a subsidiary of TCI. MDA
NEW VIACOM SUB: A subsidiary of Viacom formed in connection with the Viacom Acquisition. MDA
NEWS CORP.: The News Corporation Limited. LMG
NHL: National Hockey League. LMG
OCC: Oeste Cable Color S.A. MDA
OSP: Online service providers. TCIVG
OVS: Open video system. TCIG
</TABLE>
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<PAGE> 505
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
PARADIGM: Paradigm Music Entertainment Company. LMG
PARADIGM MERGER: A merger pursuant to which Paradigm became a wholly-owned subsidiary of TCI Music. LMG
PAY-PER-VIEW OR PAY-TV: Premium services consisting principally of feature films, as well as live and TCIG
taped sports events, concerts and other programming offered for a charge on a per-channel or a per program
basis.
PCS: Broadband personal communications services. TCIVG
PCS VENTURES: The Company's investment in a series of partnerships formed to engage in the business of TCIVG
providing wireless communications services under the Sprint(R)and Sprint PCS(R)brands.
PEG: Public, educational and governmental access channels. TCIG
PHILLIECO: PhillieCo Partners I, L.P., a partnership among subsidiaries of Sprint, Cox and TCI. TCIVG
POPS: The population of a geographic area covered by a license or group of licenses and, as used in this TCIVG
Report, is based on the Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area.
PRIMESTAR: Primestar Partners, L.P. TCIG
PRINCIPAL JOINT VENTURE: One of the BBC Joint Ventures; a joint venture between Flextech and BBC Worldwide MDA
Limited.
PROGRAMMING COMPANIES: The various sports, entertainment and information programming companies in which LMG
Liberty Media Group has interests.
PUERTO RICO SUBSIDIARY: TCI Cablevision of Puerto Rico, Inc., a wholly-owned subsidiary of TINTA. MDA
QE+: QE+ Ltd. LMG
QVC: QVC, Inc. LMG
RAINBOW: Rainbow Media Sports Holdings, Inc. GDB
RAINBOW RSNS: Eight RSNs in which RPP holds an interest. GDB
RAINBOW TRANSACTION: A transaction consummated in December 1997 in which Fox Sports acquired an interest GDB
in RPP.
RBOCS: Regional bell operating companies. TCIG
REGULATED SERVICES: TCI Group's basic and tier service rates and its equipment and installation charges MDA
which are regulated by the Cable Acts.
RIGHT: Right granted by TCI to each stockholder with respect to each whole share of TCI Music Series A LMG
Common Stock acquired by such shareholder in the DMX Merger.
RIGHTS AGREEMENT: Agreement among TCI, TCI Music and the rights agent, regarding a Right granted in the LMG
DMX Merger.
</TABLE>
A-8
<PAGE> 506
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
ROGERS: Rogers Cablesystems Limited, a Canadian cable operator. TCIVG
ROYAL: Royal Communications, Inc., a wholly-owned subsidiary of Southern. GDB
RPP: Regional Programming Partners. GDB
RSNS: Regional sports networks. GDB
SATELLITE: TCI Satellite Entertainment, Inc. MDA
SATELLITE SPIN-OFF: The December 4, 1996 distribution of all issued and outstanding common stock of Satellite MDA
to the holders of TCI Group Stock.
SAVOY: Savoy Pictures Entertainment, Inc. LMG
SAVOY MERGER: Merger of Silver King Communications, Inc. and Savoy in December 1996. LMG
SERIES A STOCK: TCI Group Series A Stock, TCI Ventures Group Series A Stock and the Liberty Group Series GDB
A Stock, collectively.
SERIES B STOCK: TCI Group Series B Stock, TCI Ventures Group Series B Stock and the Liberty Group Series GDB
B Stock, collectively.
SF STATIONS: Six full-power stations owned and operated by SF Broadcasting. LMG
SHAW: Shaw Cablesystems Ltd., a Canadian cable operator. TCIVG
SHV ACT: Satellite Home Viewer Act of 1994. LMG
SILVER KING: Silver King Communications, Inc. (which was renamed HSN, Inc. in connection with the HSN Merger.) LMG
SILVER KING OPTION: An option to purchase Class B common stock of Silver King which was contributed to BDTV LMG
INC. in August 1996 pursuant to the BDTV Agreement.
SKY: Sky Network Television New Zealand, Ltd. MDA
SMATV (Satellite Master Antenna Television): A television delivery system to multiple dwelling units that TCIG
utilizes one or more satellite dishes and a small distribution network.
SOUTHERN: Southern Satellite Systems, Inc. GDB
SPECIAL VOTING SHARE: TINTA's special voting share in Flextech. MDA
SPRINT: Sprint Corporation. TCIVG
SPRINT PCS OR SPRINT PCS PARTNERSHIPS: Sprint Spectrum Holding Company, L.P. and MinorCo, L.P., collectively. TCIVG
SPRINT PCS PARTNERS: Subsidiaries of Sprint, Comcast, Cox and TCI, collectively. TCIVG
SPRINT SPECTRUM: Sprint Spectrum Holding Company, L.P. TCIVG
SPRINTCOM: SprintCom, Inc. TCIVG
</TABLE>
A-9
<PAGE> 507
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
SSI: Satellite Services, Inc. LMG
SSI SUBSCRIBERS: Customers served by cable television systems eligible to purchase programming services LMG
through SSI.
STANDBY COMMITMENT: Commitment of TINTA to assume Flextech's funding obligations to the Principal Joint MDA
Venture in the event of Flextech's default.
STARZ!: A first-run premium movie programming service of EMG. LMG
STATED VALUE: Stated value of $100 per share of 5% Class A Senior Cumulative Exchangeable Preferred Stock MDA
of Cable Sub.
STOCK EXCHANGE AGREEMENT: Stock Exchange Agreement, entered into in May 1997, by and between Paul G. Allen LMG
and HSNI, pursuant to which HSNI acquired shares of common stock of Ticketmaster.
SUMITOMO: Sumitomo Corporation. TCIVG
SUMMITRAK ASSETS: Certain assets of TCI Ventures Group which were sold to CSG during the third quarter of MDA
1997.
SUPERSTAR/NETLINK: Superstar/Netlink Group LLC. LMG
TBS: Turner Broadcasting System, Inc. GDB
TBS/TIME WARNER MERGER: The October 10, 1996 merger of Time Warner and TBS, whereby TBS shareholders, GDB
including TCI, received a specified number of shares of Time Warner stock for certain TBS common and
preferred stock.
TCG: Teleport Communications Group Inc. TCIVG
TCI: Tele-Communications, Inc. or the Company. GDB
TCI GROUP: The assets attributed to TCI Group include TCI's subsidiaries and assets not attributed to GDB
Liberty Media Group or TCI Ventures Group, comprised primarily of TCI's domestic cable and communications
business. The TCI Group Stock is intended to reflect the TCI Group.
TCI GROUP SERIES A STOCK: Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 GDB
per share.
TCI GROUP SERIES B STOCK: Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 GDB
per share.
TCI GROUP STOCK: TCI Group Series A Stock and TCI Group Series B Stock, collectively. GDB
TCI MUSIC: TCI Music, Inc. GDB
TCI MUSIC COMMON STOCK: TCI Music Series A Common Stock and TCI Music Series B Common Stock, collectively. LMG
TCI MUSIC PREFERRED: TCI Music Preferred Stock. LMG
TCI MUSIC SERIES A COMMON STOCK: Series A Common Stock of TCI Music. LMG
</TABLE>
A-10
<PAGE> 508
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
TCI MUSIC SERIES B COMMON STOCK: Series B Common Stock of TCI Music. LMG
TCI PACIFIC: TCI Pacific Communications, Inc. MDA
TCI VENTURES EXCHANGE: The exchange of 188,661,300 shares of TCI Group Series A Stock and 16,266,400 shares GDB
of TCI Group Series B Stock for 377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
shares of TCI Ventures Group Series B Stock, respectively, pursuant to the Exchange Offers.
TCI VENTURES GROUP: The assets attributed to TCI Ventures Group include TCI's principal international GDB
assets and businesses and substantially all of TCI's non-cable and non-programming assets. TCI Ventures
Group Stock is intended to reflect the separate performance of the TCI Ventures Group.
TCI VENTURES GROUP SERIES A STOCK: Tele-Communications, Inc. Series A TCI Ventures Group Common Stock, GDB
par value $1.00 per share.
TCI VENTURES GROUP SERIES B STOCK: Tele-Communications, Inc. Series B TCI Ventures Group Common Stock, GDB
par value $1.00 per share.
TCI VENTURES GROUP STOCK: TCI Ventures Group Series A Stock and TCI Ventures Group Series B Stock, GDB
collectively.
TCIC: TCI Communications, Inc. GDB
TELEFONICA: T.I. Telefonica Internacional de Espana S.A. MDA
TELEWEST: Telewest Communications plc. TCIVG
TELEWEST DEBENTURES: Certain U.S. dollar denominated senior debentures issued by Telewest in connection MDA
with a merger transaction.
THE BOX: An interactive music video television programming service distributed by The Box Worldwide. LMG
THE BOX WORLDWIDE: The Box Worldwide, Inc. LMG
TICKETMASTER: Ticketmaster Group, Inc. LMG
TICKETMASTER COMMON STOCK: The common stock of Ticketmaster Group, Inc. LMG
TIME WARNER: Time Warner, Inc. GDB
TINTA: Tele-Communications International, Inc. LMG
TINTA IPO: The July 1995 initial public offering of TINTA Series A common stock. MDA
TINTA PROGRAMMING COMPANIES: TINTA's programming subsidiaries and affiliates. TCIVG
TKR CABLE: TKR Cable Company. GDB
TSX: TSX Corporation. MDA
</TABLE>
A-11
<PAGE> 509
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
TW EXCHANGE STOCK: A separate series of Time Warner Common Stock with limited voting rights designated GDB
as Series
LMCN-V common stock which Liberty Media Group received in connection with the TBS/Time Warner Merger.
U.K.: United Kingdom. TCIVG
U.S.: United States. TCIVG
UKGL: UK Gold Television Limited. MDA
UKLL: UK Living Limited. MDA
UNIVERSAL: Universal Studios, Inc. and certain of its affiliates. LMG
USA BROADCASTING: USA Broadcasting, Inc., a subsidiary of HSNI. LMG
USA STATIONS: 12 independent full-power UHF television stations owned by USA Broadcasting, including LMG
one television satellite station.
USAI: USA Networks, Inc. (formerly HSN, Inc.) LMG
UVSG: United Video Satellite Group, Inc. TCIVG
VELA: Vela Research, Inc. MDA
VENTURES STOCK DIVIDEND: A one for one stock dividend issued to holders of TCI Ventures Group Stock, GDB
effective February 6, 1998.
VIACOM: Viacom, Inc. MDA
VIACOM ACQUISITION: TCI Group's July 1996 acquisition from Viacom of an entity that owned Viacom's MDA
cable television systems and related assets.
VIACOM COMMON STOCK: Viacom Class A Common Stock and Viacom Class B Common Stock, collectively. MDA
VIDEO SERVICES: NDTC's analog and digital television services. TCIVG
WIPO: World Intellectual Property Organization. TCIVG
WTBS: TBS SuperStation. GDB
WTCI: Western Tele-Communications, Inc., a wholly-owned subsidiary of TCI. TCIVG
YCTV: Your Choice TV, LLC. LMG
</TABLE>
A-12
<PAGE> 510
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3 - Articles of Incorporation and Bylaws:
3.1 The Restated Certificate of Incorporation, dated August 4, 1994,
as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995,
August 3, 1995, January 25, 1996, January 25, 1996, April 7,
1997, August 28, 1997, December 30, 1997 and December 30, 1997.
3.2 The Bylaws as adopted June 16, 1994.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, as
amended by Form 10-K/A (Commission File No. 0-20421).
4 - Instruments Defining the Rights of Security Holders, including Indentures:
4.1 Form of Rights Agreement among Tele-Communications, Inc., TCI
Music, Inc. and the Bank of New York, as Rights Agent.
Incorporated by reference to Exhibit 4.3 to the Registration
Statement of Form S-4 of TCI Music and TCI (Reg. File Nos.
333-28613 and 333-28613-001).
10 - Material Contracts:
10.1 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File
No. 333-40141).
10.2 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File
No. 333-40141).
10.3 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File
No. 333-40141).
10.4 Restated and Amended Employment Agreement, dated as of November
1, 1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.5 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
as amended by Form 10-K/A (Commission File No. 0-20421).
(continued)
<PAGE> 511
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.6 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., John C. Malone and Leslie Malone.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.7 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., Gary Magness, both individually and
as representative, Kim Magness, both individually and as
representative, the Estate of Bob Magness, the Estate of Betsy
Magness and any individual or entity which thereafter becomes a
party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.8 Stockholders Agreement, dated February 9, 1998, by and among
Tele-Communications, Inc., John C. Malone, Leslie Malone, Gary
Magness, both individually and as representative, Kim Magness,
both individually and as representative, the Estate of Bob
Magness, the Estate of Betsy Magness and any individual or
entity which thereafter becomes a party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.9 Consulting Agreement, dated as of January 1, 1996, between
Tele-Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.10 Consulting Agreement, dated as March 11, 1995, between
Tele-Communications, Inc. and J.C. Sparkman.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.11 Consulting Agreement, dated as of January 1, 1998, between
Tele-Communications International, Inc. and Fred A. Vierra.
10.12 Deferred Compensation Plan for Non-Employee Directors, effective
on November 1, 1992.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.13 Amended and Restated Employment Agreement, dated as of July 18,
1995, among Tele-Communications, Inc., Tele-Communications
International, Inc. and Fred A. Vierra.*
Incorporated herein by reference to Tele-Communications
International, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-80491).
(continued)
<PAGE> 512
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.14 Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended
by Form 10-K/A (Commission File No. 0-20421).
10.15 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.16 Form of 1992 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.17 Form of 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.18 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement, dated as of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.19 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to stock appreciation rights granted pursuant
to letter dated September 17, 1991.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.20 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to the assumption of options and related stock
appreciation rights granted under the Liberty Media Corporation
1991 Stock Incentive Plan pursuant to letter dated July 26,
1993.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
<PAGE> 513
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.21 Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and a director
of Tele-Communications, Inc. relating to assumption of options
and related stock appreciation rights granted outside of an
employee benefit plan pursuant to Tele-Communications, Inc.'s
1993 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.22 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to Tele-Communications,
Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.23 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of grants pursuant to the
Agreement and Plan of Merger dated June 6, 1991 between United
Artists Entertainment Company and Tele-Communications, Inc.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.24 Form of letter dated September 17, 1991 from Liberty Media
Corporation to grantee relating to grant of stock appreciation
rights.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.25 Form of letter dated July 26, 1993 from Liberty Media Corporation
to grantee relating to grant of options and stock appreciation
rights.*
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.26 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights under Tele-Communications, Inc.'s 1992
Stock Incentive Plan pursuant to Tele-Communications, Inc.'s
1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
<PAGE> 514
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.27 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, as amended
by Form 10-K/A for the year ended December 31, 1993
(Commission File No. 0-5550).
10.28 Form of 1994 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.29 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
10.30 Form of Restricted Stock Award Agreement for 1995 Award of Series
A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.31 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Liberty Media Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.32 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1994 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.33 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
<PAGE> 515
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.34 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.35 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1995
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.36 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.37 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.38 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.
10.39 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.
10.40 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.
10.41 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
10.42 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
10.43 The Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to Tele-Communications
International, Inc. Registration Statement on Form S-1
(Commission File No. 33-91876).
(continued)
<PAGE> 516
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.44 Form of Restricted Stock Award Agreement for 1995 Award of
Series A Tele-Communications International, Inc. Restricted
Stock pursuant to the Tele-Communications International, Inc.
1995 Stock Incentive Plan.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.45 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.46 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.47 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
10.48 Form of Restricted Stock Award Agreement for 1997 Award of
Series A Tele-Communications International, Inc. Restricted
Stock pursuant to the Tele-Communications International. Inc.
1995 Stock Incentive Plan.*
10.49 Restricted Stock Award Agreement, made as of July 1, 1996, among
Tele-Communications, Inc., Brendan Clouston and WestMarc
Communications, Inc. *
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.50 Option Agreement, dated as of December 4, 1996, by and between
TCI Satellite Entertainment, Inc. and Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite
Entertainment, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No.
0-21317).
10.51 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and Tele-
Communications, Inc.*
10.52 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Teleport Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and Tele-
Communications, Inc.*
10.53 Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc.,
Grantee and Tele-Communications, Inc.*
(continued)
<PAGE> 517
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 - Material contracts, continued:
10.54 Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*
10.55 Form of Stock Appreciation Right Agreement made as of the 1st
day of December, 1996, by and among TCI Internet Services,
Inc., Tele-Communications, Inc. and Grantee.*
10.56 Letter Agreement, dated December 26, 1996, by
Tele-Communications, Inc. to purchase WestMarc Series C
Cumulative Compounding Redeemable Preferred Stock from Larry
E. Romrell.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.57 Employee Stock Purchase Plan for Bargaining Unit Employees of
United Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-60839).
10.58 Employee Stock Purchase Plan for Bargaining Unit Employees of
UACC Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64827).
10.59 Employee Stock Purchase Plan for Bargaining Unit Employees of TCI
of Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64831).
10.60 Amended and Restated Agreement of Limited Partnership of MajorCo,
L.P., dated as of January 31, 1996, among Sprint Spectrum,
L.P., TCI Network Services, Comcast Telephony Services and Cox
Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by
Tele-Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
(continued)
<PAGE> 518
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10- Material contracts, continued:
10.61 Agreement of Purchase and Sale of Partnership Interest, dated as
of January 31, 1996, among Halcyon Communications, Inc., ECP
Holdings, Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.62 Consent and Amendment of Amended Agreement of Partnership for
Halcyon Communications Partners, dated as of January 31, 1996,
by and among Halcyon Communications, Inc., ECP Holdings, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.63 Assignment and Assumption Agreement, made as of January 31, 1996,
between ECP Holdings, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.64 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.65 Agreement of Purchase and Sale of Partnership Interests, dated as
of January 31, 1996, among Halcyon Communications, Inc.,
American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable,
Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.66 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited
Partnership, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., American Televenture of
Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.67 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Utah, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
<PAGE> 519
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10- Material contracts, continued:
10.68 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Utah, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.69 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.70 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.71 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.72 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.73 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.74 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.75 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.
10.76 InterMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997, by
and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
TCI ICM III, Inc.
(continued)
<PAGE> 520
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10- Material contracts, continued:
10.77 InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.
10.78 Amended and Restated Contribution and Merger Agreement, dated as
of June 6, 1997, among TCI Communications, Inc., Cablevision
Systems Corporation, CSC Parent Corporation and CSC Merger
Corporation.
Stockholders Agreement dated as of March 4, 1998, by and among
Cablevision Systems Corporation, Tele-Communications, Inc. and
the Class B Entities (as defined therein)
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated March 6, 1998 (Commission File
No. 0-20421).
10.79 Amended and Restated Asset Contribution Agreement, dated
September 25, 1997, by and among Fisher Communications
Associates, L.L.C. and Tempo Cable, Inc., Communications
Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah, Inc.,
TCI Cablevision of Arizona, Inc., Tulsa Cable Television, Inc.
and TCI American Cable Holdings III, L.P. and Peak Cablevision,
LLC.
10.80 Amended and Restated Operating Agreement of Peak Cablevision,
LLC, made as of September 25, 1997, by TCI American Cable
Holdings III, L.P. and Fisher Communications Associates, L.L.C.
10.81 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
10.82 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and American Televentures of
Minersville, Inc.
10.83 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah,
Inc.
10.84 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and Tempo Cable, Inc.
10.85 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
21 - Subsidiaries of Tele-Communications, Inc.
23 - Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of KPMG Audit Plc.
23.6 Consent of Deloitte & Touche LLP.
27 - Financial data schedule
* Constitutes management contract or compensatory arrangement.
(1) Certain exhibits to agreement have been omitted. A copy of any omitted
exhibit or schedule will be furnished supplementally to the Commission
upon request.
<PAGE> 1
EXHIBIT 3.1
State of Delaware
PAGE 1
Office of the Secretary of State
---------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"TCI/LIBERTY HOLDING COMPANY". CHANGING ITS NAME FROM "TCI/LIBERTY HOLDING
COMPANY" TO "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY
OF AUGUST, A.D. 1994, AT 4:14 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
Edward J. Freel, Secretary of State
AUTHENTICATION: 7202362
DATE: 08-04-94
2371729 8100
944145668
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:14 PM 08/04/1994
944145668 -- 2371729
RESTATED CERTIFICATE OF INCORPORATION
OF
TCI/LIBERTY HOLDING COMPANY
---------------------
TCI/LIBERTY HOLDING COMPANY, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is TCI/Liberty Holding Company. The
original Certificate of Incorporation of the Corporation was filed on
January 24, 1994. The name under which the Corporation was originally
incorporated is TCI/Liberty Holding Company.
(2) This Restated Certificate of Incorporation restates and amends the
Certificate of Incorporation of the Corporation.
(3) Pursuant to Section 242 and 245 of the General Corporation Law of
the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Tele-Communications, Inc.
ARTICLE II
REGISTERED OFFICE
The location of the registered office of the Corporation in the State of
Delaware is the office of The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904, and the name
of the registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
<PAGE> 3
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is one billion two hundred sixty two million three
hundred seventy five thousand ninety six (1,262,375,096) shares, of which one
billion two hundred fifty million (1,250,000,000) shares shall be common stock
("Common Stock") and twelve million three hundred seventy five thousand ninety
six (12,375,096) shares shall be preferred stock ("Preferred Stock"). Said
shares of Common Stock and Preferred Stock shall be divided into the following
classes:
(a) One billion one hundred million (1,100,000,000) shares of Common Stock
shall be of a class designated as Class A Common Stock with a par value of $1.00
per share;
(b) One hundred fifty million (150,000,000) shares of Common Stock shall be
of class designated as Class B Common Stock with a par value of $1.00 per share;
(c) Seven hundred thousand (700,000) shares of Preferred Stock shall be of
a class designated as Class A Preferred Stock with a par value of $.01 per
share;
(d) One million six hundred seventy five thousand and ninety six
(1,675,096) shares of Preferred Stock shall be of a class designated as Class B
6% Cumulative Redeemable Exchangeable Junior Preferred Stock with a par value of
$.01 per share; and
(e) Ten million (10,000,000) shares of Preferred Stock shall be of a class
designated as Series Preferred Stock with a par value of $.01 per share.
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations thereof, or
the method of fixing and establishing the same, are as hereinafter in this
Article IV set forth:
-2-
<PAGE> 4
SECTION A
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Section A
shall have, for all purposes of this Article IV, the meanings herein specified:
"Board of Directors" shall mean the Board of Directors of the Corporation
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York, are not required
to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock.
"Certificate" shall mean this Restated Certificate of Incorporation of the
Corporation, as it may from time to time hereafter be amended or restated.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual fiduciary or other capacity.
SECTION B
CLASS A PREFERRED STOCK
The Class A Preferred Stock shall have the following preferences,
limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section B, the
meanings herein specified:
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
-3-
<PAGE> 5
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Class A Preferred Stock
are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or series
of capital stock, whether now existing or hereafter created, of the Corporation,
other than (A) the Class A Preferred Stock, (B) any class or series of Parity
Stock (except to the extent provided under clause (v) hereof) and (C) any Senior
Stock, and (v) any class or series of Parity Stock to the extent that it ranks
junior to the Class A Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation, as the case may be. For purposes of clause
(v) above, a class or series of Parity Stock shall rank junior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Class A Preferred Stock shall be
entitled to dividend payment, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or series.
"Liquidation Preference" measured per share of the Class A Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section B have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section B
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Issue Date if the
-4-
<PAGE> 6
Determination Date is on or prior to the first Dividend Payment Date) through
and including the Determination Date, and, in the case of clauses (b) and (c)
hereof, whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends. In connection with the determination of the Liquidation
Preference of a share of Class A Preferred Stock upon redemption or upon
liquidation, dissolution or winding up of the Corporation, the Determination
Date shall be the applicable date of redemption or the date of distribution of
amounts payable to stockholders in connection with any such liquidation,
dissolution or winding up.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class A Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class A Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class A Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class A Preferred Stock. No class or
series of capital stock that ranks junior to the Class A Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Class A Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Date" as to any share of Class A Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) or (b) of
this Section B, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Class A Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking prior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation. Capital stock of any class or series shall rank prior to the Class
A Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of such class or series shall be entitled
to dividend
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payments, payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Class A Preferred Stock.
No class or series of capital stock that ranks on a parity basis with or junior
to the Class A Preferred Stock as to rights on liquidation shall rank or be
deemed to rank prior to the Class A Preferred Stock as to dividend rights or
rights of redemption, notwithstanding that the dividend rate, dividend payment
dates, sinking fund provisions, if any, or mandatory redemption provisions
thereof are different from those of the Class A Preferred Stock, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section B.
"Stated Liquidation Value" of a share of Class A Preferred Stock means
$322.84.
"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class A Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class A Preferred Stock at
the rate of 9 3/8% per annum of the Stated Liquidation Value of such share from
the Issue Date to and including the date on which the Liquidation Preference of
such share is made available (whether on liquidation, dissolution, or winding up
of the Corporation or, in the case of paragraph 4 of this Section B, upon the
applicable Redemption Date). Accrued dividends on the Class A Preferred Stock
will be payable, as provided in paragraph 2(c) below, annually on each Dividend
Payment Date to the holders of record of the Class A Preferred Stock as of the
close of business on the Record Date for such dividend payment. Dividends shall
be fully cumulative and shall accrue (without interest or compounding) on a
daily basis without regard to the occurrence of a Dividend Payment Date and
whether or not such dividends are declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. The amount of dividends "accrued" as of the first Dividend Payment
Date and as of any date that is not a Dividend Payment Date shall be calculated
on the basis of the foregoing rate per annum for the actual number of days
elapsed from the Issue Date (in the case of the first Dividend Payment Date and
any date prior to the first Dividend Payment Date) or the
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<PAGE> 8
last preceding Dividend Payment Date (in the case of any other date) to and
including the date as of which such determination is to be made, based on a 365-
or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class A Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable with respect to any dividend
payment on the Class A Preferred Stock that may be in arrears or with respect to
that portion of any other payment on the Class A Preferred Stock that is in
arrears which consists of accumulated or accrued and unpaid dividends. Such
accumulated or accrued and unpaid dividends may be declared and paid at any time
(subject to the rights of any Senior Stock and, if applicable, to the concurrent
satisfaction of any dividend arrearages then existing with respect to any Parity
Stock which ranks on a parity basis with the Class A Preferred Stock as to the
payment of dividends) without reference to any regular Dividend Payment Date, to
holders of record as of the close of business on such date, not more than 45
days nor less than 10 days preceding the payment date thereof, as may be fixed
by the Board of Directors (the "Special Record Date"). Notice of each Special
Record Date shall be given, not more than 45 days nor less than 10 days prior
thereto, to the holders of record of the shares of Class A Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class A Preferred Stock shall be declared and paid in cash. All dividends paid
with respect to the shares of Class A Preferred Stock pursuant to this paragraph
2 shall be paid pro rata to all the holders of shares of Class A Preferred Stock
outstanding on the applicable Record Date or Special Record Date, as the case
may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class A Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class A Preferred Stock as of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class A Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class A Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation after receiving the
Liquidation Preference per share. If, upon distribution of the
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<PAGE> 9
Corporation's assets in liquidation, dissolution or winding up, the assets of
the Corporation to be distributed among the holders of the Class A Preferred
Stock and to all holders of any Parity Stock ranking on a parity basis with the
Class A Preferred Stock with respect to distributions upon liquidation,
dissolution or winding up shall be insufficient to permit payment in full to
such holders of the respective preferential amounts to which they are entitled,
then the entire assets of the Corporation to be distributed to holders of the
Class A Preferred Stock and such Parity Stock shall be distributed pro rata to
such holders based upon the aggregate of the full preferential amounts to which
the shares of Class A Preferred Stock and such Parity Stock would otherwise
respectively be entitled. Neither the consolidation or merger of the Corporation
with or into any other corporation or corporations nor the sale, transfer or
lease of all or substantially all of the assets of the Corporation shall itself
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this paragraph 3. Notice of the liquidation, dissolution
or winding up of the Corporation shall be given, not less than 20 days prior to
the date on which such liquidation, dissolution or winding up is expected to
take place or become effective, to the holders or record of the shares of Class
A Preferred Stock.
4. Redemption.
(a) MANDATORY REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the Corporation shall redeem, out
of funds legally available therefor, on the twelfth anniversary of the Issue
Date (or, if such day is not a Business Day, on the first Business Day
thereafter), all shares of Class A Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Corporation legally
available for redemption of shares of the Class A Preferred Stock or Parity
Stock then required to be redeemed are insufficient to redeem the total number
of such shares remaining outstanding, those funds which are legally available
shall, subject to the rights of any Senior Stock and the provisions of paragraph
5, be used to redeem the maximum possible number of shares of Class A Preferred
Stock and Parity Stock. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 hereof, at any time and from time to time thereafter
when additional funds of the Corporation are legally available for such purpose,
such funds shall immediately be used to redeem the shares of Class A Preferred
Stock and Parity Stock which are required to be redeemed that the Corporation
failed to redeem until the balance of such shares has been redeemed. The
selection of shares to be redeemed pursuant to the two immediately preceding
sentences shall be made on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(b) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the shares of Class A Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class A Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class A Preferred Stock to be
redeemed shall be chosen pro rata among all holders of Class A Preferred Stock.
The Corporation shall not be required to register a transfer of (i) any shares
of Class A Preferred Stock for a period of 15
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<PAGE> 10
days next preceding any selection of shares of Class A Preferred Stock to be
redeemed or (ii) any shares of Class A Preferred Stock selected or called for
redemption.
(c) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class A Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class A Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class A preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Class A Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(d) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(c) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class A Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class A Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
(e) STATUS OF REDEEMED SHARES. All shares of Class A Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividends periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class A Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or
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otherwise acquire any shares of Class A Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose, pursuant to
paragraph 4 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Class A Preferred Stock, of such Parity Stock and of any other class
of series of Parity Stock that by the terms of the instrument creating or
evidencing such Parity Stock is required to be redeemed under such circumstances
are redeemed or exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class A Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class A
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside for such purpose
and no other purpose, the Corporation shall not declare or pay any dividend on
or make any distribution with respect to any Junior Stock or Parity Stock or set
aside any money or assets for any such purpose, except that the Corporation may
declare and pay a dividend on any Parity Stock ranking on a parity basis with
the Class A Preferred Stock with respect to the right to receive dividend
payments, contemporaneously with the declaration and payment of a dividend on
the Class A Preferred Stock, provided that such dividends are declared and paid
pro rata so that the amount of dividends declared and paid per share of the
Class A Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that accumulated and accrued and unpaid dividends per share
on the Class A Preferred Stock and such Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for redemption or
exchange pursuant to paragraph 4 hereof any shares of Class A Preferred Stock
called for redemption on such date, and until such shares are redeemed in full,
the Corporation shall not redeem or exchange any Parity Stock or Junior Stock or
declare or pay any dividend on or make any distribution with respect to any
Junior Stock, or set aside any money or assets for any such purpose, and neither
the Corporation nor any Subsidiary thereof shall purchase or otherwise acquire
any Class A Preferred Stock, Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose.
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<PAGE> 12
Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
of Directors in good faith) that would be available for distribution to the
holders of the Class A Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class A
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class A Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class A Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class A Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class A Preferred Stock and accordingly, if the holders of shares of
Class A Preferred Stock shall have waived (as provided in paragraph 7 of this
Section B) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class A Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting.
(a) VOTING RIGHTS. The holders of Class A Preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class A Preferred Stock may be increased or decreased (but
not below the number of shares of Class A preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3 of the total voting
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power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class A Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class A Preferred Stock or that would decrease
the number of authorized shares of Class A Preferred Stock or the number of
authorized shares of Class A Preferred Stock (but not below the number of shares
of Preferred Stock or Class A Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class A Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class A Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
7. Waiver.
Any provision of this Section B which, for the benefit of the holders of
Class A Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in whole
or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class A
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or writing
or by vote at an annual meeting or a meeting called for such purpose at which
the holders of Class A Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section B to be
given to the holders of share of Class A Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class A
Preferred Stock, the shares of Class A Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
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10. Heading of Subdivisions.
The headings of the various subdivisions of this Section are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section.
SECTION C
CLASS B 6% CUMULATIVE REDEEMABLE EXCHANGEABLE
JUNIOR PREFERRED STOCK
The Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
shall have the following preferences, limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section C, the
meanings herein specified:
"Average Market Price" as of any Record Date or Special Record Date for a
dividend payment declared by the Board of Directors means the average of the
daily Current Market Prices of the Class A Common Stock for a period of 20
consecutive trading days ending on the tenth trading day prior to such Record
Date or Special Record Date, appropriately adjusted to take into account any
stock dividends on the Class A Common Stock, or any stock splits,
reclassifications or combinations of the Class A Common Stock, during the period
following the first of such 20 trading days and ending on the last full trading
day immediately preceding the Dividend Payment Date or other date fixed for the
payment of dividends to which such Record Date or Special Record Date, as the
case may be, relates.
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
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"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Current Market Price" of a share of Class A Common Stock on any day means
the last reported per share sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock on such day
on the Nasdaq National Market or as quoted by the National Quotation Bureau
Incorporated, or if the Class A Common Stock is listed on an exchange, on the
principal exchange on which the Class A Common Stock is listed. In the event
that no such quotation is available for any day, the Board of Directors shall be
entitled to determine the Current Market Price on the basis of such quotations
as it considers appropriate.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Initial Accrual Date to
and including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Initial Accrual Date", when used with respect to the shares of Class B
Preferred Stock, shall mean March 2, 1994.
"Issue Date" shall mean the date on which shares of Class B Preferred Stock
are first issued.
"Junior Exchange Notes" shall mean junior subordinated debt securities of
the Corporation of a series to be issued under the Junior Exchange Note
Indenture in exchange for shares of Class B Preferred Stock as contemplated by
paragraphs 4(d) and (f) of this Section C.
"Junior Exchange Note Indenture" shall mean an indenture substantially in
the form annexed as Exhibit 4.5 to the S-4 Registration Statement, as
supplemented by a supplemental indenture substantially in the form annexed as
Exhibit 1 to such form of indenture, as said indenture and supplemental
indenture may be amended or further supplemented from time to time (subject to
any applicable restrictions of this Certificate) and, unless the context
indicates otherwise, shall include the form and terms of the Junior Exchange
Notes established as contemplated thereunder.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) any other class or series of capital stock, whether now
existing or hereafter created, of the Corporation, other than (A) the Class B
Preferred Stock, (B) the Class A Preferred Stock, (C) any class or series of
Parity Stock (except to the extent provided under clause (iv) hereof) and (D)
any Senior Stock, and (iv) any class or series of Parity Stock to the extent
that it ranks junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation, as the case may be. For purposes
of clause (iv) above, a class or series of Parity
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Stock shall rank junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation if the holders of shares of Class
B Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Liquidation Preference" measured per share of the Class B Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section C have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section C
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Initial Accrual Date if the Determination Date is on or
prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference of
a share of Class B Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts payable
to stockholders in connection with any such liquidation, dissolution or winding
up.
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Optional Exchange Date" shall mean the date fixed for the exchange of
shares of Class Be Preferred Stock pursuant to paragraph 4(d) of this Section C,
provided that such date will not be the Optional Exchange Date unless on or
before such date all conditions to the issuance and delivery of Junior Exchange
Notes upon such exchange contained in paragraph 4(f) of this Section C have been
satisfied.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class B Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class B Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class B Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class B Preferred Stock. No class or
series of capital stock that ranks junior to the Class B Preferred
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Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Class B Preferred Stock as to dividend rights of redemption,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteen day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Agent" has the meaning ascribed to such term in paragraph 4(c)
of this Section C.
"Redemption Date" as to any share of Class B Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) of this
Section C, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no purpose, has been
set apart or deposited in trust as contemplated by paragraph 4(c) of this
Section C.
"Redemption Price" as to any share of Class B Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"S-4 Registration Statement" shall mean the Corporation's Registration
Statement on Form S-4 (Reg. No. 33-54263) filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933 and declared effective on June
28, 1994.
"Senior Stock" shall mean (i) the Class A Preferred Stock and (ii) any
other class or series of capital stock, whether now existing or hereafter
created, of the Corporation ranking prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock of
any class or series shall rank prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders of
shares of such class or series shall be entitled to dividend payments, payments
on redemption or payments of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be, in preference or priority
to the holders of shares of Class B Preferred Stock. No class or series of
capital stock that ranks on a parity basis with or junior to the Class B
Preferred Stock as to rights on liquidation shall rank or be deemed to rank
prior to the Class B Preferred Stock as to dividend rights or rights of
redemption, notwithstanding that the dividend rate, dividend payment dates,
sinking fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Class B Preferred Stock, unless the instrument
creating or evidencing such class or series of capital stock otherwise expressly
provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section C.
"Stated Liquidation Value" of a share of Class B Preferred Stock means
$100.
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"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
"TIA" shall mean the Trust Indenture Act of 1939 (or any successor statute)
as in effect on the date the Junior Exchange Note Indenture is or is required to
be qualified thereunder in accordance with paragraph 4 of this Section C.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class B Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class B Preferred Stock at
the rate of 6.0% per annum of the Stated Liquidation Value of such share from
the Initial Accrual Date to and including the date on which the Liquidation
Preference of such share is made available (whether on liquidation, dissolution,
or winding up of the Corporation or, in the case of paragraph 4 of this Section
C, upon the applicable Redemption Date or Optional Exchange Date. Accrued
dividends on the Class B Preferred Stock will be payable, as provided in
paragraph 2(c) below, annually on each Dividend Payment Date to the holders of
record of the Class B Preferred Stock as of the close of business on the Record
Date for such dividend payment. Dividends shall be fully cumulative and shall
accrue (without interest or compounding) on a daily basis without regard to the
occurrence of a Dividend Payment Date and whether or not such dividends are
declared and whether or not there are any unrestricted funds of the Corporation
legally available for the payment of dividends. The amount of dividends
"accrued" as of the first Dividend Payment Date and as of any date that is not a
Dividend Payment Date shall be calculated on the basis of the foregoing rate per
annum for the actual number of days elapsed from the Initial Accrual Date (in
the case of the first Dividend Payment Date and any date prior to the first
Dividend Payment Date) or the last preceding Dividend Payment Date (in the case
of any other date) to and including the date as of which such determination is
to be made, based on a 365- or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class B Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable (whether in cash, shares of
Class A Common Stock
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or otherwise) with respect to any dividend payment on the Class B Preferred
Stock that may be in arrears or with respect to that portion of any other
payment on the Class B Preferred Stock that is in arrears which consists of
accumulated or accrued and unpaid dividends. Such accumulated or accrued and
unpaid dividends may be declared and paid at any time (subject to the rights of
any Senior Stock and, if applicable, to the concurrent satisfaction of any
dividend arrearages then existing with respect to any Parity Stock which ranks
on a parity basis with the Class B Preferred Stock as to the payment of
dividends) without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 45 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board of
Directors (the "Special Record Date"). Notice of each Special Record Date shall
be given, not more than 45 days nor less than 10 days prior thereto, to the
holders of record of the shares of Class B Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class B Preferred Stock may be declared and paid, in the sole discretion of the
Board of Directors, in cash, through the issuance of shares of Class A Common
Stock or in any combination of the foregoing, provided, however, that if on any
Dividend Payment Date or other date fixed for the payment of dividends declared
by the Board of Directors, the Corporation pursuant to applicable law or
otherwise is prohibited or restricted from paying in cash the full amount of
dividends declared payable to the holders of Class B Preferred Stock on such
date, then the portion of such dividends the payment of which in cash is so
prohibited or restricted (or such greater portion of such dividends as the Board
of Directors may determine) shall be paid through the issuance of shares of
Class A Common Stock. If any dividend payment declared by the Board of Directors
with respect to the shares of Class B Preferred Stock is to be paid in whole or
in part through the issuance of shares of Class A Common Stock, the amount of
such dividend payment to be paid per share of Class B Preferred Stock in shares
of Class A Common Stock (the "Stock Dividend Amount") shall be satisfied and
paid by the delivery to the holders of record of such shares of Class B
Preferred Stock on the Record Date or Special Record Date, as the case may be,
for such dividend payment, of a number of shares of Class A Common Stock
determined by dividing the Stock Dividend Amount by the Average Market Price of
a share of Class A Common Stock as of such Record Date or Special Record Date.
The Corporation shall not be required to issue any fractional share of Class A
Common Stock to which any holder of Class B Preferred Stock may become entitled
pursuant to this paragraph 2(c). The Board of Directors may elect to settle any
final fraction of a share of Class A Common Stock which a holder of one or more
shares of Class B Preferred Stock would otherwise be entitled to receive
pursuant to this paragraph 2(c) by having the Corporation pay to such holder, in
lieu of issuing such fractional share, cash in an amount (rounded upward to the
nearest whole cent) equal to the same fraction of the Average Market Price of a
share of Class A Common Stock as of the Record Date or Special Record Date, as
the case may be, for the dividend payment with respect to which such shares of
Class A Common Stock are being delivered. Such election, if made, shall be made
as to all holders of Class B Preferred Stock who would otherwise be entitled to
receive a fractional share of Class A Common Stock on the Dividend Payment Date
or other date fixed for the payment of such dividend.
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<PAGE> 20
All dividends paid with respect to the shares of Class B Preferred Stock
pursuant to this paragraph 2 shall be paid pro rata to all the holders of shares
of Class B Preferred Stock outstanding on the applicable Record Date or Special
Record Date, as the case may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class B Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class B Preferred Stock of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class B Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class B Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation's assets in
liquidation, dissolution or winding up, the assets of the Corporation to be
distributed among the holders of the Class B Preferred Stock and to all holders
of any Parity Stock ranking on a parity basis with the Class B Preferred Stock
with respect to distributions upon liquidation, dissolution or winding up shall
be insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Class B Preferred Stock and such
Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Class B
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 3. Notice of the liquidation, dissolution or winding up of the
Corporation shall be given, not less than 20 days prior to the date on which
such liquidation, dissolution or winding up is expected to take place or become
effective, to the holders of record of the shares of Class B Preferred Stock.
4. Redemption or Exchange.
(a) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section C, the shares of Class B Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class B Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class B Preferred Stock to be
redeemed shall be chosen by lot or by such other method as the Board of
Directors
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considers fair and appropriate (and which complies with the requirements, if
any, of any national securities exchange or national interdealer quotation
system on which the Class B Preferred Stock may be listed or admitted to trading
or quoted). The Corporation shall not be required to register a transfer of (i)
any shares of Class B Preferred Stock for a period of 15 days next preceding any
selection of shares of Class B Preferred Stock to be redeemed or (ii) any shares
of Class B Preferred Stock selected or called for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class B Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class B Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class B Preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed, and if the Corporation has
elected to deposit the Redemption Price with a Redemption Agent in accordance
with paragraph 4(c) below, shall state the name and address of the Redemption
Agent and the date on which such deposit was or will be made. In the event that
fewer than the total number of shares of Class B Preferred Stock represented by
a certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(b) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class B Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class B Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
At its election, the Corporation on or prior to the Redemption Date (but no
more than 60 days prior to the Redemption Date) may deposit immediately
available funds in an amount equal to the aggregate Redemption Price of the
shares of Class B Preferred Stock called for redemption in trust for the holders
thereof with any bank or trust company organized under the laws of the United
States of America or any state thereof having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and at
the expense of the Corporation, to mail the notice of redemption as soon as
practicable after receipt of such
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irrevocable instructions (or to complete such mailing previously commenced, if
it has not already been completed) and to pay, on and after the Redemption Date
or prior thereto, the Redemption Price of the shares of Class B Preferred Stock
to be redeemed to their respective holders upon the surrender of the
certificates therefor. A deposit made in compliance with the immediately
preceding sentence shall be deemed to constitute full payment for the shares of
Class B Preferred Stock to be redeemed and from and after the close of business
on the date of such deposit (although prior to the Redemption Date), the shares
of Class B Preferred Stock to be redeemed shall no longer be deemed outstanding
and the holders thereof shall cease to be stockholders with respect to such
shares and shall have no rights with respect to such shares except the right of
the holders thereof to receive the Redemption Price of such shares (calculated
through the Redemption Date), without interest, upon surrender of the
certificates therefor. Any interest accrued on the funds so deposited shall be
paid to the Corporation from time to time. Any funds so deposited with the
Redemption Agent which shall remain unclaimed by the holders of such shares of
Class B Preferred Stock at the end of one year after the Redemption Date shall
be returned by the Redemption Agent to the Corporation, after which repayment
the holders of such shares of Class B Preferred Stock called for redemption
shall look only to the Corporation for the payment thereof, without interest,
unless an applicable escheat or abandoned property law designates another
Person.
(d) OPTIONAL EXCHANGE FOR JUNIOR EXCHANGE NOTES. Subject to the rights of
any Senior Stock and the provisions of paragraph 5 of this Section C, the shares
of Class B Preferred Stock may be exchanged, out of funds legally available
therefor, at the option of the Corporation by action of the Board of Directors,
in whole but not in part, on any Business Day occurring after the Issue Date,
for Junior Exchange Notes. Each holder of outstanding shares of Class B
Preferred Stock shall be entitled to receive, in exchange for his shares of
Class B Preferred Stock pursuant to this paragraph 4(d), newly issued Junior
Exchange Notes of a series authorized and established for the purpose of such
exchange, the aggregate principal amount of which shall be equal to the
aggregate Liquidation Preference on the Optional Exchange Date of the shares of
Class B Preferred Stock so exchanged by such holder, provided that the Junior
Exchange Notes will be issuable only in principal amounts of $100 or any
integral multiple thereof and an adjustment will be paid by the Corporation, in
cash or by its check, in an amount equal to any excess principal amount
otherwise issuable.
(e) NOTICE OF EXCHANGE. Notice of the Corporation's election to exercise
its optional exchange right pursuant to paragraph 4(d) (an "Optional Exchange
Notice") shall be given by or on behalf of the Corporation, not more than 60
days nor less than 30 days prior to the Optional Exchange Date, to the holders
of record of the shares of Class B Preferred Stock; but no defect in such notice
or in the mailing thereof shall affect the validity of the proceedings for the
exchange of any shares of Class B Preferred Stock. In addition to any
information required by law or by the applicable rules of any national
securities exchange or national interdealer quotation system on which the shares
of Class B Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Optional Exchange Date, the place at which shares of
Class B Preferred Stock will, upon presentation and surrender of the stock
certificates evidencing such shares, be exchanged for Junior Exchange Notes, and
the material terms (or, as to the rate per annum at which the Junior Exchange
Notes will bear
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<PAGE> 23
interest, and, if applicable, as to any other of such terms, the method of
determining the same), consistent with the provisions hereof and of the Junior
Exchange Note Indenture, of the series of Junior Exchange Notes to be issued
upon such exchange.
Upon determination of the rate per annum at which the Junior Exchange Notes
to be issued upon such exchange will bear interest and any other terms of such
Junior Exchange Notes, the method of determining which was set forth in the
Optional Exchange Notice, the Corporation shall promptly give notice of such
determination to the holders of shares of Class B Preferred Stock, which notice
may be given by (or, if required by applicable law, shall be given by)
publication of such determination in a daily newspaper of national circulation.
(f) CONDITIONS TO EXCHANGE FOR JUNIOR EXCHANGE NOTE. Prior to the giving of
an Optional Exchange Notice, the Corporation shall execute and deliver, with a
bank or trust company selected by the Corporation, the Junior Exchange Note
Indenture, substantially in the form annexed to the S-4 Registration Statement
with only such changes as (i) are necessary to comply with law, any applicable
rules of any securities exchange or usage, (ii) are requested by the Corporation
and which would make any provisions of the Junior Exchange Note Indenture, or of
the Junior Exchange Notes of the series established thereunder for the purpose
of such exchange, more restrictive to the Corporation or beneficial to the
holders of the Junior Exchange Notes of such series, as determined by the Board
of Directors in good faith, such determination to be conclusive, (iii) are
requested by the Corporation to add to the covenants and agreements of the
Corporation contained in the Junior Exchange Note Indenture or to remove any
right or power therein reserved to or conferred upon the Corporation, (iv) are
requested by the Corporation in the event of any amendment to this Certificate
that effects a change in the terms of the Class B Preferred Stock, to conform
(as nearly as may be taking into account the differences between debt securities
and equity securities) the provisions of the Junior Exchange Note Indenture
(including, without limitation, the provisions relating to the establishment of
the terms of any series of Junior Exchange Notes authorized to be issued
thereunder) to the terms of the Class B Preferred Stock as so changed, (v) are
consented to by the holders of at least a majority of the number of shares of
Class B Preferred Stock then outstanding (or such greater percentage thereof as
may be required by applicable law or any applicable rules of any national
securities exchange or national interdealer quotation system), either in writing
or by vote at a meeting called for that purpose at which the holders of Class B
Preferred Stock shall vote as a separate class, or (vi) would not adversely
affect the rights of the holders of Junior Exchange Notes of such series
issuable thereunder.
Prior to the Optional Exchange Date, the Corporation shall (i) establish in
the manner contemplated by the Junior Exchange Note Indenture the terms of the
series of Junior Exchange Notes to be issued thereunder on the Optional Exchange
Date, and (ii) file at the office of the exchange agent for the Class B
Preferred Stock (or with the books of the Corporation if there is no exchange
agent) an opinion of counsel to the effect that (A) the Junior Exchange Note
Indenture has been duly authorized, executed and delivered by the Corporation,
and constitutes a valid and binding instrument enforceable against the
Corporation in accordance with its terms (subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity
and
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except that the Corporation may be prohibited from making payments on the Junior
Exchange Notes of the series to be issued if and to the extent it would at the
time be prohibited from redeeming capital stock and subject to other
qualifications as are then customarily contained in opinions of counsel
experienced in such matters); (B) that the Junior Exchange Notes of such series
have been duly authorized and, when executed and authenticated in accordance
with the provisions of the Junior Exchange Note Indenture and delivered in
exchange for the shares of Class B Preferred Stock, will constitute valid and
binding obligations of the Corporation entitled to the benefits of the Junior
Exchange Note Indenture (subject as aforesaid); (C) that the issuance and
delivery of the Junior Exchange Notes of such series in exchange for the shares
of Class B Preferred Stock will not violate the laws of the state of
incorporation of the Corporation; and (D) that (x) the Junior Exchange Note
Indenture has been duly qualified under the TIA (or that such qualification is
not necessary) and (y) that the issuance and delivery of the Junior Exchange
Notes of such series in exchange for the shares of Class B Preferred Stock is
exempt from the registration or qualification requirements of the 1933 Act and
applicable state securities laws or, if no such exemption is available, that the
Junior Exchange Notes of such series have been duly registered or qualified for
such exchange under the 1933 Act and such applicable state securities laws.
(g) METHOD OF EXCHANGE. If an Optional Exchange Notice shall have been
given by the Corporation pursuant to paragraph 4(e) of this Section C, and if
the Corporation shall have satisfied the conditions to such exchange contained
in paragraph 4(f), then effective as of the close of business on the Optional
Exchange Date, the shares of Class B Preferred Stock, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof upon the surrender of certificates evidencing the same to receive the
Junior Exchange Notes exchangeable therefor, and the cash adjustment, if any, in
lieu of Junior Exchange Notes in other than authorized denominations, without
interest.
Before any holder of shares of Class B Preferred Stock called for exchange
shall be entitled to receive the Junior Exchange Notes deliverable in exchange
therefor, such holder shall surrender the certificate or certificates
representing the shares to be exchanged at such place as the Corporation shall
have specified in the Optional Exchange Notice, which certificate or
certificates shall be duly endorsed to the Corporation or in blank (or
accompanied by duly executed instruments to transfer to the Corporation or in
blank) with signatures guaranteed (such endorsements or instruments of transfer
to be in form satisfactory to the Corporation), together with a written notice
to the Corporation, specifying the name or names (with addresses) in which the
Junior Exchange Notes are to be issued. If any transfer is involved in the
issuance or delivery of any Junior Exchange Notes in a name other than that of
the registered holder of the shares of Class B Preferred Stock surrendered for
exchange, such holder shall also deliver to the Corporation a sum sufficient for
all taxes payable in respect of such transfer or evidence satisfactory to the
Corporation that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Corporation shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
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As soon as practicable after the later of the Optional Exchange Date and
the proper surrender of the certificate(s) for such shares of Class B Preferred
Stock as provided above, the Corporation shall deliver at the place specified in
the Optional Exchange Notice, to the holder of the shares of Class B Preferred
Stock so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a Junior Exchange Note or Notes (of authorized
denominations) in the principal amount to which he shall be entitled upon such
exchange, together with a check in the amount of any cash adjustment as provided
in paragraph 4(d). The Person in whose name any Junior Exchange Note is issued
upon an exchange pursuant to paragraph 4(d) shall be treated for all purposes as
the holder of record thereof as of the close of business on the Optional
Exchange Date.
(h) STATUS OF REDEEMED SHARES. All shares of Class B Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividend periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class B Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock, of such Parity Stock and of any other class of series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
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If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until the full cumulative
dividends on the Class B Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date are paid, or declared and
the consideration sufficient to pay the same in full is set aside for such
purpose and no other purpose, the Corporation shall not declare or pay any
dividend on or make any distribution with respect to any Junior Stock or Parity
Stock or set aside any money or assets for any such purpose, except that the
Corporation may declare and pay a dividend on any Parity Stock ranking on a
parity basis with the Class B Preferred Stock with respect to the right to
receive dividend payments, contemporaneously with the declaration and payment of
a dividend on the Class B Preferred Stock, provided that such dividends are
declared and paid pro rata so that the amount of dividends declared and paid per
share of the Class B Preferred Stock and such Parity Stock shall in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Class B Preferred Stock and such Parity Stock bear to
each other.
If the Corporation shall fail to redeem or exchange on any date fixed for
redemption or exchange pursuant to paragraph 4(a) or 4(d) hereof any shares of
Class B Preferred Stock called for redemption or exchange on such date, and
until such shares are redeemed or exchanged in full, the Corporation shall not
redeem or exchange any Parity Stock or Junior Stock or declare or pay any
dividend on or make any distribution with respect to any Junior Stock, or set
aside any money or assets for any such purpose, and neither the Corporation nor
any Subsidiary thereof shall purchase or otherwise acquire any Class B Preferred
Stock, Parity Stock or Junior Stock, or set aside any money or assets for any
such purpose.
Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
or Directors in good faith) that would be available for distribution to the
holders of the Class B Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class B
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class B Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
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The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class B Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class B Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class B Preferred Stock and accordingly, if the holders of shares of
Class B Preferred Stock shall have waived (as provided in paragraph 7 of this
Section C) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class B Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting
(a) VOTING RIGHTS. The holders of Class B preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class B Preferred Stock may be increased or decreased (but
not below the number of shares of Class B Preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3% of the total voting
power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class B Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class B Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Class B Preferred Stock (but not below the number of shares of
Preferred Stock or Class B Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class B Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class B Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
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7. Waiver.
Any provision of this Section C which, for the benefit of the holders of
Class B Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in
whole or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class B
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or by vote
at an annual meeting or a meeting called for such purpose at which the holders
of Class B Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section C to be
given to the holders of shares of Class B Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class B
Preferred Stock, the shares of Class B Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
10. Heading of Subdivisions.
The headings of the various subdivisions of this Section C are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section C.
SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or more
series, with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix:
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(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the annual dividend rate, if any, for the particular series, and
the date or dates from which dividends on all shares of such series shall
be cumulative, if dividends on stock of the particular series shall be
cumulative:
(iii) the redemption price or prices for the particular series:
(iv) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes of stock or
indebtedness of the Corporation, and the terms and conditions of such
conversion;
(v) the voting rights, if any, of the holders of a particular series;
and
(vi) the obligation, if any, of the Corporation to purchase and retire
and redeem shares of a particular series as a sinking fund or redemption or
purchase account, the terms thereof and the redemption price or prices per
share for such series redeemed pursuant to the sinking fund or redemption
account.
All shares of any one series of the Series Preferred Stock shall be alike
in every particular and all series shall rank equally and be identical in all
respects except insofar as they may vary with respect to the matters which the
Board of Directors is hereby expressly authorized to determine in the resolution
or resolutions providing for the issue of any series of the Series Preferred
Stock.
SECTION E
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Each share of the Class A Common Stock, par value $1.00 per share (the
"Class A Common Stock"), and each share of the Class B Preferred Stock, par
value $1.00 per share (the "Class B Common Stock"), of the Corporation shall,
except as otherwise provided in this Section E, be identical in all respects and
shall have equal rights and privileges.
1. Voting Rights.
Holders of Class A Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Class B Preferred Stock shall be
entitled to ten votes for each share of such stock held, on all matters
presented to such stockholders. Except as may otherwise be required by the laws
of the State of Delaware or in the instrument creating or evidencing any class
or series of Preferred Stock the holders of shares of Class A Common Stock
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and the holders of shares of Class B Common Stock shall vote with the holders of
Preferred Stock, if any, as one class with respect to the election of directors
and with respect to all other matters to be voted on by stockholders of the
Corporation (including, without limitations, any proposed amendment to this
Certificate that would increase the number of authorized shares of Class A
Common Stock, of Class B Common Stock or of any class or series of Preferred
Stock or decrease the number of authorized shares of any such class or series of
stock (but not below the number of shares thereof then outstanding)), and no
separate vote or consent of the holders of shares of Class A Common Stock, the
holders of shares of Class B Common Stock or the holders of shares of Preferred
Stock shall be required for the approval of any such matter.
2. Conversion Rights.
Each share of Class B Common Stock shall be convertible, at the option of
the holder thereof, into one share of Class A Common Stock. Any such conversion
may be effected by any holder of Class B Common Stock by surrendering such
holder's certificate or certificates for the Class B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for the Class B Common Stock, together with a written notice to the Corporation
at such office that such holder elects to convert all or a specified number of
shares of Class B Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Class A Common Stock to be issued. If so required by the Corporation, any
certificate for shares surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Class A Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Class A Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Class A Common Stock on
that date. A number of shares of Class A Common Stock equal to the number of
shares of Class B Common Stock outstanding from time to time shall be set aside
and reserved for issuance upon conversion of shares of Class B Common Stock.
Shares of Class B Common Stock that have been converted hereunder shall remain
treasury shares to be disposed of by resolution of the Board of Directors.
Shares of Class A Common Stock shall not be convertible into shares of Class B
Common Stock.
3. Dividends. Subject to paragraph 4 of this Section E, whenever a dividend
is paid to the holders of Class A Common Stock, the Corporation also shall pay
to the holders of Class B Common Stock a dividend per share at least equal to
the dividend per share paid to the holders of the Class A Common Stock. Subject
to paragraph 4 of this Section E, whenever a dividend is paid to the holders of
Class B Common Stock, the Corporation shall also pay to the holders of the Class
A Common Stock a dividend per share at least equal to the dividend per share
paid to the holders of the Class B Common Stock. Dividends shall be payable only
as and when declared by the Board of Directors.
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4. Share Distributions. If at any time a distribution on the Class A Common
Stock or Class B Common Stock is to be paid in Class A Common Stock, Class B
Common Stock or any other securities of the Corporation (hereinafter sometimes
called a "share distribution"), such share distribution may be declared and paid
only as follows:
(a) a share distribution consisting of Class A Common Stock to holders of
Class A Common Stock and Class B Common Stock, on an equal per share basis; or
to holders of Class A Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class B Common Stock consisting of
shares of Class B Common Stock on an equal per share basis:
(b) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class A Common Stock consisting of
shares of Class A Common Stock on an equal per share basis; and
(c) a share distribution consisting of any class of securities of the
Corporation other than Common Stock, to the holders of Class A Common Stock and
the holders of Class B Common Stock on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine one class of its
Common Stock without reclassifying, subdividing or combining the other class of
Common Stock, on an equal per share basis.
5. Liquidation and Mergers. Subject to the prior payment in full of the
preferential amounts to which any Preferred Stock is entitled, the holders of
Class A Common Stock and the holders of Class B Common Stock shall share
equally, on a share for share basis, in any distribution of the Corporation's
assets upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provisions for payment of the
debts and other liabilities of the Corporation. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 5.
SECTION F
UNCLAIMED DIVIDENDS
Any and all right, title, interest and claim in or to any dividends
declared by the Corporation, whether in cash, stock or otherwise, which are
unclaimed for a period of four years after the close of business on the payment
date, shall be and be deemed extinguished and abandoned; and such unclaimed
dividends in the possession of the Corporation, its transfer agent
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or other agents or depositories, shall at such time become the absolute property
of the Corporation, free and clear of any and all claims of any Persons
whatsoever.
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors.
Subject to any rights of the holders of any class or series of Preferred Stock
to elect additional directors, the number of directors shall not be less than
three (3) and the exact number of directors shall be fixed by the Board of
Directors by resolution. Election of directors need not be by written ballot.
SECTION B
CLASSIFICATION OF THE BOARD
Except as otherwise fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any class or series of Preferred
Stock to separately elect additional directors, which additional directors are
not required to be classified pursuant to the terms of such class or series of
Preferred Stock, the Board of Directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III. Each class shall consist, as
nearly as possible, of a number of directors equal to one-third (33 1/3%) of the
then authorized number of members of the Board of Directors. The term of office
of the initial Class I directors shall expire at the annual meeting of
stockholders in 1995; the term of office of the initial Class II directors shall
expire at the annual meeting of stockholders in 1996; and term of office of the
initial Class III directors shall expire at the annual meeting of stockholders
in 1997. At each annual meeting of stockholders of the Corporation the
successors of that class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election. The
directors of each class will hold office until their respective successors are
elected and qualified.
SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of Preferred
Stock, directors may be removed from office only for cause (as hereinafter
defined) upon the affirmative vote of the
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holders of at least 66 2/3% of the total voting power of the then outstanding
Voting Securities (as hereinafter defined), voting together as a single class.
Except as may otherwise to provided by law, "cause" for removal, for purposes of
this Section C, shall exist only if: (i) the director whose removal is proposed
has been convicted of a felony, or has been granted immunity to testify in an
action where another has been convicted of a felony, by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (ii)
such director has become mentally incompetent, whether or not so adjudicated,
which mental incompetence directly affects his ability as a director of the
Corporation, as determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director); or (iii) such director's
actions or failure to act have been determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director) to
be in derogation of the director's duties. The term "Voting Securities" shall
include the Class A Common Stock, the Class B Common Stock and any class or
series of Preferred Stock entitled to vote with the holders of Common Stock
generally upon all matters which may be submitted to a vote of stockholders at
any annual meeting or special meeting thereof.
SECTION D
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of the holders of any class or series of Preferred
Stock, vacancies on the Board of Directors resulting from death, resignation,
removal, disqualification or other cause, and newly created directorships
resulting from any increase in the number of directors on the Board of
Directors, shall be filled by the affirmative vote of a majority of the
remaining directors then in office (even though less than a quorum) or by the
sole remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or to which the new directorship is
apportioned, and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director, except as may be
provided in the terms of any class or series of Preferred Stock with respect to
any additional director elected by the holders of such class or series of
Preferred Stock.
SECTION E
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of this
paragraph 1 shall be prospective only and shall not
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adversely affect any limitation, right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2. Indemnification.
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section E. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses incurred
by a director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this paragraph or
otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person may or
hereafter acquire under any statute, provision of this Certificate, the Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
(e) OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
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3. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION F
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable. It shall be
issued as fully paid, and the private property of the stockholders shall not be
liable for the debts, obligations or liabilities of this Corporation. This
Certificate shall not be subject to amendment in this respect.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of Preferred
Stock, stockholder action may be taken only at an annual or special meeting.
Except as otherwise provided in the
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terms of any class or series of Preferred Stock or unless otherwise prescribed
by law or by another provision of this Certificate, special meetings of the
stockholders of the Corporation, for any purpose or purposes, shall be called by
the Secretary of the Corporation (i) upon the written request of the holders of
not less than 66 2/3% of the total voting power of the outstanding Voting
Securities (as defined in Section C of Article V of this Certificate) or (ii) at
the request of at least 75% of the members of the Board of Directors then in
office.
SECTION B
ANNUAL AND SPECIAL MEETINGS
Except as otherwise provided in the terms of any class or series of
Preferred Stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
is specifically denied.
ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any class or series of Preferred
Stock, the affirmative vote of the holders of at least 66 2/3% of the total
voting power of the then outstanding Voting Securities (as defined in Section C
of Article V of this Certificate), voting together as a single class at a
meeting specifically called for such purpose, shall be required in order for the
Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision of this
Certificate or the addition or insertion of other provisions herein;
(b) the adoption, amendment or repeal of any provision of the Bylaws of the
Corporation; provided, however, that this clause (b) shall not apply to, and no
vote of the stockholders of the Corporation shall be required to authorize, the
adoption, amendment or repeal of any provision of the Bylaws of the Corporation
by the Board of Directors in accordance with the power conferred upon it
pursuant to Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with or into any other
corporation; provided, however, that this clause (c) shall not apply to any
merger or consolidation (i) as to which the laws of the State of Delaware, as
then in effect, do not require the consent of this Corporation's stockholders,
or (ii) which at least 75% of the members of the Board of Directors then in
office have approved;
(d) the sale, lease or exchange of all, or substantially all, of the
property and assets of the Corporation; or
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(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the Corporation
pursuant to this Certificate are granted subject to the provisions of this
Article IX.
# # # #
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IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this 4th DAY OF August, 1994.
TCI/LIBERTY HOLDING COMPANY
By: /s/ Brendan R. Clouston
Brendan R. Clouston
Title: Executive Vice President
ATTEST:
By: /s/ Stephen M. Brett
Stephen M. Brett
Title: Secretary
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<PAGE> 39
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH
DAY OF AUGUST, A.D. 1994, AT 4:18 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION:
7202383
DATE: 08-04-94
<PAGE> 40
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES C" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Commumcations, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, SERIES C":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $1.00 per share, of this Corporation, to consist
of 80,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof of the shares of such series (in addition
to the designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of this Corporation authorized hereby is
"Convertible Preferred Stock, Series C" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined in this Section 2 shall have the meanings herein specified:
Affiliate: As defined in Section 7(b).
<PAGE> 41
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Conversion Rate: As defined in Section 5(b).
Convertible Preferred Holder: As defined in Section 7(a).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness, whether existing
at the Issue Date or thereafter created, incurred, assumed or guaranteed.
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each three-month period
from but excluding the Dividend Payment Date for the preceding Dividend Period
to and including the Dividend Payment Date for such Dividend Period.
First Accrual Date: August 8, 1994.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage,
pledge, lien, charge or other encumbrance
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to which the property or assets of this Corporation are subject whether or not
the obligations secured thereby shall have been assumed by or shall otherwise
be this Corporation's legal liability; and (iv) any amendment, renewal,
extension or refunding of any liability of the types referred to in clauses
(i), (ii) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Class A Common Stock, Class B Common
Stock, and any other class or series of stock of this Corporation not entitled
to receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof. any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of(i) $2.375 plus an amount equal to
all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) have been added to and remain a part
of the Liquidation Value as of such date, plus (iii), for purposes of
determining amounts payable pursuant to Sections 4 and 6 hereof, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (i) and (ii) above to the date as of which the Liquidation Value is
being determined.
Original Holder: As defined in Section 7(a).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock.
Permitted Transferee: As defined in Section 7(a).
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(c), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart, and if the Redemption Price is not so paid in full or the consideration
sufficient therefor so set apart
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then the Redemption Date will be the date on which such Redemption Price is
fully paid or the consideration sufficient for the payment thereof, and for no
other purpose, has been set apart.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date.
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Record Date: As defined in Section 3(C).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 5 1/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable quarterly on the first day of each January, April, July and October, or
the immediately preceding business day if such first day is a Saturday, Sunday
or legal holiday (each such payment date being hereinafter referred to as a
"Dividend Payment Date"), commencing on October 1, 1994 to the holders of
record of the Convertible Preferred Stock as of the close of business on the
applicable Record Date. For purposes of determining the amount of dividends
"accrued" as of any date that is not a Dividend Payment Date, such amount shall
be calculated on the basis of the rate per annum specified in Section 3(a) for
actual days elapsed from but excluding the First Accrual Date (in the case of
any date prior to the first Dividend Payment Date) or the last preceding
Dividend Payment Date (in the case of any other date) to and including the date
as of which such determination is to be made, based on a 365-day year.
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(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled. To
the extent not paid on each Dividend Payment Date, all dividends which have
accrued on each Share during the Dividend Period ending on such Dividend
Payment Date will be added cumulatively to the Liquidation Value of such Share
and will remain a part thereof until such dividends are paid. In the event that
dividends are not paid in full on two consecutive Dividend Payment Dates,
dividends on that portion of the Liquidation Value of each Share which consists
of accrued dividends that have theretofore been or thereafter are added to, and
remain a part of, the Liquidation Value in accordance with the preceding
sentence shall accrue cumulatively on a daily basis at the rate of fifteen
percent (15%) per annum, from and after such second consecutive Dividend
Payment Date to and including the date of conversion of such Share pursuant to
Section 5 or the date on which the Liquidation Value or Redemption Price of
such Share is made available pursuant to Section 4 or 6 hereof, respectively,
unless such portion of the Liquidation Value that consists of accrued unpaid
dividends shall be earlier paid in full. Such portion of the Liquidation Value
as consists of accrued unpaid dividends, may be declared and paid at any time
without reference to any regular Dividend Payment Date, to holders of record as
of the close of business on such date, not more than 50 days nor less than 10
days preceding the payment date thereof, as may be fixed by the Board of
Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 (other than on any date fixed for a redemption of Shares
pursuant to Section 6(a)), this Corporation shall fail to pay the Redemption
Price due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of fifteen percent (15%) per annum of
the Liquidation Value thereof from and after such Redemption date to and
including the date of conversion of such Shares pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Shares is made
available pursuant to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(c), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Security, nor shall any shares
of any Junior Security be purchased, redeemed, or otherwise acquired for value
by the Corporation, unless the holders of the Convertible Preferred Stock shall
have received all dividends to which they are entitled pursuant to Section 3(a)
hereof for all the Dividend Periods preceding the date on which such dividend
on the Junior Securities is to
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<PAGE> 45
occur, or such dividends shall have been declared and the consideration
sufficient for the payment thereof set apart so as to be available for the
payment in full thereof and for no other purpose. The provisions of this
Section 3(f) shall not apply (i) to a dividend payable in any Junior Security,
or (ii) to the repurchase, redemption or other acquisition of shares of any
Junior Security solely through the issuance of Junior Securities (together
with a cash adjustment for tractional shares, if any) or through the
application of the proceeds from the sale of Junior Securities.
4. Liquidation. Upon any liquidation, dissolution or winding up
of this Corporation, whether voluntary or involuntary, the holders of
Convertible Preferred Stock shall be entitled to be paid an amount in cash
equal to the aggregate Liquidation Value at the date fixed for liquidation of
all Shares outstanding before any distribution or payment is made upon any
Junior Securities, which payment shall be made pari passu with any such payment
made to the holders of any Parity Securities. The holders of Convertible
Preferred Stock shall be entitled to no other or further distribution of or
participation in any remaining assets of this Corporation after receiving the
Liquidation Value per Share. If upon such liquidation, dissolution or winding
up, the assets of this Corporation to be distributed among the holders of
Convertible Preferred Stock and to all holders of Parity Securities are
insufficient to permit payment in full to such holders of the aggregate
preferential amounts which they are entitled to be paid, then the entire assets
of this Corporation to be distributed to such holders shall be distributed
ratably among them based upon the full preferential amounts to which the shares
of Convertible Preferred Stock and such Parity Securities would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Convertible Preferred Stock and Parity Securities have
been paid in full the amounts to which they are entitled, the remaining assets
of this Corporation may be distributed to the holders of Junior Securities.
This Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Convertible Preferred Stock not less than
30 days prior to the payment date stated in such written notice. Neither the
consolidation or merger of this Corporation into or with any other corporation
or corporations, nor the sale, transfer or lease by this Corporation of all or
any part of its assets, shall be deemed to be a liquidation, dissolution or
winding up of this Corporation within the meaning of this Section 4.
5. Conversion.
(a) Unless previously called for redemption as provided in Section
6 hereof, the Convertible Preferred Stock may be converted at any time or from
time to time, in such manner and upon such terms and conditions as hereinafter
provided in this Section 5 into fully paid and nonassessable full shares of
Class A Common Stock. In the case of Shares called for redemption by this
Corporation pursuant to Section 6(a) hereof, the conversion right provided by
this Section 5 shall terminate at the close of business on the fifteenth day
preceding the date fixed for redemption. In the case of Shares required to be
redeemed pursuant to Section 6(b), the conversion right provided by this
Section 5 shall terminate immediately upon receipt by this Corporation of a
notice given pursuant to said Section. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A
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<PAGE> 46
Common Stock in this Section 5 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be convened into Class A
Common Stock at the initial conversion rate of 100 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case this Corporation shall (i) pay a dividend or make a
distribution on its outstanding shares of Class A Common Stock in shares of its
Capital Stock, (ii) subdivide the then outstanding shares of Class A Common
Stock into a greater number of shares of Class A Common Stock, (iii) combine
the then outstanding shares of Class A Common Stock into a smaller number of
shares of Class A Common Stock, or (iv) issue by reclassification of its shares
of Class Common Stock any shares of any other class of Capital Stock of this
Corporation (including any such reclassification in connection with a merger in
which this Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Convertible Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of Capital Stock of
this Corporation that such holder would have owned or been entitled to receive
immediately following such action had such shares of Convertible Preferred
Stock been converted immediately prior to such time. An adjustment made
pursuant to this Section 5(c) for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution
and an adjustment made pursuant to this Section 5(c) for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.
(d) In case this Corporation shall issue any rights or warrants to
all holders of shares of Class A Common Stock entitling them (for a period
expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Class A Common Stock (or Convertible Securities) at a price
per share of Class A Common Stock (or having an initial exercise price or
conversion price per share of Class A Common Stock) less than the then current
market price per share of Class A Common Stock (as determined in accordance
with the provisions of Section 5(f) below) on such record date, the number of
shares of Class A Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Class A
Common Stock into which such Share was theretofore convertible immediately
prior to such record date by a fraction of which the numerator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of additional shares of Class A Common Stock offered for
subscription or purchase (or into which the Convertible Securities so offered
are initially convertible) and of
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<PAGE> 47
which the denominator shall be the number of shares of Class A Common Stock
outstanding on such record date plus the number of shares of Class A Common
Stock which the aggregate offering price of the total number of shares of Class
A Common Stock so offered (or the aggregate initial conversion or exercise
price of the Convertible Securities so offered) would purchase at the then
current market price per share of Class A Common Stock (as determined in
accordance with the provisions of Section 5(f) below) on such record date. Such
adjustment shall be made successively whenever any such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. In
the event that all of the shares of Class A Common Stock (or all of the
Convertible Securities) subject to such rights or warrants have not been issued
when such rights or warrants expire (or, in the case of rights or warrants to
purchase Convertible Securities which have been exercised, all of the shares of
Class A Common Stock issuable upon conversion of such Convertible Securities
have not been issued prior to the expiration of the conversion right thereof),
then the Conversion Rate shall be readjusted retroactively to be the Conversion
Rate which would then be in effect had the adjustment upon the issuance of such
rights or warrants been made on the basis of the actual number of shares of
Class A Common Stock (or Convertible Securities) issued upon the exercise of
such rights or warrants (or the conversion of such Convertible Securities); but
such subsequent adjustment shall not affect the number of shares of Class A
Common Stock issued upon the conversion of any Share prior to the date such
subsequent adjustment is made.
(e) In case this Corporation shall distribute to all holders of
shares of Class A Common Stock (including any such distribution made in
connection with a merger in which this Corporation is the continuing
corporation, other than a merger to which Section 5(g) is applicable) any
evidences of its indebtedness or assets (other than cash dividends or Capital
Stock) or rights or warrants to purchase shares of Class A Common Stock or
Class B Common Stock or securities convertible into shares of Class A Common
Stock or Class B Common Stock (excluding those referred to in Section 5(d)
above), then in each such case the number of shares of Class A Common Stock
into which each Share shall thereafter be convertible shall be determined by
multiplying the number of shares of Class A Common Stock into which such Share
was theretofore convertible immediately prior to the record date for the
determination of stockholders entitled to receive the distribution by a
fraction of which the numerator shall be the then current market price per share
of Class A Common Stock (as determined accordance with the provisions of
Section 5(f) below) on such record date and of which the denominator shall be
such current market price per share of Class A Common Stock less the fair
market value on such record date (as determined by the Board of Directors of
this Corporation, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness or rights and warrants so to be
distributed applicable to one share of Class A Common Stock. Such adjustment
shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e) or
(k), the current market price per share of Class A Common Stock at any date
shall be deemed to be the average of the daily closing prices for a share of
Class A Common Stock for the ten (10) consecutive trading
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<PAGE> 48
days before the day in question. The closing price or each day shall be the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the composite tape, or if the shares of Class A
Common Stock are not quoted on the composite tape, on the principal United
States securities exchange registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassification or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, this
Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property that
such holder would have owned immediately after such reclassification, change,
consolidation, merger, sale or transfer if such holder had converted such Share
into Class A Common Stock immediately prior to the effective date of such
reclassification, change, consolidation, merger, sale or transfer (assuming for
this purpose (to the extent applicable) that such holder failed to exercise any
rights of election and received per share of Class A Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Convertible
Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of the Convertible
Preferred Stock shall thereafter be made applicable, as nearly as reasonably
may be to any such other shares of stock and other securities and property
deliverable upon conversion of the Convertible Preferred Stock remaining
outstanding or other convertible preferred stock or other Convertible
Securities received by the holders of Convertible Preferred Stock in place
thereof; and provided, further, that any such resulting or surviving
corporation or purchaser shall expressly assume the obligation to deliver, upon
the exercise of the conversion privilege, such shares, securities or property
as the holders of the
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Convertible Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in
place thereof, shall be entitled to receive pursuant to the provisions hereof,
and to make provisions for the protection of the conversion rights as above
provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or(g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the
Convertible Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. In any case in
which this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Class A Common Stock or other
Capital Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other Capital Stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to Section 5(n); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
Capital Stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing,
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together with any shares of Class B Common Stock tendered for in such
tender offer, at least a majority of the total voting power
represented by the outstanding shares of Class A Common Stock and
Class B Common Stock which has been recommended by the Board of
Directors as being in the best interests of the holders of Class A
Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(c) hereof, to the holders of the Convertible
preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting the obligations of this Corporation to provide notice of corporate
actions hereunder, the failure to give the notice required by this Section 5(j)
or any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock, such holder shall
surrender the certificate or certificates for such Convertible Preferred Stock
at the office of this Corporation or at the office of the transfer agent for
the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall given written notice to this
Corporation at said office that it elects to convert all or a part of the
Shares represented by said certificate or certificates in accordance with the
terms of this Section 5, and shall state in writing therein the name or names
in which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and the Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred
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Stock, accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of this Corporation or of said transfer agent
to the person for whose account such Convertible Preferred Stock was so
surrendered, or to his nominee(s) or, subject to compliance with applicable
law, transferee(s), a certificate or certificates for the number of full shares
of Class A Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided. If surrendered
certificates for Convertible Preferred Stock are converted only in part, this
Corporation will issue and deliver to the holder, or to his nominee(s) without
charge therefor, a new certificate or certificates representing the aggregate
of the unconverted Shares. Such conversion shall be deemed to have been made as
of the date of such surrender of the Convertible Preferred Stock to be
converted; and the person or persons entitled to receive the Class A Common
Stock issuable upon conversion of such Convertible Preferred Stock shall be
treated for all purposes as the record holder or holders of such Class A Common
Stock on such date.
Upon the conversion of any Share, this Corporation shall pay, to the
holder of record of such Share on the immediately preceding Record Date, all
accrued but unpaid dividends on such Share to the date of the surrender of such
Share for conversion. Such payment shall be made in cash or, at the election of
this Corporation, the issuance of certificates representing such number of
shares of Class A Common Stock as have an aggregate current market price (as
determined in accordance with Section 5(f)) on the date of issuance equal to
the amount of such accrued but unpaid dividends. Upon the making of such
payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Convertible Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
This Corporation shall not be required to convert any shares of
Convertible Preferred Stock, and no surrender of Convertible Preferred Stock
shall be effective for that purpose, while the stock transfer books of this
Corporation are closed for any purpose; but the surrender of Convertible
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such Convertible
Preferred Stock was surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this
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<PAGE> 52
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Convertible Preferred Stock by delivery of shares of
Class A Common Stock which are held in the treasury of this Corporation. This
Corporation shall take all such corporate and other actions as from time to
time may be necessary to insure that all shares of Class A Common Stock
issuable upon conversion of shares of Convertible Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and issued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of this Corporation, but such shares shall not be reissued as Convertible
Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
6. Redemption.
(a) Subject to the provisions of Section 6(f), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after August 8.
2001 at the Redemption Price per share as of the applicable Redemption Date. If
less than all outstanding Shares are to be redeemed, Shares shall be redeemed
ratably among the holders thereof.
13
<PAGE> 53
(b) Subject to the rights of any Parity Securities and the
provisions of Section 6(f) and subject to any prohibitions or restrictions
contained in any Debt Instrument, at any time on or after August 8,2001, any
holder shall have the right, at such holder's option, to require redemption by
this Corporation at the Redemption Price per Share as of the applicable
Redemption Date of all or any portion of his Shares having an aggregate
Liquidation Value in excess of $1,000,000, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in
accordance with the first sentence of this Section 6(b), the Shares so
requested to be redeemed on such date within 60 days following this
Corporation's receipt of such notice as this Corporation shall state in its
notice given pursuant to Section 6(c). If the funds of this Corporation legally
available for redemption of Shares and not restricted in accordance with the
first sentence of this Section 6(b) are insufficient to redeem the total number
of shares required to be redeemed pursuant to this Section 6(b), those funds
which are legally available for redemption of such Shares and not so restricted
will be used to redeem the maximum possible number of such Shares ratably among
the holders who have required Shares to be redeemed under this Section 6(b). At
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date until the balance of such Shares are redeemed.
(c) Notice of any redemption pursuant to this Section shall be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Convertible Preferred Stock to be redeemed, at their respective addresses as
the same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice (with telephonic or
facsimile confirmation of notice to Bill Daniels so long as he is a holder of
record); but no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of the Convertible Preferred Stock. Such notice shall set forth
the Redemption Price, the Redemption Date, the number of Shares to be redeemed
and the place at which the Shares called for redemption will, upon presentation
and surrender of the stock certificates evidencing such Shares, be redeemed. In
case fewer than the total number of shares of Convertible Preferred Stock
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares will be issued to the holder thereof without cost
to such holder.
(d) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(c) and if on or
before the Redemption Date specified in such notice the consideration necessary
for such redemption shall have been set apart so as to be available therefor
and only therefor, then on and after the close of business on the Redemption
Date, the Shares called for redemption, notwithstanding that any certificate
therefor shall not have been surrendered for cancellation, shall no longer be
deemed outstanding, and all rights with respect to such Shares shall forthwith
cease and terminate, except the right of the holders thereof to receive upon
surrender of their certificates the consideration payable upon redemption
thereof.
14
<PAGE> 54
(e) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(f) If at any time this Corporation shall have failed to pay, or
declare and set apart the consideration sufficient to pay, all dividends
accrued up to and including the immediately preceding Dividend Payment Date on
the Convertible Preferred Stock, and until all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock shall have been paid or declared and set apart so as to be
available for the payment in full thereof and for no other purpose, this
Corporation shall not redeem, pursuant to a sinking fund or otherwise, any
shares of Convertible Preferred Stock or Junior Securities, unless all then
outstanding shares of Convertible Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Convertible Preferred Stock or
Junior Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(b) all shares of Convertible Preferred
Stock required to be redeemed on such date, this Corporation shall not redeem,
or discharge any sinking fund obligation with respect to, any Junior
Securities, unless all then outstanding shares of Convertible Preferred Stock
are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock or Junior Securities. Nothing contained in this
Section 6(f) shall prevent the purchase or acquisition of shares of Convertible
Preferred Stock pursuant to a purchase or exchange offer or offers made to
holders of all outstanding shares of Convertible Preferred Stock, provided that
as to holders of all outstanding shares of Convertible Preferred Stock, the
terms of the purchase or exchange offer for all such shares are identical. The
provisions of this Section 6(f) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(f) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption.
7. Transfer.
(a) Without the prior written consent of this Corporation, no
person holding shares of Convertible Preferred Stock of record (hereinafter
called a "Convertible Preferred Holder") may transfer, and this Corporation
shall not register the transfer of, such shares of Convertible Preferred Stock,
whether by sale, assignment, or otherwise, except to a Permitted Transferee.
(i) In the case of a Convertible Preferred Holder
acquiring record and beneficial ownership of the shares of Convertible
Preferred Stock in question upon initial issuance by this Corporation
(an "Original Holder"), a "Permitted Transferee" shall mean:
(x) any Affiliate (as defined in Section 7(b)) of
such Original Holder.
15
<PAGE> 55
(y) any other Original Holder (or any Affiliate
of any such other Original Holder), or
(z) any person or entity to whom Shares are
transferred by an Original Holder pursuant to
a gift or bequest or pursuant to the laws of
intestacy.
(ii) In the case of a Convertible Preferred Holder which
is a Permitted Transferee of an Original Holder, a "Permitted
Transferee" shall mean:
(x) any Original Holder,
(y) any Permitted Transferee of an Original
Holder, except any transferee referred to in
clause (i)(z) above, or
(z) any person or entity to whom Shares are
transferred by a Permitted Transferee
pursuant to a gift or bequest or pursuant to
the laws of intestacy.
(b) For purposes of this Section 7, the term "Affiliate" shall
mean (i) any person or corporation that owns beneficially and of record at
least a majority of the outstanding securities representing the right, other
than as affected by events of default, to vote for the election of directors
("voting securities") of an Original Holder or (ii) any person or corporation
at least a majority of the voting securities of which are owned beneficially
and of record by an Original Holder, where in the case of both (i) and (ii),
voting securities will be deemed "owned" by a person or corporation if either
owned directly or if owned indirectly through one or more intermediary
corporations at least a majority of the voting securities of which are owned
beneficially and of record by that person or corporation or by an intermediary
corporation in such a majority or more chain of ownership.
(c) This Corporation may, in connection with preparing a list of
stockholders entitled to vote at any meeting of stockholders, or as a condition
to the transfer or the registration of shares of Convertible Preferred Stock on
this Corporation's books, require the furnishing of such affidavits or other
proof as it deems necessary to establish that any person is the beneficial
owner of shares of Convertible Preferred Stock or is a Permitted Transferee.
(d) Shares of Convertible Preferred Stock shall be registered in
the names of the beneficial owners thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Convertible
Preferred Stock shall mean a person who, or any entity which, possesses the
power, either singly or jointly, to direct the voting or disposition of such
shares. Certificates for shares of Convertible Preferred Stock shall bear a
legend referencing the restrictions on transfer imposed by this Section 7.
16
<PAGE> 56
8. Voting Rights. The holders of the Convertible Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
the Capital Stock of this Corporation which is entitled to vote generally on
the election of directors. Each Share shall entitle the registered holder
thereof to such number of votes as is equal to the number of shares of Class A
Common Stock into which such Share is then convertible. Holders of Convertible
Preferred Stock shall vote together with holders of common stock and shall not
be entitled to vote as a class except as otherwise required by law or this
Corporation's Restated Certificate of Incorporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3% of the Liquidation Value of all Shares outstanding
at the time such action is taken.
10. Preemptive RightS. The holders of the Convertible Preferred
Stock will not have any preemptive right to subscribe for or purchase any
shares of stock or any other securities which may be issued by this
Corporation.
11. Senior Securities. The Convertible Preferred Stock shall not
rank junior to any other classes or series of stock of this Corporation in
respect of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding, this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and for the equitable rights and remedies that may otherwise be
available to holders of Convertible Preferred Stock, the shares of Convertible
Preferred Stock shall not have any designations, preferences, limitations or
relative rights, other than those specifically set forth in these resolutions
(as such resolutions may, subject to Section 9, be amended from time to time)
and in the Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
17
<PAGE> 57
FURTHER RESOLVED, that the appropriate officers of this Corporation
are hereby authorized to execute and acknowledge a certificate setting forth
these resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ FRED A VIERRA
Fred A. Vierra
Executive Vice President
18
<PAGE> 58
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SECOND DAY OF AUGUST, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, Secretary Of State
AUTHENTICATION: 7278684
DATE: 10-24-94
2371729 8100
944202094
<PAGE> 59
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/22/1994
944156379 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on August 4, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Convertible Preferred
Stock, Series C;"
Whereas, such Certificate of Designation inaccurately stated that the
par value of the Convertible Preferred Stock, Series C, is $1.00 per share,
when in fact the par value of the Convertible Preferred Stock, Series C, is
S.01 per share;
Therefore, the Certificate of Designation is hereby corrected in
accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $l.00 per share" shall be deleted from the
third line of the second (unnumbered) paragraph of the Certificate of
Designation and the words "par value $.01 per share" shall be substituted in
their place.
2. The words "par value $1.00 per share" shall be deleted from
paragraph number 1 of the Certificate of Designation and the words "par value
$.O1 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: August 16, 1994
Signature: /s/ Stephen M. Brett
Stephen M. Brett
Title: Executive Vice President
<PAGE> 60
State of Delaware
Office of the Secretary of State PAGE 1
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
ELEVENTH DAY OF OCTOBER, A.D. 1994, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
(SEAL) /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7265951
2371729 8100 DATE: 10-12-94
944192934
<PAGE> 61
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 10/11/1994
944192934 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES E" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Redeemable Convertible Preferred Stock, Series E":
BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates and
authorizes the issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to consist of 400,000 shares, and hereby fixes the
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, particiating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the designations,
preferences and relative, participating, limitations or restrictions thereof
set forth in the Restated Certificate of Incorporation that are applicable to
preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of the Corporation authorized hereby is "Redeemable
Convertible Preferred Stock, Series E" (the "Series E Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes, the meanings
herein specified;
"Amendment Date" shall mean the date of the effectiveness under
applicable law of a duly approved amendment to the Corporation's Restated
Certificate of Incorporation
<PAGE> 62
increasing the number of shares of capital stock and the number of shares of
capital stock designated as "Class A Common Stock" to an amount which, after
giving effect to the exercise, exchange or conversion of all Convertible
Securities then outstanding and the conversion of all shares of Class B Common
Stock then outstanding into shares of Class A Common Stock, would be sufficient
to permit the conversion, at the then applicable Conversion Rate, of all shares
of Series E Preferred Stock then outstanding into shares of Class A Common
Stock.
"Average Quoted Price", when used with respect to the Class A Common
Stock, shall mean the average of the Quoted Prices of the Class A Common Stock
for the most recent period of five trading days on which shares of such class
trade ending three Business Days prior to the Redemption Date, appropriately
adjusted to take into account the actual occurrence, during the period
following the first of such five trading days and ending on the Business Day
immediately preceding such Special Redemption Date, of any event of a type
described in paragraph 7. The "Quoted Price" of a share of Class A Common Stock
on any day means the last sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock, on such
day as reported on the National Association of Securities Dealers, Inc.
Automated Quotation System, or if the Class A Common Stock is listed on an
exchange, as reported in the composite transactions for the principal exchange
on which such stock is listed.
"Board of Directors" shall mean the Board of Directors of the
Corporation and, unless the context indicates otherwise, shall also mean, to
the extent permitted by law, any committee thereof authorized, with respect to
any particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Denver, Colorado are not required to be
open.
"Capital stock shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Certificate" shall mean the Restated Certificate of Incorporation of
the Corporation, as it may from time to time hereafter be amended or restated.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class A Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class A Common
Stock, such capital stock to which a holder of Class A Common Stock shall be
entitled upon the occurrence of such event.
"Class A Preferred Stock shall mean the Class A Preferred Stock, par
value $.01 per share, of the Corporation.
-2-
<PAGE> 63
"C[ass B Common Stock" shall mean the Class B Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class B Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class B Common
Stock, such capital stock to which a holder of Class B Common Stock shall be
entitled upon the occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.O1 per share, of
the Corporation.
"Convertible Securities" shall mean securities, other than the Class B
Common Stock, that are convertible into or exchangeable for Class A Common
Stock.
"Dividend Payment Date" shall mean, for any Dividend Period, the last
day of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Series E Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class
B Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or
series of capital stock, whether now existing or hereafter created, of the
Corporation, other than (A) the Series E Preferred Stock, (B) any class or
series of Parity Stock (except to the extent provided under clause (v) hereof)
and (C) any Senior Stock, and (v) any class or series of Parity Stock to the
extent that it ranks junior to the Series E Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case may be. For
purposes of clause (v) above, a class or series of Parity Stock shall rank
junior to the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation if the holders of shares of Series E
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of such class or series.
"Liquidation Preference" measured per share of the Series E Preferred
Stock as of any date in question (the "Determination Date") shall mean an
amount equal to the sum of (a) the Stated Liquidation Value of such share, plus
(b) an amount equal to all dividends accrued on such share which pursuant to
paragraph 3(b) have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 4 and paragraph 5 and the definition
of Redemption Price, an amount equal to all unpaid dividends accrued on such
share during the period from the immediately preceding Dividend Payment Date
(or the Issue Date if the Determination Date is
-3-
<PAGE> 64
on or prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference
of a share of Series E Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts
payable to stockholders in connection with any such liquidation, dissolution or
winding up.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board or the President of the Corporation and by the Treasurer
of the Corporation.
"Opinion of Counsel" shall mean a written opinion from legal counsel
selected by the Corporation. The counsel may be an employee of or counsel to
the Corporation.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking on a
parity basis with the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series shall
rank on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Series E Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series E Preferred Stock, if the holders of shares of such class
or series shall be entitled to dividend payments, payments on redemption or
payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in proportion to their respective
accumulated and accrued and unpaid dividends, redemption prices or liquidations
prices, respectively, without preference or priority, one over the other, as
between the holders of shares of such class or series and the holders of Series
E Preferred Stock. No class or series of capital stock that ranks junior to the
Series E Preferred Stock as to rights on liquidation shall rank or be deemed to
rank on a parity basis with the Series E Preferred Stock as to dividend rights
or rights of redemption, unless the instrument creating or evidencing such
class or series of capita[ stock otherwise expressly provides.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual, fiduciary, or other capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
means the fifteenth day of the month preceding the month during which such
Dividend Payment Date shall occur, or if any such day is not a Business Day,
then on the next preceding Business Day, as and if designated by the Board of
Directors.
-4-
<PAGE> 65
"Redemption Date" as to any share of Series E Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a),
provided that no such date will be a Redemption Date unless the applicable
Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Series E Preferred Stock which
is to be redeemed on any Redemption Date shall mean the Liquidation Preference
thereof on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking prior to
the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank prior
to the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation,
as the case may be, in preference or priority to the holders of shares of
Series E Preferred Stock. No class or series of capital stock that ranks on a
parity basis with or junior to the Series E Preferred Stock as to rights on
liquidation shall rank or be deemed to rank prior to the Series E Preferred
Stock as to dividend rights or rights of redemption, notwithstanding that the
dividend rate, dividend payment dates, sinking fund provisions, if any, or
mandatory redemption provisions thereof are different from those of the Series
E Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly provides.
"Share" shall mean one share of Series E Preferred Stock of the
Corporation.
"Special Record Date" has the meaning ascribed to such term in
paragraph 3(b).
"Stated Liquidation Value" of a share of Series E Preferred Stock
means $22,303.
"Subsidiary" of any Person shall mean (i) a corporation a majority of
the capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of
such Person, directly or indirectly, has (x) a majority ownership interest or
(y) the power to elect or direct the election of a majority of the members of
the governing body of such first-named Person.
"TCI Holder" shall mean the Corporation and each Subsidiary of the
Corporation.
3. Dividends.
(a) Dividends Rights; Dividend Payment Dates.
Subject to the prior preferences and other rights of any Senior Stock and the
provisions of Paragraph 6 hereof, the holders of Series E Preferred Stock shall
be entitled to receive, when and as declared by the
-5-
<PAGE> 66
Board of Directors, out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, that
shall accrue on each share of Series E Preferred Stock at the rate of 5.0% per
annum of the Stated Liquidation Value of such share from the Issue Date to and
including the date on which the Liquidation Preference of such share is made
available (whether on liquidation, dissolution, or winding up of the
Corporation or, in the case of paragraph 5, upon the applicable Redemption
Date). Accrued dividends on the Series E Preferred Stock will be payable, as
provided in paragraph 3(c) below, annually on each Dividend Payment Date to the
holders of record of the Series E Preferred Stock as of the close of business
on the Record Date for such dividend payment. Dividends shall be fully
cumulative and shall accrue (without interest or compounding) on a daily basis
without regard to the occurrence of a Dividend Payment Date and whether or not
such dividends are declared and whether or not there are any unrestricted funds
of the Corporation legally available for the payment of dividends. The amount
of dividends "accrued" as of the first Dividend Payment Date and as of any date
that is not a Dividend Payment Date shall be calculated on the basis of the
foregoing rate per annum for the actual number of days elapsed from the Issue
Date (in the case of the first Dividend Payment Date and any date prior to the
first Dividend Payment Date) or the last preceding Dividend Payment Date (in
the case of any other date) to and including the date as of which such
determination is to be made, based on a 365- or 366-day year, as the case may
be.
(b) SPECIAL RECORD DATE. On each Dividend Payment
Date, all dividends that have accrued on each share of Series E Preferred Stock
during the immediately preceding Dividend Period shall, to the extent not paid
as provided in paragraph 3(c) below on such Dividend Payment Date for any
reason (whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends), be added to the Liquidation Preference of such share and
will remain a part thereof until such dividends are paid as provided in
paragraph 3(c) below. No interest or additional dividends will accrue or be
payable with respect to any dividend payment on the Series E Preferred Stock
that may be in arrears or with respect to that portion of any other payment on
the Series E Preferred Stock that is in arrears which consist of accumulated or
accrued and unpaid dividends. Such accumulated or accrued and unpaid dividends
may be declared and paid at any time (subject to the rights of any Senior Stock
and, if applicable, to the concurrent satisfaction of any dividend arrearages
then existing with respect to any Parity Stock which ranks on a parity basis
with the Series E Preferred Stock as to the payment of dividends) without
reference to any regular Dividend Payment Date, to holders of record as of the
close of business on such date, not more than 45 days nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Directors
(the "Special Record Date"). Notice of each Special Record Date shall be given,
not more than 45 days nor less than of days prior thereto, to the holders of
record of the shares of Series E Preferred Stock.
(c) METHOD OF PAYMENT. AlI dividends payable with
respect to the shares of Series E Preferred Stock shall be declared and paid in
cash. All dividends paid with respect to the shares of Series E Preferred Stock
pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series E Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
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4. Distributions Upon Liquidation Dissolution or Winding Up.
Subject to the prior payment in full of the preferential
amounts to which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary, or
involuntary, the holders of Series E Preferred Stock shall be entitled to
receive from the assets of the Corporation available for distribution to
stockholders, before any payment or distribution, shall be made to the holders
of any Junior Stock, an amount in cash or property, at its fair market value, as
determined by the Board of Directors in good faith, or a combination thereof,
per share, equal to the Liquidation Preference of a share of Series E Preferred
Stock as of the date of payment or distribution, which payment or distribution
shall be made pari passu with any such payment or distribution made to the
holders of any Parity Stock ranking on a parity basis with the Series E
Preferred Stock with respect to distributions upon liquidation, dissolution or
winding up of the Corporation. The holders of Series E Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of the Corporation after receiving the Liquidation Preference
per share. If, upon distribution of the Corporation's assets in liquidation,
dissolution or winding up, the assets of the Corporation to be distributed
among the holders of the Series E Preferred Stock and to all holders of any
Parity Stock ranking on a parity basis with the Series E Preferred Stock with
respect to distributions upon liquidation, dissolution or winding up shall be
insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Series E Preferred Stock and
such Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Series E
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 4. Notice of the liquidation, dissolution or winding up of
the Corporation shall be given, not less than 20 days prior to the date on
which such liquidation, dissolution or winding up is expected to take place or
become effective, to the holders of record of the shares of Series E Preferred
Stock.
5. Redemption.
(a) OPTIONAL REDEMPTION. Subject to the rights of any
Senior Stock and the provisions of paragraph 6, the shares of Series E
Preferred Stock may be redeemed, at the option of the Corporation by the action
of the Board of Directors, in whole or from time to time in part, on any
Business Day occurring after the Issue Date, at the Redemption Price on the
Redemption Date. If less than all outstanding shares of Series E Preferred
Stock are to be redeemed on any Redemption Date, the shares of Series E
Preferred Stock to be redeemed shall be chosen pro rata among all holders of
Series E Preferred Stock. The Corporation shall not be required to register a
transfer of (i) any shares of Series E Preferred Stock for a period of 15 days
next preceding any selection of shares of Series E Preferred Stock to be
redeemed or (ii) any shares of Series E Preferred Stock selected or called for
redemption.
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(b) NOTICE OF REDEMPTION. Notice of redemption shall be
given by or on behalf of the Corporation, not more than 60 days nor less than 30
days prior to the Redemption Date, to the holders of record of the shares of
Series E Preferred Stock to be redeemed; but no defect in such notice or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series E Preferred Stock. In addition to any information
required by law or by the applicable rules of any national securities exchange
or national interdealer quotation system on which the Series E Preferred Stock
may be listed or admitted to trading or quoted, such notice shall set forth the
Redemption Price, the Redemption Date, the number of shares to be redeemed, the
portion of the Redemption Price, if any, which the Corporation has elected to
pay through the issuance of Class A Common Stock and the place which the shares
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Series E Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any
redemption by the Corporation pursuant to this paragraph 5 shall have been
given as provided in paragraph 5(b) above, and if on or before the Redemption
Date specified in such notice an amount in cash sufficient to redeem in full on
the Redemption Date at the Redemption Price all shares of Series E Preferred
Stock called for redemption shall have been set apart so as to be available for
such purpose and only for such purpose, then effective as of the close of
business on the Redemption Date, the shares of Series E Preferred Stock called
for redemption, notwithstanding that any certificate therefor shall not have
been surrendered for cancellation, shall no longer be deemed outstanding, and
the holders thereof shall cease to be stockholders with respect to such shares
and all rights with respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive the Redemption Price of such
shares, without interest, upon the surrender of certificates representing the
same.
(d) REDEMPTION BY ISSUANCE OF CLASS A COMMON STOCK.
Subject to compliance with the conditions contained in this paragraph 5(d), the
Corporation may elect to pay the Redemption Price (or designated portion
thereof) of the shares of Series E Preferred Stock called for redemption by
issuing to the holder thereof, in respect of his shares to be redeemed, a number
of shares of Class A Common Stock equal to the aggregate Redemption Price (or
designated portion thereof) of such shares divided by the Average Quoted Price
of a share of Class A Common Stock. No fractional shares of Class A Common
Stock or scrip shall be issued upon such redemption. As to any final fraction
of a share of Class A Common Stock that would otherwise be issuable to a holder
upon redemption of his shares of Series E Preferred Stock (determined on the
basis of the total number of such holder's shares of Series E Preferred Stock
in respect of which shares of Class A Common Stock are issuable), the
Corporation shall pay an amount in cash or by its check equal to the same
fraction of the Average Quoted Price of a share of Class A Common Stock.
The Corporation's right to elect to pay the Redemption Price (or
designated portion thereof) of the shares of Series E preferred Stock through
the issuance of shares of Class A
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Common Stock shall be conditioned upon: (i) the Corporation's having timely
given a Redemption Notice setting forth such election as provided in paragraph
5(b), (ii) the Corporation's having obtained and filed, on or before the
Redemption Date, at the office of the redemption agent for the Series E
Preferred Stock (or with the books of the Corporation if there is no redemption
agent) an Opinion of Counsel to the effect that (A) the shares of Class A
Common Stock to be issued upon such redemption have been duly authorized and,
when issued and delivered in payment of the Redemption Price (or designated
portion thereof) of the shares of Series E Preferred Stock to be redeemed, will
be validly issued, fully paid and non-assessable and free from preemptive
rights, (B) that the issuance and delivery of such shares of Class A Common
Stock upon such redemption of shares of Series E Preferred Stock will not
violate the laws of the state of incorporation of the Corporation and (C),
unless at the time the Redemption Notice is given all shares of the Series E
Preferred Stock are owned by one or more TCI Holders, that the issuance and
delivery of the shares of Class A Common Stock upon such redemption of shares
of Series E Preferred Stock is exempt from the resignation or qualification
requirements of the 1933 Act and applicable state securities laws or, if no
such exemption is available, that the shares of Class A Common Stock to be
issued have been duly registered or qualified under the 1933 Act and such
applicable state securities laws, and (iii) the Corporation's having filed, on
or before the Redemption Date, at the office of such redemption agent (or with
the books of the Corporation if there is no redemption agent), an Officers'
Certificate setting forth the number of shares of Class A Common Stock to be
issued in payment of the Redemption Price (or designated portion thereof) of
each share of Series E Preferred Stock and the method of determining the same
(consistent with the provisions hereof). If the foregoing conditions have not
been satisfied prior to or on the Redemption Date, the Redemption Price for the
shares of Series E Preferred Stock (or portion thereof designated to be paid
in Class A Common Stock) shall be paid in cash.
(e) STATUS OF REDEEMED SHARES. All shares of Series E
Preferred Stock redeemed, exchanged, purchased or otherwise acquired by the
Corporation shall be retired and shall be restored to the status of authorized
and unissued shares of Series Preferred Stock (and may be reissued as part of
another series of the preferred stock of the Corporation, but such shares shall
not be reissued as Series E Preferred Stock).
6. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends for all prior dividend periods on any Parity Stock which by the terms
of the instrument creating or evidencing such Parity Stock is entitled to the
payment of such cumulative dividends prior to the redemption, exchange,
purchase or other acquisition of the Series E Preferred Stock, and until full
cumulative dividends on such Parity Stock for all prior dividend periods are
paid, or declared and the consideration sufficient to pay the same in full is
set aside so as to be available for such purpose and no other purpose, neither
the Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose pursuant to
paragraph 5 hereof. a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock, of such Parity Stock
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and of any other class of series of Parity Stock that by the terms of the
instrument creating or evidencing such Parity Stock is required to be redeemed
under such circumstances are redeemed or exchanged pursuant to the terms hereof
and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside so as to be available for such purpose and no other purpose, neither the
Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose, pursuant
to paragraph 5 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock and of any other class or series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside for such purpose and no other purpose, the Corporation shall not declare
or pay any dividend on or make any distribution with respect to any Junior
Stock or Parity Stock or set aside any money or assets for any such purpose,
except that the Corporation may declare and pay a dividend on any Parity Stock
ranking on a parity basis with the Series E Preferred Stock with respect to
the right to receive dividend contemporaneously with the declaration and
payment of a dividend on the Series E Preferred Stock, provided that such
dividends are declared and paid pro rata so that the amount of dividends
declared and paid per share of the Series E Preferred Stock and such Parity
Stock shall in all cases bear to each other the same ratio that accumulated and
accrued and unpaid dividends per share on the Series E Preferred Stock and such
Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for
redemption or exchange pursuant to paragraph 5 hereof any shares of Series E
Preferred Stock called for redemption on such date, and until such shares are
redeemed in full, the Corporation shall not redeem or exchange any Parity Stock
or Junior Stock or declare or pay any dividend on or make any distribution
with respect to any Junior Stock, or set aside any money or assets for any such
purpose, and neither the Corporation nor any Subsidiary thereof shall purchase
or otherwise acquire any Series E Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose.
Neither the Corporation nor any Subsidiary thereof shall
redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior
Stock, or set aside any money or assets
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for any such purpose, if after giving effect to such redemption, exchange,
purchase or other acquisition, the amount (as determined by the Board of
Directors in good faith) that would be available for distribution to the
holders of the Series E Preferred Stock upon liquidation, dissolution or
winding up of the Corporation if such liquidation, dissolution or winding up
were to occur on the date fixed for such redemption, exchange, purchase or
other acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Series E
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of
this paragraph 6 shall prevent (i) the payment of dividends on any Junior Stock
solely in shares of Junior Stock or the redemption, purchase or other
acquisition of Junior Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of the
first and fifth paragraphs hereof) through the application of the proceeds from
the sale of, shares of Junior Stock; or (ii) the payment of dividends on any
Parity Stock solely in shares of Parity Stock and/or Junior Stock or the
redemption, exchange, purchase or other acquisition of Series E Preferred Stock
or Parity Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 6 are
for the sole benefit of the holders of Series E Preferred Stock and Parity
Stock having the terms described therein and accordingly, at any time when
there are no shares of any such class or series of Parity Stock outstanding or
if the holders of each such class or series of Parity Stock have, by such vote
or consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series E Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series E Preferred Stock and
accordingly, if the holders of shares of Series E Preferred Stock shall have
waived (as provided in paragraph 9) in whole or in part the benefit of the
applicable provisions, either generally or in the specific instance, such
provision shall not (to the extent of such waiver, in the case of a partial
waiver) restrict the redemption, exchange, purchase or other acquisition of or
declaration, payment or making of any dividends or distributions on the Series
E Preferred Stock, any Parity Stock or any Junior Stock.
7. Conversion.
(a) Unless previously called for redemption as provided
in Section 5 hereof, shares of Series E Preferred Stock shall be convertible,
at the option of the holder thereof, at any time subsequent to the Amendment
Date in such manner and upon such terms and conditions as hereinafter provided
in this paragraph 7, into fully paid and non-assessable full shares of Class A
Common Stock. No shares of Class A Common Stock shall be issued in respect of
the conversion of the Series E Preferred Stock after the fifteenth Business
Day (the "Cut-off Date") preceding the date fixed for redemption; provided that
the conversion of Shares
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surrendered for conversion in accordance with paragraph 7 after the Cut-off
Date shall be given effect as of the date of such surrender if the Redemption
Price to be paid, or to be irrevocably set apart in trust for the benefit of
the holders of Shares to be so redeemed, has not been paid or so set apart on
or before such date fixed for redemption. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A Common Stock in
this paragraph 7 shall be deemed to apply, so far as appropriate and as nearly
as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter
set forth in this paragraph 7, the Series E Preferred Stock may be converted
into Class A Common Stock at the initial conversion rate of 1,000 fully paid
and non-assessable shares of Class A Common Stock for one share of the Series
E Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this paragraph is hereinafter
referred to as the "Conversion Rate").
(c) In case after the Issue Date the Corporation shall
(i) pay a dividend or make a distribution on its outstanding shares of Class A
Common Stock in shares of its capital block or capital stock of any Subsidiary,
(ii) subdivide the then outstanding shares of Class A Common Stock into a
greater number of shares of Class A Common Stock, (iii) combine the then
outstanding shares of Class A Common Stock into a smaller number of shares of
Class A Common Stock, or (iv) issue by reclassification of its shares of Class
A Common Stock any shares of any other class of capital stock of the
Corporation (including any such reclassification in connection with a merger in
which the Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Series E Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of capital stock of
the Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Series E Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this paragraph 7(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant to this paragraph 7(c)
for a subdivision, combination or classification shall become effective
immediately after the effective date of the subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any action
listed above shall be taken.
(d) In case the Corporation shall after the Issue Date
issue any rights or warrants to all holders of shares of Class A Common Stock
entitling them (for a period expiring within 45 days after the record date for
the determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of paragraph 7(f) below) on such record date,
the number of shares of Class A
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Common Stock into which each Share shall thereafter be convertible shall be
determined by multiplying the number of shares of Class A Common Stock into
which such Share was theretofore convertible immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of
additional shares of Class A Common Stock offered for subscription or purchase
(or into which the Convertible Securities so offered are initially
convertible) and of which the denominator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of shares
of Class A Common Stock which the aggregate offering price of the total number
of shares of Class A Common Stock so offered (or the aggregate initial
conversion or exercise price of the Convertible Securities so offered) would
purchase at the then current market price per share of Class A Common Stock (as
determined in accordance with the provisions of paragraph 7(f) below) on such
record date. Such adjustment shall be made successively whenever any such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Class A Common Stock
(or all of the Convertible Securities) subject to such rights or warrants have
not been issued when such rights or warrants expire (or, in the case of rights
or warrants to purchase Convertible Securities which have been exercised, all
of the shares of Class A Common Stock issuable upon conversion of such
Convertible Securities have not been issued prior to the expiration of the
conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such right or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case the Corporation shall distribute after the
Issue Date to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which the Corporation is the
continuing corporation, other than a merger to which paragraph 7(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since the Issue Date (determined without regard
to gains on the sale of significant capital assets) or capital stock in respect
of which an adjustment is made pursuant to paragraph 7(c) hereof) or rights or
warrants to purchase shares of Class A Common Stock or Class B Common Stock or
securities convertible into shares of Class A Common Stock or Class B Common
Stock (excluding those referred to in paragraph 7(d) above), then in each such
case the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined accordance with the provisions of paragraph 7(f) below) on
such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of the Corporation whose
determination shall be conclusive) of the portion of the securities, assets or
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evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under paragraph
7(d), (e) or (k), the current market price per share of Class A Common Stock at
any date shall be deemed to be the average of the daily closing prices for a
share of Class A Common Stock for the ten (10) consecutive trading days before
the day in question. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the composite tape, or if the shares of Class A Common Stock are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") on which the shares of Class A Common Stock are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if the Class A Common Stock is not
quoted on NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(g) In case of any reclassification or change in the
Class A Common Stock (other than any reclassification or change referred to in
paragraph 7(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of
the Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
7(c) is applicable) in the outstanding Class A Common Stock), or in case of any
sale or transfer to another corporation or entity (other than by mortgage or
pledge) of all or substantially all of the properties and assets of the
Corporation, in any such case after the Issue Date, the Corporation (or its
successor in such consolidation or merger) or the purchaser of such properties
and assets shall make appropriate provision so that the holder of a Share shall
have the right thereafter to convert such Share into the kind and amount of
shares of stock and other securities and property that such holder would have
owned immediately after such reclassification, change, consolidation, merger,
sale or transfer if such holder had converted such Share into Class A Common
Stock immediately prior to the effective date of such reclassification, change,
consolidation, merger, sale or transfer (assuming for this purpose (to the
extent applicable) that such holder failed to exercise any, rights of election
and received per share of Class A Common Stock the kind and amount of shares of
stock and other securities and property received per share by a plurality of
the non-electing shares), and the holders of the Series E Preferred Stock shall
have no other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate of
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Incorporation of the resulting or surviving corporation or otherwise or in any
contracts of sale or transfer, so that the provisions set forth herein for the
protection of the conversion rights of the Series E Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be to any such other
shares of stock and other securities and property deliverable upon conversion
of the Series E Preferred Stock remaining outstanding or other convertible
preferred stock or other Convertible Securities received by the holders of
Series E Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series E Preferred Stock
remaining outstanding or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion
privilege shall be adjusted as provided in paragraphs 7(c), (d), (e) or (g),
the Corporation shall promptly cause a notice to be mailed to the holders of
record of the Series E Preferred Stock describing the nature of the event
requiring such adjustment, the Conversion Rate in effect immediately thereafter
and the kind and amount of stock or other securities or property into which the
Series E Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of paragraph 7(j).
(i) The Corporation may, but shall not be required to,
make any adjustment of the Conversion Rate if such adjustment would require an
increase or decrease of less than 1% in such Conversion Rate; provided however,
that any adjustments which by reason of this paragraph 7(i) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. In any case
in which this paragraph 7(i) shall require that an adjustment shall become
effective immediately after a record date for such event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any
shares of Series E Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Class A Common Stock or
other capital stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other capital stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to paragraph 7(n); provided,
however, that, if requested by such holder, the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
capital stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) the Corporation shall take any action which
would require an adjustment in the Conversion Rate pursuant to this
paragraph;
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<PAGE> 76
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of the Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any such event, the Corporation shall give written notice, in the
manner provided in paragraph 5 hereof, to the holders of the Series E Preferred
Stock at their respective addresses as the same appear on the books of the
Corporation, at least twenty days (or ten days in the case of a recommended
tender offer as specified in clause (ii) above) prior to any record date for
such action, dividend or distribution or the date as of which it is expected
that holders of Class A Common Stock of record shall be entitled to exchange
their shares of Class A Common Stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, transfer, lease, tender offer, dissolution, liquidation or winding up;
provided, however, that any notice required by any event described in clause
(ii) of this paragraph 7(j) shall be given in the manner and at the time that
such notice is given to the holders of Class A Common Stock. Without limiting
the obligations of the Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this paragraph 7(j) or
any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Series E Preferred Stock shall
be entitled to convert the same in Class A Common Stock, such holder shall
surrender the certificate or certificates for such Series E Preferred Stock at
the office of the Corporation or at the office of the transfer agent for the
Series E Preferred Stock, which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form satisfactory to the
Corporation), and shall give written notice to the Corporation at said office
that such holder elects to convert all or a part of the Shares represented by
said certificate or certificates in accordance with the terms of this paragraph
7, and shall state in writing therein the name or names in which such holder
wishes the certificates for Class A Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such Series E Preferred Stock and the Corporation, whereby the holder of such
Series E Preferred Stock shall be deemed to subscribe for the amount of Class A
Common Stock which such holder shall be entitled to receive upon
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<PAGE> 77
conversion of the number of shares of Series E Preferred Stock to be converted,
and, in satisfaction of such subscription, to deposit the shares of Series E
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Series E Preferred Stock to be
converted shall constitute full payment of such subscription for Class A Common
Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Series E
Preferred Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of the Corporation or of said
transfer agent to the person for whose account such Series E Preferred Stock
was so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
full shares of Class A Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided.
If surrendered certificates for Series E Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the aggregate of the unconverted Shares. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series E
Preferred Stock to be converted; and the person or persons entitled to receive
the Class A Common Stock issuable upon conversion of such Series E Preferred
Stock shall be treated for all purposes as the record holder or holders of such
Class A Common Stock on such date.
Upon the conversion of any Share, the Corporation shall pay,
to the holder of record of such Share on the immediately preceding Record Date,
all accrued but unpaid dividends on such Share to the date of the surrender of
such Share for conversion. Such payment shall be made in cash or, at the
election of the Corporation, the issuance of certificates representing such
number of shares of Class A Common Stock as have an aggregate current market
price (as determined in accordance with paragraph 7(f)) on the date of issuance
equal to the amount of such accrued but unpaid dividends. Upon the making of
such payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
to be payable to any other person.
The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Series E Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance, provided, however, if any such certificate is to be issued in a name
other than that of the registered holder of the share or shares of Series E
Preferred Stock converted, the person or persons requesting the issuance
thereof shall pay to the Corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
The Corporation shall not be required to convert any shares of
Series E Preferred Stock, and no surrender of Series E Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Series E Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series E Preferred Stock was
surrendered.
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<PAGE> 78
(l) Promptly following the Amendment Date the Corporation
shall reserve and keep available at all times thereafter, solely for the
purpose of issuance upon conversion of the outstanding shares of Series E
Preferred Stock, such number of shares of Class A Common Stock as shall be
issuable upon the conversion of all outstanding Shares, provided that nothing
contained herein shall be construed to preclude the Corporation from satisfying
its obligations in respect of the conversion of the outstanding shares of
Series E Preferred Stock by delivery of shares of Class A Common Stock which
are held in the treasury of the Corporation. Promptly following the Amendment
Date, the Corporation shall take all such corporate and other actions as from
time to time may be necessary to insure that all shares of Class A Common
Stock issuable upon conversion of shares of Series E Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Series E Preferred Stock received by
the Corporation upon conversion thereof into Class A Common Stock shall be
retired and shall be restored to status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of the Corporation), but such shares shall not be reissued as Series E
Preferred Stock
(n) The Corporation shall not be required to issue
fractional shares of Class A Common Stock or scrip upon conversion of the
Series E Preferred Stock. As to any final fraction of a share of Class A Common
Stock which a holder of one or more Shares would otherwise be entitled to
receive upon conversion of such Shares in the same transaction, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount
equal to the same fraction of the market value of a full share of Class A
Common Stock. For purposes of this paragraph 7(n), the market value of a share
of Class A Common Stock shall be the last reported sale price regular way on
the business day immediately preceding the date of conversion, or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way on such day, in either case on the composite
tape, or if the shares of Class A Common Stock are not quoted on the composite
tape, on the principal United States securities exchange registered under the
Exchange Act on which the shares of Class A Common Stock are listed or admitted
to trading, or if the shares of Class A Common Stock are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average of
the quoted last reported bid and asked prices if there were no reported sales)
as reported by NASDAQ or any comparable system, or if the Class A Common Stock
is not quoted on NASDAQ or any comparable system, the average of the closing
bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(o) If any shares of Class A Common Stock which would be
issuable upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion, the
Corporation will in good faith and as expeditiously as possible cause such
shares to be duly registered or approved, as the case may be. The Corporation
will endeavor to list the shares of Class A Common Stock required to be
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<PAGE> 79
delivered upon conversion of Shares prior to such delivery upon the principal
national securities exchange upon which the outstanding, Class A Common Stock
is listed at the time of such delivery.
8. Voting
(a) VOTING RIGHTS. The holders of Series E Preferred
Stock shall have no voting rights whatsoever, except as required by law and
except for the voting rights described in this paragraph 8; provided, however,
that the number of authorized shares of Series E Preferred Stock may be
increased or decreased (but not below the number of shares of Series E
Preferred Stock then outstanding) by the affirmative vote of the holders of
at least 66 2/3 of the total voting power of the then outstanding Voting
Securities (as defined in Article V, Section C of the Corporation's Restated
Certificate of Incorporation), voting together as a single class as provided in
Article IX of the Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Series E Preferred Stock shall
be required for (a) the creation of any indebtedness of any kind of the
Corporation (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Series E Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Series E Preferred Stock (but not below the number of shares of
Preferred Stock or Series E Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Series E
Preferred Stock shall have the right to vote at any annual or special meeting
of stockholders for the purpose of electing directors. Each share of Series E
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with any other class or series of capital stock of the Corporation
entitled to vote in any general election of directors, unless the instrument
creating or evidencing such class or series of capital stock otherwise
expressly provides.
9. Waiver.
Any provision which for the benefit of the holders of Series
E Preferred Stock, prohibits, limits or restricts actions by the Corporation,
or imposes obligations on the Corporation, may be waived in whole or in part,
or the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent of the
holders of at least a majority of the number of shares of Series E Preferred
Stock then outstanding (or such greater percentage thereof as may be required
by applicable law or any applicable rules of any national securities exchange
or national interdealer quotation system), either in writing or by vote at an
annual meeting or a meeting called for such purpose at which the holders of
Series E Preferred Stock shall vote as a separate class.
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<PAGE> 80
10. Method of Giving Notices.
Any notice required or permitted hereby to be given to the
holders of shares of Series E Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
11. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Series E Preferred Stock, the shares of Series E Preferred Stock shall not have
any designations, preferences, limitations or relative rights other than those
specifically set forth herein.
12. Heading of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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<PAGE> 81
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, duly authorized officer has
executed this certificate on this 11 day of October, 1994.
/s/ Larry Romrell
Name: Larry Romrell
Title: Executive Vice President
Attest: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Secretary
<PAGE> 82
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF OCTOBER, A.D. 1994, AT 8:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal]
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION: 7278574
DATE: 10-24-94
<PAGE> 83
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:30 AM 10/24/1994
944202081 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on October 11, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Redeemable Convertible
Preferred Stock, Series E;"
Whereas, such Certificate of Designation inaccurately stated
that the par value of the Redeemable Convertible Preferred Stock, Series E, is
$1.00 per share, when in fact the par value of the Redeemable Convertible
Preferred Stock, Series E, is $.01 per share;
Therefore, the Certificate of Designation is hereby corrected
in accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $1.00 per share" shall be
deleted from paragraph number 1 of the Certificate of Designation and the words
"par value $.01 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: October 21, 1994 Signature: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Executive President
and General Counsel
<PAGE> 84
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF JANUARY, A.D. 1995, AT 10:55 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, SECRETARY OF STATE
AUTHENTICATION: 7387640
DATE: 01-26-95
<PAGE> 85
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED lO:55 AM 01/26/1995
950019173 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES D" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, Series D":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $.01 per share, of this Corporation, to consist
of 1,000,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $.01 per share, of this Corporation authorized hereby is "Convertible
Preferred Stock, Series D" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined this Section 2 shall have the meanings herein specified:
Affiliate: As to any person or, entity, any other person or entity
which. directly or indirectly, controls, or is under common control with, or is
controlled by, such person or entity. As
<PAGE> 86
used in this definition, "control" (including, with its correlative meanings,
"controlling," "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person (whether through the ownership
of securities, or partnership or other ownership interest, by contract or
otherwise).
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Business Day: Any day other than a Saturday, Sunday, or holiday in
which banking institutions in Denver, Colorado, are closed for business.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Class B Preferred Stock: The Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share of the
Corporation.
Class C Preferred Stock: The Convertible Preferred Stock, Series C,
par value $.01 per share, of the Corporation.
Class E Preferred Stock: The Convertible Preferred Stock, Series E,
par value $.01 per share, of the Corporation.
Common Stock: The Class A Common Stock. Class B Common Stock and any
other class of Capital Stock of this Corporation designated as Common Stock.
Conversion Rate: As defined in Section 5(b).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into or exchangeable for Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness of this Corporation,
whether existing at the Issue Date or thereafter created, incurred, assumed or
guaranteed.
2
<PAGE> 87
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each six-month period from
but excluding the Dividend Payment Date for the preceding Dividend Period to
and including the Dividend Payment Date for such Dividend Period.
Exchange Option. As defined in Section 7(a).
Expiration Date. As defined in Section 7(d).
First Accrual Date: The Issue Date.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceeding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage, pledge,
lien, charge or other encumbrance to which the property or assets of this
Corporation are subject whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be this Corporation's legal liability;
and (iv) any amendment, renewal, extension or refunding of any liability of the
types referred to in clauses (i), (il) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Common Stock, Class B Preferred Stock
and any other class or series of stock of this Corporation not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof, any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of (i) S300 plus (ii) an amount equal
to all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) or (d) have been added to and remain
a part of
3
<PAGE> 88
the Liquidation Value as of such date, plus (iii), for purposes of determining
amounts payable pursuant to Sections 4 and 6 hereof, an amount equal to all
unpaid dividends accrued on the sum of the amounts specified in clauses (i) and
(ii) above to the date as of which the Liquidation Value is being determined.
Merger Agreement: The Agreement and Plan of Merger, dated as of August
8, 1994 among this Corporation, TCI Communications, Inc. and TeleCable
Corporation.
Mirror Preferred Stock. As defined in Section 7(c).
Option Notice. As defined in Section 7(d).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock. The Class A Preferred Stock, the Class C Preferred Stock and
Class E Preferred Stock rank on a parity basis with the Convertible Preferred
Stock.
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(d), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so irrevocably set apart in trust for the
benefit of the holders of Shares to be redeemed, then the Redemption Date will
be the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed; and provided, further that for purposes of Section 6(c) hereof, the
date fixed for redemption of Shares which are required to be redeemed pursuant
to such Section shall be the Business Day which is 20 Business Days after the
date this Corporation receives the notice referred to in such Section from the
holder of Shares therein specified.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date;
provided, however, that for purposes of Section 5(p) hereof (but not Section
5(a) as it may refer to Section 5(p)) and this definition, the date otherwise
fixed for redemption of such Shares shall be deemed the Redemption Date in
respect of such Shares.
Rights. As defined in Section 7(a).
4
<PAGE> 89
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Liquidation Value: In respect of any Dividend Payment Date and
Shares, all accrued dividends not paid or irrevocably set apart in trust for
the benefit of the holders of Shares on or before such date.
Special Securities: Capital Stock (other than Class A Common Stock or
Class B Common Stock) of this Corporation or a Subsidiary thereof which (a) is
common stock of the issuer thereof or (b) participates in one or more business
operations of the issuer thereof in such a manner that if such operations were
owned by a corporation and such Capital Stock were issued thereby such Capital
Stock would be common stock of such corporation.
Special Record Date: As defined in Section 3(c).
Subsidiary: With respect to any person or entity, any corporation or
partnership more than 50% of whose outstanding voting securities or partnership
interests, as the case may be, are directly or indirectly owned by such person
or entity.
Successor Interest: As defined in Section S(g).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 51/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends and regardless
of the provisions of any Parity Securities or Debt Instrument.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable semiannually on the first day of each January and July or the
immediately succeeding Business Day.
5
<PAGE> 90
if such first day is not a Business Day (each such payment date being
hereinafter referred to as a "Dividend Payment Date"), commencing on July I,
1995 to the holders of record of the Convertible Preferred Stock as of the
close of business on the applicable Record Date. For purposes of determining
the amount of dividends "accrued" as of any date that is not a Dividend Payment
Date, such amount shall be calculated on the basis of the rate per annum
specified in Section 3(a) for actual days elapsed from but excluding the First
Accrual Date (in the case of any date prior to the first Dividend Payment Date)
or the last preceding Dividend Payment Date in respect of which dividends were
fully paid or irrevocably set apart in trust for the benefit of the holders of
Shares (or shares of Class A Common Stock were issued in respect of the Special
Liquidation Value as provided in Section 5(o) hereof), in the case of any other
date, to and including the date as of which such determination is to be made,
based on a 365-day year.
(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt Instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled
except for the issuance of the Class A Common Stock issued in respect of the
partial conversion of Shares pursuant to Section 5(o) hereof. To the extent not
paid on each Dividend Payment Date, all dividends which have accrued on each
Share during the Dividend Period ending on such Dividend Payment Date will be
added cumulatively to the Liquidation Value of such Share and will remain a
part thereof until such dividends are paid. In the event that dividends are
not paid in full on two consecutive Dividend Payment Dates, dividends on that
portion of the Liquidation Value of each Share which consists of accrued
dividends that have theretofore been or thereafter are added to, and remain a
part of, the Liquidation Value in accordance with the preceding sentence shall
accrue cumulatively on a daily basis at the rate of ten percent (10%) per
annum, from and after such second consecutive Dividend Payment Date to and
including the date of conversion of such Share pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Share is made
available pursuant to Section 4 or 6 hereof, respectively, unless such portion
of the Liquidation Value that consists of accrued unpaid dividends shall be
earlier paid in full. Such portion of the Liquidation Value as consists of
accrued unpaid dividends, may be declared and paid at any time on any Business
Day without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 50 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board
of Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 this Corporation shall fail to pay the Redemption Price
due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of ten percent (10%) per annum of the
Liquidation Value thereof from and after such date fixed for redemption to and
including the date
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of conversion of such Shares pursuant to Section 5 or the date on which the
Liquidation Value or Redemption Price of such Shares is made available pursuant
to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(d), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Security, nor
shall any shares of any Junior Security be purchased, redeemed, or otherwise
acquired for value by this Corporation, unless the holders of the Convertible
Preferred Stock shall have received all dividends to which they are entitled
pursuant to Section 3(a) hereof for all the Dividend Periods preceding the date
on which such dividend on the Junior Securities is to occur, or such dividends
shall have been declared and the consideration sufficient for the payment
thereof irrevocably set apart in trust for the benefit of the holders of Shares
so as to be available for the payment in full thereof and for no other purpose.
The provisions of this Section 3(f) shall not apply (i) to a dividend payable
in any junior Security, or (ii) to the repurchase, redemption or other
acquisition of shares of any Junior Security solely through the issuance of
Junior Securities (together with a cash adjustment for fractional shares, if
any) or through the application of the proceeds from the sale of Junior
Securities. This Corporation shall not permit a Subsidiary thereof to take any
action which this Corporation is prohibited by this Section 3(f) from taking.
4. Liquidation. Upon any liquidation, dissolution or winding up of
this Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock shall be entitled to be paid an amount in cash equal to the
aggregate Liquidation Value at the date fixed for liquidation of all Shares
outstanding before any distribution or payment is made upon any Junior
Securities, which payment shall be made pari passu with any such payment made
to the holders of any Parity Securities. The holders of Convertible Preferred
Stock shall be entitled to no other or further distribution of or participation
in any remaining assets of this Corporation after receiving the Liquidation
Value per Share. If upon such liquidation, dissolution or winding up, the
assets of this Corporation to be distributed among the holders of Convertible
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Convertible Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of
Convertible Preferred Stock and Parity Securities have been paid in full the
amounts to which they are entitled, the remaining assets of this Corporation
may be distributed to holders of Junior Securities. This Corporation shall mail
written notice of such liquidation, dissolution or winding up to each record
holder of Convertible Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this
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Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of this Corporation within the meaning
of this Section 4.
5. Conversion.
(a) Unless previously called for, or otherwise subject to,
redemption as provided in Section 6 hereof, the Convertible Preferred Stock may
be converted at any time or from time to time, in such manner and upon such
terms and conditions as hereinafter provided in this Section 5 into fully paid
and non-assessable full shares of Class A Common Stock. No Share of Class A
Common Stock shall be issued in respect of the conversion of the Convertible
Preferred Stock (other than pursuant to Section 5(o) or 5(p) hereof) after the
fifteenth Business Day (the "Cut-off Date") preceding the date fixed for
redemption; provided that the conversion of Shares surrendered for conversion
in accordance with Section 5 after the Cut-off Date shall be given effect as of
the date of such surrender if the Redemption Price to be paid, or to be
irrevocably set apart in trust for the benefit of the holders of Shares to be
so redeemed, has not been paid or so set apart on or before such date fixed for
redemption. In case cash, securities or property other than Class A Common
Stock shall be payable, deliverable or issuable upon conversion as provided
herein, then all references to Class A Common Stock in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be converted into Class
A Common Stock at the initial conversion rate of 10 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case after August 8, 1994 this Corporation shall (i) pay a
dividend or make a distribution on its outstanding shares of Class A Common
Stock in shares of its Capital Stock or capital stock of any Subsidiary, (ii)
subdivide the then outstanding shares of Class A Common Stock into a greater
number of shares of Class A Common Stock, (iii) combine the then outstanding
shares of Class A Common Stock into a smaller number of shares of Class A
Common Stock, or (iv) issue by reclassification of its shares of Class A Common
Stock any shares of any other class of Capital Stock of this Corporation
(including any such reclassification in connection with a merger in which this
Corporation is the continuing corporation), then the Conversion Rate in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that the holder of each share of the
Convertible Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number and kind of shares of Capital Stock of this
Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Convertible Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this Section 5(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant
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to this Section 5(c) for a subdivision, combination or reclassification shall
become effective immediately after the effective date of the subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any action listed above shall be taken.
(d) In case this Corporation shall after August 8, 1994 issue any
rights or warrants to all holders of shares of Class A Common Stock entitling
them (for a period expiring within 45 days after the record date for the
determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of Section 5(f) below) on such record date,
the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Class A Common Stock outstanding on
such record date plus the number of additional shares of Class A Common Stock
offered for subscription or purchase (or into which the Convertible Securities
so offered are initially convertible) and of which the denominator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of shares of Class A Common Stock which the aggregate offering price
of the total number of shares of Class A Common Stock so offered (or the
aggregate initial conversion or exercise price of the Convertible Securities so
offered) would purchase at the then current market price per share of Class A
Common Stock (as determined in accordance with the provisions of Section 5(f)
below) on such record date. Such adjustment shall be made successively whenever
any such rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. In the event that all of the shares of Class A Common
Stock (or all of the Convertible Securities) subject to such rights or warrants
have not been issued when such rights or warrants expire (or, in the case of
rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Class A Common Stock issuable upon conversion
of such Convertible Securities have not been issued prior to the expiration of
the conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such rights or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case this Corporation shall distribute after August 8, 1994
to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which this Corporation is the
continuing corporation, other than a merger to which Section 5(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since July 1, 1994 (determined without regard to
gains on the sale of significant capital assets) or Capital Stock in respect of
which an adjustment is made pursuant to Section 5(c) hereof)
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<PAGE> 94
or rights or warrants to purchase shares of Class A Common Stock or Class B
Common Stock or securities convertible into shares of Class A Common Stock or
Class B Common Stock (excluding those referred to in Section 5(d) above), then
in each such case the number of shares of Class A Common Stock into which each
Share shall thereafter be convertible shall be determined by multiplying the
number of shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined in accordance with the provisions of Section 5(f) below)
on such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of this Corporation, whose
determination shall be conclusive) of the portion of the securities, assets or
evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e),
(k), (o) or (p) or Section 7, the current market price per share of Class A
Common Stock at any date shall be deemed to be the average of the daily closing
prices for a share of Class A Common Stock for the ten (10) consecutive
trading days before the day in question. The closing price for each day shall
be the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the composite tape, or if the shares of
Class A Common Stock are not quoted on the composite tape, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassificaiion or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, in any
such case after August 8, 1994, this
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Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property (a
"Successor Interest") that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such
holder had converted such Share into Class A Common Stock immediately prior to
the effective date of such reclassification, change, consolidation, merger,
sale or transfer (assuming for this purpose (to the extent applicable) that
such holder failed to exercise any rights of election and received per share of
Class A Common Stock the kind and amount of shares of stock and other
securities and property received per share by a plurality of the non-electing
shares), and the holders of the Convertible Preferred Stock shall have no other
conversion rights under these provisions (other than pursuant to Section 5(o)
or 5(p) hereof, provided that upon any conversion effected pursuant to Section
5(o) or 5(p) after any event to which this Section 5(g) is applicable,
references in Section 5(o) and 5(o) to Class A Common Stock shall be deemed to
be references to Successor Interests); provided, that effective provision shall
be made, in the Articles or Certificate of Incorporation of the resulting or
surviving corporation or otherwise or in any contracts of sale or transfer, so
that the provisions set forth herein for the protection of the conversion
rights of the Convertible Preferred Stock shall thereafter be made applicable,
as nearly as reasonably may be to any such other shares of stock and other
securities and property deliverable upon conversion of the Convertible
Preferred Stock remaining outstanding or other convertible preferred stock or
other Convertible Securities received by the holders of Convertible Preferred
Stock in place thereof; and provided, further, that any such resulting or
surviving corporation or purchaser shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such shares, securities
or property as the holders of the Convertible Preferred Stock remaining
outstanding, or other convertible preferred stock or other convertible
securities received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions for the
protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or (g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the Convcrtible
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to
be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of share, as the case may be. In any case in which
this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation
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may defer until the occurrence of such event (x) issuing to the holder of any
shares of Convertible Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Class A Common
Stock or other Capital Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Class A Common
Stock, or other Capital Stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder cash in lieu of any
fractional interest to which such holder is entitled pursuant to Section 5(n);
provided, however, that, if requested by such holder, this Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Class A Common Stock
or other Capita] Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(d) hereof, to the holders of the Convertible
Preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting
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the obligations of this Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this Section 5(j) or any
defect therein shall not affect the legality or validity of any such corporate
action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock (other than pursuant to
Section 5(o) hereof but including pursuant to Section 5(p) hereof), such holder
shall surrender the certificate or certificates for such Convertible Preferred
Stock at the office of this Corporation or at the office of the transfer agent
for the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall give written notice to this
Corporation at said office that such holder elects to convert all or a part of
the Shares represented by said certificate or certificates in accordance with
the terms of this Section 5 (and in the case of a conversion pursuant to
Section 5(p) hereof, specifying that such conversion is made pursuant to
Section 5(p) hereof), and shall state in writing therein the name or names in
which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and this Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred Stock, accompanied by the
written notice and the statement above prescribed, or on the Dividend Payment
Date described in Section 5(o) hereof as contemplated in such Section, issue and
deliver at the office of this Corporation or of said transfer agent to the
person for whose account such Convertible Preferred Stock was so surrendered,
or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), or the holders of Convertible Preferred Stock on the Record Date
in respect of the Dividend Payment Date described in Section 5(o) hereof, a
certificate or certificates for the number of full shares of Class A Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share as hereinafter provided. If surrendered certificates for
Convertible Preferred Stock are converted only in part, this Corporation will
issue and deliver to the holder, or to his nominee(s), without charge therefor,
a new certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made as of the date of
such surrender of the Convertible Preferred Stock to be converted or on such
Dividend Payment Date described in Section 5(o) hereof, as the case may be; and
the person or persons entitled to receive the Class A Common Stock issuable
upon conversion of such Convertible Preferred Stock shall be treated for all
purposes as the record holder or holders of such Class A Common Stock on such
date.
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Upon the conversion of any Share (other than pursuant to Section 5(o)
or 5(p) hereof), this Corporation shall pay, to the holder of record of such
Share on the immediately preceding Record Date, if such date is after the most
recent Dividend Payment Date, or otherwise to the holder of record of such
Share as of the date of conversion, all accrued but unpaid dividends on such
Share to the date of the surrender of such Share for conversion. Such payment
shall be made in cash or, at the election of this Corporation, the issuance of
certificates representing such number of shares of Class A Common Stock as have
an aggregate current market price (as determined in accordance with Section
5(f)) on the date of issuance equal to the amount of such accrued but unpaid
dividends. Upon the making of such payment to the person entitled thereto as
determined pursuant to the first sentence of this paragraph, no further
dividends shall accrue on such Share or be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Converuble Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
Except for conversion pursuant to Section 5(o) or 5(p) hereof, this
Corporation shall not be required to convert any shares of Convertible
Preferred Stock, and no surrender of Convertible Preferred Stock shall be
effective for that purpose, while the stock transfer books of this Corporation
are closed for any purpose; but the surrender of Convertible Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Convertible Preferred Stock was
surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this Corporation from satisfying its obligations in respect of the
conversion of the outstanding shares of Convertible Preferred Stock by delivery
of shares of Class A Common Stock which are held in the treasury of this
Corporation. This Corporation shall take all such corporate and other actions
as from time to time may be necessary to insure that aII shares of Class A
Common Stock issuable upon conversion of shares of Convertible Preferred Stock
al the Conversion Rate in effect from time to time will, upon issue, be duly
and validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series
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of the preferred stock of this Corporation, but such shares shall not be
reissued as Convertible Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as funfished by any member of the National Association
of Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(o) To the extent all cash dividends on the Convertible Preferred
Stock which have accrued on any Dividend Payment Date are not paid, or are not
irrevocably set apart in trust for the benefit of the holder of such Shares, on
such date, then each Share shall be deemed to be automatically partially
converted into a number of duly authorized, fully paid and non-assessable
shares of Class A Common Stock equal to the quotient obtained by dividing the
Special Liquidation Value in respect of such Share on such Dividend Payment
Date by 95% of the current market price of the Class A Common Stock on such
date (as determined in accordance with Section 5(f) hereof) and this
Corporation shall issue and deliver to the holder of record of such Share on
the Record Date in respect of such Dividend Payment Date a certificate
evidencing such number of shares of Class A Common Stock and payment in respect
of fractional shares as provided in Section 5(n) hereof. Upon the issuance of
such Class A Common Stock the dividend otherwise accrued on such Dividend
Payment Date shall for all purposes be deemed paid. Partial conversion of
Shares pursuant to this Section 5(o) shall not reduce Liquidation Value (except
for Special Liquidation Value to the extent included in Liquidation Value), or
(except as provided in the immediately preceding sentence) otherwise affect the
right of the holder of such Shares to convert the same pursuant to the other
provisions of this Section 5.
(p) If this Corporation fails on any Redemption Date to pay the
Redemption Price in respect of Shares otherwise called for redemption pursuant
to Section 6(a) or (b) hereof or which
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<PAGE> 100
a holder elects to cause to be redeemed pursuant to Section 6(c) hereof, the
holder of such Shares may, in addition to any other right of conversion herein
contained, convert such Shares into a number of shares of Class A Common Stock
equal to the quotient obtained by dividing such Redemption Price by 95% of the
current market price (determined in accordance with Section 5(f) hereof) on
such Redemption Date. The holder's rights in this Section 5(p) shall be in
addition to any other rights such holder may have in respect of such failure.
(q) If any shares of Class A Common Stock which would be issuable
upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion
(whether or not, in the case of Section 5(o) or 5(p) hereof, any event giving
rise to such issuance has occurred or is likely to occur), this Corporation
will in good faith and as expeditiously as possible cause such shares to be
duly registered or approved, as the case may be. This Corporation will endeavor
to list the shares of Class A Common Stock required to be delivered upon
conversion of Shares prior to such delivery upon the principal national
securities exchange upon which the outstanding Common Stock is listed at the
time of such delivery.
6. Redemption.
(a) Subject to the provisions of Section 6(g), if at any time
after the third anniversary of the Issue Date the market value per share (as
defined below) of the Class A Common Stock shall have equaled or exceeded
$37.50 (as adjusted for dividends on Class A Common Stock payable in Class A
Common Stock, stock splits and reverse stock splits in respect of the Class A
Common Stock occurring after August 8, 1994) on any 20 out of a period of 30
consecutive Business Days ending within five days prior to the giving of a
notice of redemption pursuant to this Section, the shares of Convertible
Preferred Stock may be redeemed out of funds legally available therefor, at the
option of this Corporation by action of the Board of Directors, in whole or in
part, at the Redemption Price per Share as of the applicable Redemption Date.
If less than all Shares are to be redeemed, Shares shall be redeemed ratably
among the holders thereof. For purposes of this Section, the market values of
the Class A Common Stock shall be the last reported sale price of the Class A
Common Stock on the NASDAQ National Market System (or, if not quoted on the
NASDAQ National Market System, then on such exchange on which the Class A
Common Stock is listed as the Corporation may designate) on each such Business
Day or if there shall not have been a sale on any such Business Day, the market
value for that Business Day shall be the average of the bid and asked
quotations on the NASDAQ National Market System on that Business Day, or, if
the Class A Common Stock shall not then be quoted on the NASDAQ National Market
System or listed on any exchange, the market value shall be the highest bid
quotation in the over-the-counter market on such Business Day as reported by
National Quotation Bureau, Inc. or its successor or such other generally
accepted source of publicly reported bid and asked quotations as the
Corporation may reasonably designate.
(b) Subject to the provisions of Section 6(g), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after the
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<PAGE> 101
fifth anniversary of the Issue Date at the Redemption Price per Share as of the
applicable Redemption Date. If less than all outstanding Shares are to be
redeemed, Shares shall be redeemed ratably among the holders thereof.
(c) Subject to the rights of any Parity Securities and subject to
any prohibitions or restrictions contained in any Debt Instrument, at any time
on or after the tenth anniversary of the Issue Date, any holder of Shares shall
have the right, at such holder's option, to require redemption by this
Corporation at the Redemption Price per Share as of the applicable Redemption
Date of all or any portion of such holder's Shares having an aggregate
Liquidation Value in excess of $50,000 (or, if all of the Shares held by such
holder have an aggregate Liquidation Value of less than $50,000, all but not
less than all of such Shares) by written notice to this Corporation stating the
number of Shares to be redeemed. This Corporadon shall redeem, out of funds
legally available therefor, the Shares so requested to be redeemed on such date
within 20 Business Days following this Corporation's receipt of such notice;
provided, however, that notwithstanding the provisions of Section 5(p) hereof,
if this Corporation fails on the Redemption Date to pay the Redemption Price in
respect of Shares otherwise subject to redemption pursuant to this Section 6(c)
and fails irrevocably to set apart such Redemption Price in trust for the
benefit of the holders of such Shares, the holder of such Shares shall not
exercise the conversion rights provided for in Section 5(p) for a period of one
year from such date fixed for redemption (the "One-Year Period"); provided,
further, that nothing contained in this Section 6(c) shall (i) affect any other
rights of such holder, including, without limitation, the accrual of dividends
as provided in Section 3 hereof with respect to any Shares in respect of which
the Redemption Price has not been paid or funds irrevocably set apart in trust
for the benefit of the holders of such Shares, (ii) otherwise affect the right
of the holder to convert Shares or (iii) otherwise affect the right of the
holder of any Shares in respect of which the Redemption Price has not been paid
or funds irrevocably set apart in trust for the benefit of the holders of such
Shares to convert the same pursuant to the provisions of Section 5 following the
expiration of the One-Year Period. At any time during the One-Year-Period, this
Corporation may pay, out of funds legally available therefor, ratably among the
holders who have required Shares to be redeemed under this Section 6(c), the
Redemption Price for all or part of such Shares. If the funds of this
Corporation legally available for redemption of Shares are insufficient to
redeem the total number of shares required to be redeemed pursuant to this
Section 6(c), those funds which are legally available for redemption of such
Shares will be used to redeem the maximum possible number of such Shares ratably
among the holders who have required Shares to be redeemed under this Section
6(c). Without limiting the holders' rights pursuant to Section 5(p) hereof. at
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date (to the extent not previously converted) until the balance of
such Shares are redeemed.
(d) Notice of any redemption pursuant to Section 6(a) or 6(b)
shall be mailed, first class, postage prepaid, not less than 30 days nor more
than 60 days prior to the Redemption Date, to the holders of record of the
shares of Convertible Preferred Stock to be redeemed, at their respective
addresses as the same appear upon the books of this Corporation or are supplied
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<PAGE> 102
by them in writing to this Corporation for the purpose of such notice; but no
failure to mail such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares
of the Convertible Preferred Stock; provided that this sentence shall not
prejudice the right of any holder to receive such damages which may result from
any such defective notice. Such notice shall set forth the Redemption Price, the
Redemption Date, the number of Shares to be redeemed and the place at which the
Shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares. be redeemed. In case fewer than the total
number of shares of Convertible Preferred Stock represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Shares
will be issued to the holder thereof without cost to such holder.
(e) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(d) and if on or
before the Redemption Date specified in such notice the consideration
necessary for such redemption shall have been irrevocably set apart in trust
for the benefit of the holders of Shares to be so redeemed so as to be
available therefor and only therefor, then on and after the close of business
on the Redemption Date, the Shares called for redemption, notwithstanding that
any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and all rights with respect to such
Shares shall forthwith cease and terminate, except the right of the holders
thereof to receive upon surrender of their certificates the consideration
payable upon redemption thereof.
(f) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(g) If at any time this Corporation shall have failed to pay, or
declare and irrevocably set apart in trust for the benefit of the holders of
Shares the consideration sufficient to pay, all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock, and until all dividends accrued up to and including the
immediately preceding Dividend Payment Date on the Convertible Preferred Stock
shall have been paid or declared and irrevocably set apart in trust for the
benefit of the holders of Shares so as to be available for the payment in full
thereof and for no other purpose, this Corporation shall not redeem, pursuant
to a sinking fund or otherwise, any shares of Convertible Preferred Stock,
Parity, Securities or Junior Securities, unless all then outstanding shares of
Convertible Preferred Stock are redeemed, and shall not purchase or otherwise
acquire any shares of Convertible Preferred Stock, Parity Securities or Junior
Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(a), (b) and (c) all shares of Convertible
Preferred Stock required to be redeemed on such date, this Corporation shall
not redeem, or discharge any sinking fund obligation with respect to, any
Junior Securities, unless all then outstanding shares of Convertible Preferred
Stock are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock (other than by way of redemption or
18
<PAGE> 103
conversion) or Junior Securities. Nothing contained in this Section 6(g) shall
prevent the purchase or acquisition of shares of Convertible Preferred Stock
pursuant to a purchase or exchange offer or offers made to holders of all
outstanding shares of Convertible Preferred Stock, provided that as to holders
of all outstanding shares of Convertible Preferred Stock, the terms of the
purchase or exchange offer for all such shares are identical and all accrued
dividends on all Shares have been paid or shall have been paid or declared and
irrevocably set apart in trust for the benefit of holders of Shares so as to be
available for the payment in full thereof and for no other purpose. The
provisions of this Section 6(g) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(g) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption. This Corporation
shall not permit any Subsidiary thereof to take any action which this
Corporation is prohibited from taking pursuant to this Section 6(g).
7. Exchange Option.
(a) In case this Corporation shall at any time distribute to all
holders of the Class A Common Stock any rights or warrants ("Rights") to
subscribe for or purchase Special Securities, each holder of Shares shall have
the option (the "Exchange Option"), in lieu of any adjustment to the Conversion
Rate pursuant to Section 5, to exchange shares of Convertible Preferred Stock
for shaes of Mirror Preferred Stock (as defined below) which shall have an
initial aggregate liquidation value determined as follows:
(i) in the case of Rights exercisable upon payment, in
whole or in part, of cash or property other than Class A Common Stock,
the maximum aggregate liquidation value of shares of Mirror Preferred
Stock issuable to a holder of Convertible Preferred Stock upon
exercise of the Exchange Option shall be equal to the product of (x)
the number shares of Special Securities issuable upon exercise of the
Rights which this Corporation would have distributed to such holder of
Convertible Preferred Stock had such holder's Shares been converted
immediately prior to the record date for the distribution of such
Rights, and (y) the amount of cash, or the fair market value of such
other property (as reasonably determined by the Board of Directors;
with respect to any Class A Common Stock that is included in such
property, the fair market value thereof shall be the current market
price as determined pursuant to Section 5(f) as of such record date),
payable by a holder of Class A Common Stock in respect of the purchase
of any such shares upon exercise of a Right; or
(ii) in the case of Rights exercisable upon the surrender
of Class A Common Stock without payment of additional
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<PAGE> 104
consideration, the maximum aggregate liquidation value of shares of
Mirror Preferred Stock issuable upon exercise of the Exchange Option
by the holder thereof shall be equal to the product of (x) the
Conversion Rate expressed in dollars of Liquidation Value per share of
Class A Common Stock as in effect on the record date for distribution
of the Rights, and (y) the maximum number of shares of Class A Common
Stock that would have been surrendered by such holder upon exercise of
Rights that would have been distributed to such holder had such holder
converted his Shares immediately prior to the record date for
distribution of the Rights.
(b) The exercise price of the Exchange Option shall be one
dollar in Liquidation Value of Shares of Convertible Preferred Stock for each
dollar of liquidation value of shares of Minor Preferred Stock to be purchased
upon exercise of the Exchange Option.
(c) "Mirror Preferred Stock" means convertible preferred stock
issued by the issuer of the Special Securities, such Mirror Preferred Stock to
have terms, conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations, or restrictions thereof
which are identical, or as nearly so as is practicable in the reasonable
judgment of the Board of Directors, to those of the Convertible Preferred
Stock, except that the running of any time periods pursuant to the terms of
the Convertible Preferred Stock shall be tacked to such time periods in the
Mirror Preferred Stock and except that Mirror Preferred Stock shall be
convertible into shares of the Special Security in respect of which such Mirror
Preferred Stock is issued pursuant to the terms hereof in lieu of Class A
Common Stock. The rate at which Mirror Preferred Stock shall be convertible into
Special Securities, expressed in shares of the Special Security per dollar of
liquidation value of the Mirror Preferred Stock, shall:
(i) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon payment, in whole or in part, of
cash or property other than Class A Common Stock, be determined by a
quotient, the numerator of which shall be the number of shares of
Special Securities issuable upon exercise of the Rights which this
Corporation would have distributed to all holders of Convertible
Preferred Stock had all of the Shares been converted immediately prior
to the record date for the distribution of such Rights and the
denominator of which shall be equal to the aggregate liquidation value
of Mirror Preferred Stock issuable (assuming exercise of all the
Exchange Options) to all holders of Convertible Preferred Stock in
respect of such Rights pursuant to Section 7(a)(i) above; or
(ii) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon surrender of shares of Class A
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<PAGE> 105
Common Stock without payment of additional consideration, be
determined by the inverse of the product of (x) the Conversion Rate of
the Convertible Preferred Stock expressed in dollars of Liquidation
Value per share of Class A Common Stock as in effect immediately prior
to the record date for distribution of the Rights (without giving
effect to any antidilution adjustment pursuant to Section 6 in respect
of such Rights) and (y) the number of shares of Class A Common Stock
required to be surrendered upon the exercise of each Right.
(d) If this Corporation distributes Rights in respect of
which the holders of Convertible Preferred Stock are required to be granted an
Exchange Option hereunder, this Corporation shall, concurrently with the
distribution of such Rights to holders of Class A Common Stock, provide each
holder of Convertible Preferred Stock a notice (the "Option Notice") stating
that such holder may, on or before the date of expiration of the Rights (the
"Expiration Date"), exercise the Exchange Option in accordance herewith, and
setting forth a description of the Rights, the Special Securities, and the
Mirror Preferred Stock. Such notice shall be accompamed by any prospectus or
similar document provided to holders of Class A Common Stock in respect of the
distribution of the Rights and a copy of the certificate of designations (or
similar document) proposed to be filed by this Corporation or any Subsidiary
with the appropriate government official in order to establish the Mirror
Preferred Stock.
(e) If a transaction described in this Section 7 occurs
before the Issue Date, holders of the Convertible Preferred Stock may exercise
the rights in this Section 7 within 45 days after the Issue Date or, if later,
the date related Rights expire.
(f) Upon the exchange of any Share, this Corporation
shall pay, to the holder of record of such Share on the immediately preceding
Record Date, if such date is after the most recent Dividend Payment Date, or
otherwise, to the holder of record of such Share as of the date of exercise of
the Exchange Option, all accrued but unpaid dividends on such Share to the date
of the surrender of such Share for exchange. Such payment shall be made in cash
or, at the election of this Corporation, the issuance of certificates
representing such number of shares of Class A Common Stock as have an aggregate
current market price (as determined in accordance with Section 5(f)) on the
date of issuance equal to the amount of such accrued but unpaid dividends. Upon
the making of such payment to the person entitled thereto as determined
pursuant to the first sentence of this paragraph, no further dividends shall
accrue on such Share or be payable to any other person.
8. No Voting Rights. Except as required by law and Sections 9 and 11
hereof, the holders of the Convertible Preferred Stock shall not be entitled to
vote on any matters submitted to a vote of the holders of the Capital Stock of
this Corporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3 % of the Liquidation Value
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<PAGE> 106
of all Shares outstanding (excluding, for this purpose, Shares owned by this
Corporation or any of its Affiliates) at the time such action is taken.
10. Preemptive Rights. The holders of the Convertible Preferred Stock
will not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by this Corporation, provided
that this Section 10 shall not limit the rights of holders of the Convertible
Preferred Stock pursuant to Sections 5 or 7 hereof.
11. Senior Securities. The Convertible Preferred Stock shall not rank
junior to any other classes or series of stock of this Corporation in respect
of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding (excluding, for
this purpose, Shares owned by this Corporation or any of its Affiliates), this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required by
law and for the equitable rights and remedies that may otherwise be available
to holders of Convertible Preferred Stock, the shares of Convertible Preferred
Stock shall not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in these resolutions (as such
resolutions may, subject to Section 9, be amended from time to time) and in the
Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
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<PAGE> 107
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE THIRD DAY
OF AUGUST, A.D. 1995, AT 12:45 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
EDWARD J. FREEL
----------------------------
Edward J. Freel,
Secretary of State
AUTHENTICATION: 7596118
DATE: 08-03-95
<PAGE> 108
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:45 PM 08/03/1995
950175231 - 2371729
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the Restated Certificate of Incorporation of the
Corporation is hereby amended as follows:
(i) THE FIRST PARAGRAPH OF ARTICLE IV OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS
FOLLOWS:
"AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue is two billion seven hundred seventy-seven
million three hundred seventy-five thousand ninety-six (2,777,375,096) shares,
which shall be divided into the following classes:
(a) Two billion seven hundred twenty-five million
(2,725,000,000) shares shall be of a class designated Common Stock,
par value $1.00 per share ("Common Stock"), such class to be divided
into series as provided in Section E of this Article IV;
(b) Seven hundred thousand (700,000) shares shall be of a
class designated Class A Preferred Stock, par value $.01 per share
("Class A Preferred Stock");
(c) One million six hundred seventy-five thousand
ninety-six (1,675,096) shares shall be of a class designated Class B
6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par
value $.01 per share ("Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock"); and
(d) Fifty million (50,000,000) shares shall be of a class
designated Series Preferred Stock, par value $.01 per share ("Series
Preferred Stock"), such class to be issuable in series as provided in
Section D of this Article IV.
<PAGE> 109
The Class A Preferred Stock, the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and the Series Preferred Stock are
collectively referred to as "Preferred Stock"."
(ii) SECTION D OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or
more series, with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix with respect to each series:
(i) the distinctive serial designations and the division
of such shares into series and the number of shares of a particular
series, which may be increased or decreased, but not below the number
of shares thereof then outstanding, by a certificate made, signed,
filed and recorded as required by law;
(ii) the dividend rate or amounts, if any, for the
particular series, the date or dates from which dividends on all
shares of such series shall be cumulative, if dividends on stock of
the particular series shall be cumulative and the relative rights of
priority, if any, or participation, if any, with respect to payment of
dividends on shares of that series;
(iii) the rights of the shares of each series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of each series;
(iv) the right, if any, of the holders of a particular
series to convert or exchange such stock into or for other classes or
series of a class of stock or indebtedness of the Corporation, and the
terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in
such events as the Board of Directors shall determine;
(v) the voting rights, if any, of the holders of a
particular series; and
(vi) the terms and conditions, if any, for the Corporation
to purchase or redeem shares of a particular series.
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<PAGE> 110
All shares of any one series of the Series Preferred Stock shall be
alike in every particular. Except to the extent otherwise provided in the
resolution or resolutions providing for the issue of any series of Series
Preferred Stock, the holders of shares of such series shall have no voting
rights except as may be required by the laws of the State of Delaware."
(iii) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED 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
AND SERIES B LIBERTY MEDIA 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") and 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").
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.
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 and holders of Series B Liberty Media 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
-3-
<PAGE> 111
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 and the holders
of shares of Series B Liberty Media 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 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.
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(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 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 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 convertible into a
number (or fraction) of fully paid and nonassessable shares of Series A TCI
Group Common Stock equal to the 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 Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(c), the "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.
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(iii) The "Liberty Media Group Private Market Value" shall mean an
amount equal to the private market value of the Liberty Media 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 Corporation determines to establish the Liberty
Media Group Private Market Value, two investment banking firms of recognized
national standing shall be designated to determine the private market value of
the Liberty Media Group, one designated by the Corporation (the "First
Appraiser") and one 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 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 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 Liberty
Media Group Private Market Value (subject to any adjustment provided in
subparagraph (v) of this paragraph 2(c)) 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 a third investment banking firm of recognized national
standing (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 such private market value (the
"Mutually Appraised Amount"), and the Liberty Media Group Private Market Value
(subject to any adjustment provided in subparagraph (v) of this paragraph 2(c))
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 investment banking
firm expresses its final view of the private market value of the Liberty Media
Group as a range of values, such investment banking firm's final view of such
private market value shall be deemed to be the midpoint of such range of
values.
(iv) Each of the investment banking firms referred to in clause
(iii) of this paragraph 2(c) 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
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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.
(v) Following the determination of the Liberty Media Group Private
Market Value, the investment banking firms 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 investment
banking firms 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 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 investment banking
firms do not agree on the determinations provided for in this subparagraph (v),
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.
(vi) 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 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.
(vii) 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
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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.
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) DISCRIMINATION BETWEEN OR AMONG SERIES OF COMMON STOCK. The
Board of Directors, subject to the provisions of paragraph 3(a) and 3(b) of
this Section E, shall have the authority and discretion to declare and pay
dividends on the Series A TCI Group Common Stock and Series B TCI Group Common
Stock or the Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock in equal or unequal amounts, notwithstanding the
relationship between the TCI Group Available Dividend Amount and the Liberty
Media 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 or the Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock or any other
factor.
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4. Share Distributions.
(a) DISTRIBUTIONS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B
TCI GROUP COMMON STOCK. The Corporation may provide for the initial issuance
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock by declaring and paying a distribution (the
"Distribution") consisting of shares of Series A Liberty Media Group Common
Stock to holders of Series A TCI Group Common Stock and, on an equal per share
basis, shares of Series B Liberty Media Group Common Stock to holders of Series
B TCI Group Common Stock. If at any time after the Distribution a distribution
paid in 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 or any other securities of the Corporation or any other Person
(hereinafter sometimes called 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) 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 Inter-Group Interest; and
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(iii) 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 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 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
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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 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 or Series B TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock or Series B TCI 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.
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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 SUBSIDIARY. 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 Outstanding Interest Fraction and the number of all of
the outstanding shares of common stock of such Liberty Media Group Subsidiary.
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.
(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 6 of this Section E, (x) a
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4,
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paragraph 5(a) or paragraph 6 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 Outstanding Interest
Fraction as of the record date for determining the holders entitled to
receive such dividend and the 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 Outstanding Interest
Fraction as of the date of such redemption and the Net
Proceeds of such Disposition, 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 Outstanding Interest Fraction as of the
date shares are selected for redemption and the Net Proceeds
of such Disposition 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
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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);
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 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
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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 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 Distribution
(other than
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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 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 Outstanding Interest Fraction as of a recent date preceding
the date of such notice and (E) the Adjusted 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
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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 Net Proceeds of such Disposition, (E) the 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 them 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 Net Proceeds of such Disposition, (E) the Adjusted
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, a statement to the
effect that holders of such Convertible Securities shall be entitled to
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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 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 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 Net Proceeds of such Disposition, (E) the
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
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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(c) 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(c)), (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
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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 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 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, 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
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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(c) 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 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(c) 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
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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
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
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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. 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 (expressed as
a decimal) of X/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, and (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 Y/Z for such 20-Trading Day period, where X is the aggregate
Market Capitalization of the Series A TCI Group Common Stock and the Series B
TCI Group Common Stock, Y is the aggregate Market Capitalization of the Series
A Liberty Media Group Common Stock and the Series B Liberty Media Group Common
Stock, and Z is the aggregate Market Capitalization of the Series A TCI Group
Common Stock, the Series B
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TCI Group Common Stock, the Series A Liberty Media Group Common Stock and the
Series B Liberty Media 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 6.
7. 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.
8. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 8 shall have, for all purposes of this Section E, the meanings herein
specified:
"Adjusted 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 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.
"Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation has, prior to the record
date for the Distribution, agreed to issue, but as of such record date has 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 has, prior to the record date for the 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 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
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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 Distribution.
"Conversion Date" shall mean any date fixed by the Board of Directors
for a conversion of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, as set forth in a notice to holders
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock pursuant to paragraph 5(d) of this Section E.
"Convertible Securities" shall mean any securities of the Corporation
(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, 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.
"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.
"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
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 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.
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"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 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 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 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
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interest or dividends are paid or other distributions are made on such other
securities so distributed to the holders of Series A Liberty 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 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.
"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(c), 5(b) and 6 of
this Section E, (a) the "Market
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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.
"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), (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 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.
"Number of Shares Issuable with Respect to the Inter-Group Interest"
after the 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 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,
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(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 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 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 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
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 8. 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 Inter-Group Interest.
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Whenever a change in the Number of Shares Issuable with Respect to the
Inter-Group Interest occurs, the Corporation shall prepare and file a statement
of such change with the Secretary of the Corporation.
"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 and (b) the
Number of Shares Issuable with Respect to the Inter-Group Interest as of such
date.
"Pre-Distribution Convertible Securities" shall mean Convertible
Securities that were outstanding on the record date for the 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.
"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, 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 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,
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 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 prior to such
Disposition, as determined in good faith by the Board of Directors.
"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;
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(b) a proportionate interest in the businesses, assets
and liabilities of the Liberty Media Group equal to the Inter-Group
Interest Fraction as of such date;
(c) 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
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 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 Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution; and
(d) any assets or properties transferred from the Liberty
Media Group to the TCI Group;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media 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 pursuant to clause (b) above). 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 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 (c) 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. 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
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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.
"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
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.
"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."
(IV) SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED 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 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 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."
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(V) ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED 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 and any class or series of Preferred Stock entitled to
vote with the holders of Common Stock generally upon all matters which may be
submitted to a vote of stockholders at any annual meeting or special meeting
thereof.
SECTION B
ACTION WITHOUT A MEETING
Except as otherwise provided in the terms of any class or series of
Preferred Stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, is specifically denied."
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(VI) ARTICLE IX OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE CORPORATION
IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any class or series of
Preferred Stock, the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of this Certificate), voting together as a single
class at a meeting specifically called for such purpose, shall be required in
order for the Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision
of this Certificate or the addition or insertion of other provisions
herein;
(b) the adoption, amendment or repeal of any provision of
the Bylaws of the Corporation; provided, however, that this clause (b)
shall not apply to, and no vote of the stockholders of the Corporation
shall be required to authorize, the adoption, amendment or repeal of
any provision of the Bylaws of the Corporation by the Board of
Directors in accordance with the power conferred upon it pursuant to
Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with
or into any other corporation; provided, however, that this clause (c)
shall not apply to any merger or consolidation (i) as to which the
laws of the State of Delaware, as then in effect, do not require the
consent of this Corporation's stockholders, or (ii) which at least 75%
of the members of the Board of Directors then in office have approved;
(d) the sale, lease or exchange of all, or substantially
all, of the property and assets of the Corporation; or
(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the
Corporation pursuant to this Certificate are granted subject to the provisions
of this Article IX."
(vii) Upon the effectiveness of this Certificate of Amendment, (a) each share
of the Class A Common Stock, par value $1.00 per share, of the Corporation that
is issued and outstanding (including shares held in the treasury of the
Corporation) shall be redesignated and changed, ipso
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facto and without any other action on the part of the stockholders thereof, into
one share of Series A TCI Group Common Stock and (b) each share of Class B
Common Stock, par value $1.00 per share, of the Corporation that is issued and
outstanding (including shares held in the treasury of the Corporation) shall be
redesignated and changed, ipso facto and without any other action on the part of
the stockholders thereof, into one share of Series B TCI Group Common Stock.
SECOND: That said amendments were duly adopted by the Board of
Directors of the Corporation, and pursuant to resolution of the Board of
Directors of the Corporation, the annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute and the Restated
Certificate of Incorporation of the Corporation were voted in favor of said
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
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IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 3rd day of August, 1995.
TELE-COMMUNICATIONS, INC.
By: BRENDON R. CLOUSTON
Name: Brendon R. Clouston
Title: Executive Vice President
ATTEST:
By: STEPHEN M. BRETT
Name: Stephen M. Brett
Title: Secretary
<PAGE> 144
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE THIRD
DAY OF AUGUST, A.D. 1995, AT 12:46 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
EDWARD J. FREEL
----------------------------
Edward J. Freel,
Secretary of State
AUTHENTICATION: 7596126
DATE: 08-03-95
<PAGE> 145
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:46 PM 08/03/1995
950175234 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
---------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK,
SERIES F" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
---------------------
The undersigned Executive Vice President of
Tele-Communications, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that the Board of Directors of the Corporation duly adopted the
following resolutions creating a series of preferred stock designated as
"Convertible Redeemable Participating Preferred Stock, Series F":
BE IT RESOLVED, that pursuant to authority expressly granted by
the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates and
authorizes the issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to consist of 500,000 shares, and hereby fixes the
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the designations,
preferences and relative, participating, limitations or restrictions thereof set
forth in the Restated Certificate of Incorporation that are applicable to
preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred
stock, par value $.01 per share, of the Corporation authorized hereby is
"Convertible Redeemable Participating Preferred Stock, Series F" (the "Series F
Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined in this paragraph 2 shall have, for all purposes, the meanings
herein specified:
<PAGE> 146
"Average Quoted Price", when used with respect to the Series A
TCI Group Common Stock, shall mean the average of the Quoted Prices of the
Series A TCI Group Common Stock for the most recent period of five trading days
on which shares of such series trade ending three Business Days prior to the
Redemption Date, appropriately adjusted to take into account the actual
occurrence, during the period following the first of such five trading days and
ending on the Business Day immediately preceding such Redemption Date, of any
event of a type described in paragraph 7. The "Quoted Price" of a share of
Series A TCI Group Common Stock on any day means the last sale price (or, if no
sale price is reported, the average of the high and low bid prices) of the
Series A TCI Group Common Stock, on such day as reported on the National
Association of Securities Dealers, Inc. Automated Quotation System, Inc.
("NASDAQ") or if the Series A TCI Group Common Stock is listed on an exchange,
as reported in the composite transactions for the principal exchange on which
such stock is listed.
"Board of Directors" shall mean the Board of Directors of the
Corporation and, unless the context indicates otherwise, shall also mean, to the
extent permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in Denver, Colorado are not required to
be open.
"capital stock" shall mean any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as it may from time to time hereafter be
amended or restated.
"Class A Preferred Stock" shall mean the Class A Preferred
Stock, par value $.01 per share, of the Corporation.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Conversion Rate" shall have the meaning ascribed to such term
in paragraph 7(b) hereof.
"Convertible Securities" shall mean securities, other than the
Series B TCI Group Common Stock, that are convertible into or exchangeable for
Series A TCI Group Common Stock; provided, however, that neither the Series A
Liberty Media Group Common Stock nor the Series B Liberty Media Group Common
Stock shall be deemed to be a Convertible Security by virtue of the
Corporation's right to cause the outstanding shares of each such series of
Liberty Media Group Common Stock to be converted into Series A TCI Group Common
Stock and Series B TCI Group Common Stock, respectively, in accordance with
paragraphs 2(c) or 5(b)(iii) of Section E of Article IV of the Certificate.
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"Cut-Off Date" shall have the meaning ascribed to such term in
paragraph 7(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Issue Date" shall mean the date on which shares of Series F
Preferred Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii)
the Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv)
any other class or series of capital stock, whether now existing or hereafter
created, of the Corporation, other than (A) the Series F Preferred Stock, (B)
any class or series of Parity Stock (except to the extent provided under clause
(v) hereof) and (C) any Senior Stock, and (v) any class or series of Parity
Stock to the extent that it ranks junior to the Series F Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation, as the case may
be. For purposes of clause (v) above, a class or series of Parity Stock shall
rank junior to the Series F Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation if the holders of shares of Series F
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Liberty Media Group Common Stock" shall mean, collectively,
the Series A Liberty Media Group Common Stock and the Series B Liberty Media
Group Common Stock.
"Liquidation Preference" per share of Series F Preferred Stock
shall be $.01.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board or the President of the Corporation and by the Treasurer
of the Corporation.
"Opinion of Counsel" shall mean a written opinion from legal
counsel selected by the Corporation. The counsel may be an employee of or
counsel to the Corporation.
"Original Stated Amount" of a share of Series F Preferred Stock
means $24,875.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking on a
parity basis with the Series F Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series shall
rank on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Series F Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series F Preferred Stock, if the holders of shares of such class or
series shall be entitled to dividend payments, payments on redemption or
payments of amounts distributable upon dissolution, liquidation or winding up of
the Corporation, as the case may be, in proportion to their respective
accumulated and accrued and unpaid
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dividends, redemption prices or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series F Preferred Stock. No class or
series of capital stock that ranks junior to the Series F Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Series F Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Participating Dividend" shall have the meaning ascribed to
such term in paragraph 3(a) hereof.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity, whether acting in an individual, fiduciary or other capacity.
"Redemption Date" as to any share of Series F Preferred Stock
shall mean the date fixed for redemption of such share by the Board of Directors
of the Corporation pursuant to paragraph 5(a); provided that no such date will
be a Redemption Date unless the applicable Redemption Price is actually paid or
deposited as provided in paragraph 5(d) hereof on such date.
"Redemption Price" as to any share of Series F Preferred Stock
which is to be redeemed on any Redemption Date shall mean the Stated Amount
thereof on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking prior to
the Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank prior to
the Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of Series F
Preferred Stock. No class or series of capital stock that ranks on a parity
basis with or junior to the Series F Preferred Stock as to rights on liquidation
shall rank or be deemed to rank prior to the Series F Preferred Stock as to
dividend rights or rights of redemption, notwithstanding that the dividend rate,
dividend payment dates, sinking fund provisions, if any, or mandatory redemption
provisions thereof are different from those of the Series F Preferred Stock,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides.
"Series A Liberty Media Group Common Stock" shall have the
meaning ascribed to such term in Section E of Article IV of the Certificate.
"Series A TCI Group Common Stock" shall mean the Series A TCI
Group Common Stock, par value $1.00 per share, of the Corporation, which term
shall include, where appropriate,
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<PAGE> 149
in the case of any reclassification, recapitalization or other change in the
Series A TCI Group Common Stock, or in the case of a consolidation or merger of
the Corporation with or into another Person affecting the Series A TCI Group
Common Stock, such capital stock to which a holder of Series A TCI Group Common
Stock shall be entitled upon the occurrence of such event; provided, however,
that with respect to any period prior to the date of filing of the amendment to
the Certificate redesignating the Class A Common Stock, par value $1.00 per
share, of the Corporation as "Series A TCI Group Common Stock," such term shall
be deemed to refer to the Class A Common Stock, par value $1.00 per share, of
the Corporation.
"Series B Liberty Media Group Common Stock" shall have the
meaning ascribed to such term in Section E of Article IV of the Certificate.
"Series B TCI Group Common Stock" shall mean the Series B TCI
Group Common Stock, par value $1.00 per share, of the Corporation, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Corporation with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event; provided, however, that with respect to any period
prior to the date of filing of the amendment to the Certificate redesignating
the Class B Common Stock, par value $1.00 per share, of the Corporation as
"Series B TCI Group Common Stock," such term shall be deemed to refer to the
Class B Common Stock, par value $1.00 per share, of the Corporation.
"Stated Amount" per share of the Series F Preferred Stock as of
any date in question (the "Determination Date") shall mean an amount equal to
the sum of (a) the Original Stated Amount of such share, plus (b) an amount
equal to all dividends which have been declared on the shares of Series F
Preferred Stock (including, but not limited to, Participating Dividends) but
which, as of the Determination Date, are unpaid. In connection with the
determination of the Stated Amount of a share of Series F Preferred Stock upon
redemption, the Determination Date shall be the applicable date of redemption.
"Subsidiary" of any Person shall mean (i) a corporation a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by such Person and/or one or more Subsidiaries of such Person and (ii) any other
Person (other than a corporation) in which such Person and/or one or more
Subsidiaries of such Person, directly or indirectly, has (x) a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the members of the governing body of such first-named Person.
"TCI Group Common Stock" shall mean, collectively, the Series A
TCI Group Common Stock and the Series B TCI Group Common Stock.
"TCI Holder" shall mean the Corporation and each Subsidiary of
the Corporation.
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<PAGE> 150
3. Dividends.
(a) CASH DIVIDEND RIGHTS. Subject to the prior preferences and
other rights of any Senior Stock and the provisions of paragraph 6 hereof, the
holders of Series F Preferred Stock shall be entitled to receive cash dividends
per share in an amount (the "Participating Dividend") equal to the product of
(x) the amount of the cash dividend declared and to be paid on a single share of
Series A TCI Group Common Stock (or any other security into which the Series F
Preferred Stock is then convertible) and (y) the number of shares of Series A
TCI Group Common Stock (or other security) into which a share of Series F
Preferred Stock may be converted as of the date such dividend is paid. The
Participating Dividends shall be the only dividends payable to holders of Series
F Preferred Stock and such Participating Dividends shall be declared and paid
only when, as and if a cash dividend is declared and paid upon the outstanding
shares of Series A TCI Group Common Stock. Dividends or distributions on the
Series A TCI Group Common Stock which are paid or made in securities, properties
or other assets of the Corporation other than cash shall not constitute
Participating Dividends and holders of Series F Preferred Stock shall have no
rights with respect thereto, other than as may be provided in paragraph 7.
Participating Dividends shall be payable prior and in preference to any dividend
payments to the holders of any Junior Stock. Participating Dividends shall be
payable to holders of record of shares of Series F Preferred Stock as of the
record date for the determination of holders of Series A TCI Group Common Stock
entitled to receive such dividend and shall be payable on the payment date
established by the Corporation for the payment of such cash dividend to holders
of Series A TCI Group Common Stock.
(b) METHOD OF PAYMENT. All dividends payable with respect to
the shares of Series F Preferred Stock shall be declared and paid in cash. All
dividends paid with respect to the shares of Series F Preferred Stock pursuant
to this paragraph 3 shall be paid pro rata to all the holders of shares of
Series F Preferred Stock outstanding on the applicable record date.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential
amounts to which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series F Preferred Stock shall be entitled to receive from the
assets of the Corporation available for distribution to stockholders, before any
payment or distribution shall be made to the holders of any Junior Stock, an
amount in cash or property at its fair market value, as determined by the Board
of Directors in good faith, or a combination thereof, per share, equal to the
Liquidation Preference of a share of Series F Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari passu
with any such payment or distribution made to the holders of any Parity Stock
ranking on a parity basis with the Series F Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up of the Corporation.
Following the payment of all amounts owing to holders of each class or series of
capital stock of the Corporation having a preference or priority over the TCI
Group Common Stock as to distributions upon the liquidation, dissolution or
winding up of the Corporation, then the holders of the Series F Preferred
Stock
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shall be entitled to participate, with the holders of the TCI Group Common
Stock, pro rata, based upon the number of shares of Series A TCI Group Common
Stock into which the shares of Series F Preferred Stock are then convertible, as
to any amounts remaining for distribution to the holders of TCI Group Common
Stock upon the liquidation, dissolution or winding up of the Corporation. If,
upon distribution of the Corporation's assets in liquidation, dissolution or
winding up, the assets of the Corporation to be distributed among the holders of
the Series F Preferred Stock and to all holders of any Parity Stock ranking on a
parity basis with the Series F Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up shall be insufficient to permit
payment in full to such holders of the respective preferential amounts to which
they are entitled, then the entire assets of the Corporation to be distributed
to holders of the Series F Preferred Stock and such Parity Stock shall be
distributed pro rata to such holders based upon the aggregate of the full
preferential amounts to which the shares of Series F Preferred Stock and such
Parity Stock would otherwise respectively be entitled. Neither the consolidation
or merger of the Corporation with or into any other corporation or corporations
nor the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 4. Notice of the
liquidation, dissolution or winding up of the Corporation shall be given, not
less than 20 days prior to the date on which such liquidation, dissolution or
winding up is expected to take place or become effective, to the holders of
record of the shares of Series F Preferred Stock.
5. Redemption.
(a) OPTIONAL REDEMPTION. Subject to the rights of any Senior
Stock and the provisions of paragraph 6, the shares of Series F Preferred Stock
may be redeemed, at the option of the Corporation by the action of the Board of
Directors, in whole or from time to time in part, at the Redemption Price on any
Redemption Date occurring on or after the thirtieth Business Day following the
Issue Date. The Redemption Price shall be payable (except as provided in the
last sentence of paragraph 5(c) hereof) only in shares of Series A TCI Group
Common Stock. If less than all outstanding shares of Series F Preferred Stock
are to be redeemed on any Redemption Date, the shares of Series F Preferred
Stock to be redeemed shall be chosen pro rata among all holders of Series F
Preferred Stock. The Corporation shall not be required to register a transfer of
(i) any shares of Series F Preferred Stock for a period of 15 days next
preceding any selection of shares of Series F Preferred Stock to be redeemed or
(ii) any shares of Series F Preferred Stock selected or called for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption shall be given
by or on behalf of the Corporation, not more than 60 days nor less than 30 days
prior to the Redemption Date, to the holders of record of the shares of Series F
Preferred Stock to be redeemed; but no defect in such notice or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series F Preferred Stock. In addition to any information required by
law or by the applicable rules of any national securities exchange or national
interdealer quotation system on which the Series F Preferred Stock may be listed
or admitted to trading or quoted, such notice shall set forth the Redemption
Price, the Redemption Date, the number of shares to be redeemed, the portion of
the Redemption Price, if any, which
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the Corporation has elected to pay through the issuance of Series A TCI Group
Common Stock and the place at which the shares of Series F Preferred Stock
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Series F Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) ISSUANCE OF SERIES A TCI GROUP COMMON STOCK. Subject to
compliance with the conditions contained in this paragraph 5(c), the Corporation
shall pay the Redemption Price 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 Common Stock equal to the
aggregate Redemption Price (or designated portion thereof) of such shares
divided by the Average Quoted Price of a share of Series A TCI Group Common
Stock. No fractional shares of Series A TCI Group Common Stock or scrip shall be
issued upon such redemption. As to any final fraction of a share of Series A TCI
Group Common Stock that would otherwise be issuable to a holder upon redemption
of his shares of Series F Preferred Stock (determined on the basis of the total
number of such holder's shares of Series F Preferred Stock in respect of which
shares of Series A TCI Group Common Stock are issuable), the Corporation shall
pay an amount in cash or by its check equal to the same fraction of the Average
Quoted Price of a share of Series A TCI Group Common Stock.
The Corporation's right to pay the Redemption Price of the
shares of Series F Preferred Stock through the issuance of shares of Series A
TCI Group Common Stock shall be conditioned upon: (i) the Corporation's having
timely given a notice of redemption setting forth such election as provided in
paragraph 5(b); (ii) the Corporation's having obtained and filed, on or before
the Redemption Date, at the office of the redemption agent for the Series F
Preferred Stock (or with the books of the Corporation if there is no redemption
agent) an Opinion of Counsel to the effect that (A) the shares of Series A TCI
Group Common Stock to be issued upon such redemption have been duly authorized
and, when issued and delivered in payment of the Redemption Price of the shares
of Series F Preferred Stock to be redeemed, will be validly issued, fully paid
and non-assessable and free from preemptive rights, (B) that the issuance and
delivery of such shares of Series A TCI Group Common Stock upon such redemption
of shares of Series F Preferred Stock will not violate the laws of the state of
incorporation of the Corporation, and (C) unless at the time the Redemption
Notice is given all shares of the Series F Preferred Stock are owned by one or
more TCI Holders, that the issuance and delivery of the shares of Series A TCI
Group Common Stock upon such redemption of shares of Series F Preferred Stock is
exempt from the registration or qualification requirements of the 1933 Act and
applicable state securities laws or, if no such exemption is available, that the
shares of Series A TCI Group Common Stock to be issued have been duly registered
or qualified under the 1933 Act and such applicable state securities laws; and
(iii) the Corporation's having filed, on or before the Redemption Date, at the
office of such redemption agent (or with the books of the Corporation if there
is no redemption agent), an Officers' Certificate setting forth the number of
shares of Series A TCI Group Common Stock to be issued in payment of the
Redemption Price of each share of Series F Preferred Stock and the method of
determining the same (consistent with the provisions hereof). If the foregoing
conditions have not been satisfied prior to or on the
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Redemption Date, the Corporation shall pay the Redemption Price for the shares
of Series F Preferred Stock to be redeemed in cash.
(d) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by
the Corporation pursuant to this paragraph 5 shall have been given as provided
in paragraph 5(b) above, and if on or before the Redemption Date specified in
such notice the Corporation shall have deposited with the redemption agent for
the Series F Preferred Stock (or if there is no redemption agent, shall have set
apart so as to be available for such purpose and only such purpose) shares of
Series A TCI Group Common Stock sufficient to redeem in full on the Redemption
Date at the Redemption Price all shares of Series F Preferred Stock called for
redemption and provided that the conditions set forth in paragraph 5(c) have
been satisfied, then effective as of the close of business on the Redemption
Date, the shares of Series F Preferred Stock called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and all rights with
respect to such shares shall forthwith cease and terminate, except the right of
the holders thereof to receive the Series A TCI Group Common Stock (or cash, as
applicable) issuable (or payable) in payment of the Redemption Price of such
shares, without interest, upon the surrender of certificates representing the
same.
(e) STATUS OF REDEEMED SHARES. All shares of Series F Preferred
Stock redeemed, exchanged, purchased or otherwise acquired by the Corporation
shall be retired and shall be restored to the status of authorized and unissued
shares of Series Preferred Stock (and may be reissued as part of another series
of the preferred stock of the Corporation, but such shares shall not be reissued
as Series F Preferred Stock).
6. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have declared a dividend on the
Series F Preferred Stock and failed to pay or set aside consideration sufficient
to pay such dividend, or if the Corporation declares a cash dividend on the
shares of Series A TCI Group Common Stock and fails to pay or set aside the
Participating Dividend required to be paid to the holders of the Series F
Preferred Stock, then (i) the Corporation shall not declare or pay any dividend
on or make any distribution with respect to any Parity Stock or Junior Stock or
set aside any money or assets for any such purpose until such dividend payable
to the holders of Series F Preferred Stock has been paid or consideration
sufficient to pay such dividend has been set aside for such purpose, and (ii)
neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any shares of Series F Preferred Stock, Parity
Stock or Junior Stock, or set aside any money or assets for any such purpose,
pursuant to paragraph 5 hereof, a sinking fund or otherwise, unless all then
outstanding shares of any class or series of Parity Stock that by the terms of
the instrument creating or evidencing such Parity Stock is required to be
redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
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If the Corporation shall fail to redeem on any date fixed for
redemption or exchange pursuant to paragraph 5 hereof any shares of Series F
Preferred Stock called for redemption on such date, and until such shares are
redeemed in full, the Corporation shall not redeem or exchange any Parity Stock
or Junior Stock or declare or pay any dividend on or make any distribution with
respect to any Junior Stock, or set aside any money or assets for any such
purpose, and neither the Corporation nor any Subsidiary thereof shall purchase
or otherwise acquire any Series F Preferred Stock, Parity Stock or Junior Stock,
or set aside any money or assets for any such purpose.
Neither the Corporation nor any Subsidiary thereof shall
redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose, if after giving
effect to such redemption, exchange, purchase or other acquisition, the amount
(as determined by the Board of Directors in good faith) that would be available
for distribution to the holders of the Series F Preferred Stock upon
liquidation, dissolution or winding up of the Corporation if such liquidation,
dissolution or winding up were to occur on the date fixed for such redemption,
exchange, purchase or other acquisition of such Parity Stock or Junior Stock
would be less than the aggregate Liquidation Preference as of such date of all
shares of Series F Preferred Stock then outstanding.
Nothing contained in this paragraph 6 shall prevent (i) the
payment of dividends on any Junior Stock solely in shares of Junior Stock or the
redemption, purchase or other acquisition of Junior Stock solely in exchange for
(together with a cash adjustment for fractional shares, if any) 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 Parity Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or through the application of the
proceeds from the sale of, shares of Parity Stock and/or Junior Stock.
All provisions of this paragraph 6 are for the sole benefit of
the holders of Series F Preferred Stock and accordingly, if the holders of
shares of Series F Preferred Stock shall have waived (as provided in paragraph
9) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Series F Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion.
(a) Unless previously called for redemption as provided in
Section 5 hereof, shares of Series F Preferred Stock shall be convertible, at
the option of the holder thereof, at any time in such manner and upon such terms
and conditions as hereinafter provided in this paragraph 7, into fully paid and
non-assessable full shares of Series A TCI Group Common Stock. No shares of
Series A TCI Group Common Stock shall be issued in respect of the conversion of
the Series F Preferred Stock after the fifteenth Business Day (the "Cut-off
Date") preceding the date fixed for redemption; provided that the conversion of
shares surrendered for
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conversion in accordance with this paragraph 7 after the Cut-off Date shall be
given effect as of the date of such surrender if the Redemption Price to be
paid, or to be irrevocably set apart in trust for the benefit of the holders of
shares to be so redeemed, has not been paid or so set apart on or before such
date fixed for redemption. In case cash, securities or property other than
Series A TCI Group Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Series A TCI Group Common
Stock in this paragraph 7 shall be deemed to apply, so far as appropriate and as
nearly as may be, to such cash, property or other securities
(b) Subject to the provisions for adjustment hereinafter set
forth in this paragraph 7, the Series F Preferred Stock may be converted into
Series A TCI Group Common Stock at the initial conversion rate of 1,000 fully
paid and non-assessable shares of Series A TCI Group Common Stock for one share
of the Series F Preferred Stock. (This conversion rate as from time to time
adjusted cumulatively pursuant to the provisions of this paragraph is
hereinafter referred to as the "Conversion Rate").
(c) In case after the Issue Date the Corporation shall (i) pay
a dividend or make a distribution on its outstanding shares of Series A TCI
Group Common Stock in shares of Series A TCI Group Common Stock, (ii) subdivide
the then outstanding shares of Series A TCI Group Common Stock into a greater
number of shares of Series A TCI Group Common Stock, (iii) combine the then
outstanding shares of Series A TCI Group Common Stock into a smaller number of
shares of Series A TCI Group Common Stock, or (iv) issue by reclassification of
its shares of Series A TCI Group Common Stock any shares of any other class of
capital stock of the Corporation (including any such reclassification in
connection with a merger in which the Corporation is the continuing
corporation), then the Conversion Rate in effect immediately prior to the
opening of business on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of each share of Series F Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Series A TCI Group Common Stock (and the number and kind of other securities)
that such holder would have owned or been entitled to receive immediately
following such action had such shares of Series F Preferred Stock been converted
immediately prior to such time. An adjustment made pursuant to this paragraph
7(c) for a dividend or distribution shall become effective immediately after the
record date for the dividend or distribution and an adjustment made pursuant to
this paragraph 7(c) for a subdivision, combination or reclassification shall
become effective immediately after the effective date of the subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any action listed above shall be taken.
(d) In case the Corporation shall after the Issue Date issue
any rights or warrants to all holders of shares of Series A TCI Group Common
Stock entitling them (for a period expiring within 45 days after the record date
for the determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Series A TCI Group Common Stock
(or Convertible Securities) at a price per share of Series A TCI Group Common
Stock (or having an initial exercise price or conversion price per share of
Series A TCI Group Common Stock) less than the then current market price per
share of Series A TCI Group
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Common Stock (as determined in accordance with the provisions of paragraph 7(f)
below) on such record date, the number of shares of Series A TCI Group Common
Stock into which each share of Series F Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of shares of Series A
TCI Group Common Stock into which such share of Series F Preferred Stock was
theretofore convertible immediately prior to such record date by a fraction of
which the numerator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of additional shares of
Series A TCI Group Common Stock offered for subscription or purchase (or into
which the Convertible Securities so offered are initially convertible) and of
which the denominator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of shares of Series A TCI
Group Common Stock which the aggregate offering price of the total number of
shares of Series A TCI Group Common Stock so offered (or the aggregate initial
conversion or exercise price of the Convertible Securities so offered) would
purchase at the then current market price per share of Series A TCI Group Common
Stock (as determined in accordance with the provisions of paragraph 7(f) below)
on such record date. Such adjustment shall be made successively whenever any
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Series A TCI Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities have not been issued prior to the
expiration of the conversion right thereof), then the Conversion Rate shall be
readjusted retroactively to be the Conversion Rate which would then be in effect
had the adjustment upon the issuance of such rights or warrants been made on the
basis of the actual number of shares of Series A TCI Group Common Stock (or
Convertible Securities) issued upon the exercise of such rights or warrants (or
the conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Series A TCI Group Common Stock issued
upon the conversion of any share of Series F Preferred Stock prior to the date
such subsequent adjustment is made.
(e) In case the Corporation shall distribute after the Issue
Date to all holders of shares of Series A TCI Group Common Stock (including any
such distribution made in connection with a merger in which the Corporation is
the continuing corporation, other than a merger to which paragraph 7(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends or Series A TCI Group Common Stock in respect of which an
adjustment is made pursuant to paragraph 7(c) hereof) or rights or warrants to
purchase shares of Series A TCI Group Common Stock or securities convertible
into shares of Series A TCI Group Common Stock (excluding those referred to in
paragraph 7(d) above), then in each such case the number of shares of Series A
TCI Group Common Stock into which each share of Series F Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Series A TCI Group
Common Stock (as determined in accordance with the
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provisions of paragraph 7(f) below) on such record date and of which the
denominator shall be such current market price per share of Series A TCI Group
Common Stock less the fair market value on such record date (as determined by
the Board of Directors of the Corporation, whose determination shall be
conclusive) of the portion of the securities, assets or evidences of
indebtedness or rights or warrants so to be distributed applicable to one share
of Series A TCI Group Common Stock. Such adjustment shall be made successively
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(f) For the purpose of any computation under paragraph 7(d),
(e) or (k), the current market price per share of Series A TCI Group Common
Stock at any date shall be deemed to be the average of the daily closing prices
for a share of Series A TCI Group Common Stock for the ten (10) consecutive
trading days before the day in question, appropriately adjusted to take into
account the actual occurrence during such period of any of the events specified
in paragraph 7(c) hereof. The closing price for each day shall be the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in either case on the composite tape, or if the shares of Series A TCI Group
Common Stock are not quoted on the composite tape, on the principal United
States securities exchange registered under the Exchange Act on which the shares
of Series A TCI Group Common Stock are listed or admitted to trading, or if they
are not listed or admitted to trading on any such exchange, the last reported
sale price (or the average of the quoted closing bid and asked prices if there
were no reported sales) as reported by NASDAQ or any comparable system, or if
the Series A TCI Group Common Stock is not quoted on NASDAQ or any comparable
system, the average of the closing bid and asked prices as furnished by any
member of the National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose or, in the absence of such
quotations, such other method of determining market value as the Board of
Directors shall from time to time deem to be fair. With respect to any
calculation of the current market price per share of Series A TCI Group Common
Stock relating to any period prior to the redesignation of the Corporation's
Class A Common Stock, par value $1.00 per share, into Series A TCI Group Common
Stock, such current market price shall be calculated based upon the closing
price of a share of such Class A Common Stock of the Corporation for periods
prior to such redesignation.
(g) In case of any reclassification or change in the Series A
TCI Group Common Stock (other than any reclassification or change referred to in
paragraph 7(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of the
Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
7(c) is applicable) in the outstanding Series A TCI Group Common Stock), or in
case of any sale or transfer to another corporation or entity (other than by
mortgage or pledge) of all or substantially all of the properties and assets of
the Corporation, in any such case after the Issue Date, the Corporation (or its
successor in such consolidation or merger) or the purchaser of such properties
and assets shall make appropriate provision so that the holder of a share of
Series F Preferred Stock shall have the right thereafter
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to convert such share into the kind and amount of shares of stock and other
securities and property that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such holder
had converted such share of Series F Preferred Stock into Series A TCI Group
Common Stock immediately prior to the effective date of such reclassification,
change, consolidation, merger, sale or transfer (assuming for this purpose (to
the extent applicable) that such holder failed to exercise any rights of
election and received per share of Series A TCI Group Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Series F
Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or Certificate
of Incorporation of the resulting or surviving corporation or otherwise or in
any contracts of sale or transfer, so that the provisions set forth herein for
the protection of the conversion rights of the Series F Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be practicable, to
any such other shares of stock and other securities and property deliverable
upon conversion of the Series F Preferred Stock remaining outstanding or other
convertible preferred stock or other Convertible Securities received by the
holders of Series F Preferred Stock in place thereof; and provided, further,
that any such resulting or surviving corporation or purchaser shall expressly
assume the obligation to deliver, upon the exercise of the conversion privilege,
such shares, securities or property as the holders of the Series F Preferred
Stock remaining outstanding, or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege
shall be adjusted as provided in paragraphs 7(c), (d), (e) or (g), the
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series F Preferred Stock describing the nature of the event requiring
such adjustment, the Conversion Rate in effect immediately thereafter and the
kind and amount of stock or other securities or property into which the Series F
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to be
mailed under the provisions of paragraph 7(j).
(i) The Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that any
adjustments which by reason of this paragraph 7(i) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. In any case in which this
paragraph 7(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of Series F
Preferred Stock converted after such record date and before the occurrence of
such event the additional shares of Series A TCI Group Common Stock or other
capital stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Series A TCI Group Common Stock or
other capital stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such
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<PAGE> 159
holder cash in lieu of any fractional interest to which such holder is entitled
pursuant to paragraph 7(n); provided, however, that, if requested by such
holder, the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares of Series A TCI Group Common Stock or other capital stock, and such cash,
upon the occurrence of the event requiring such adjustment.
(j) In case at any time:
(i) the Corporation shall take any action
which would require an adjustment in the Conversion Rate
pursuant to this paragraph;
(ii) there shall be any capital reorganization
or reclassification of the Series A TCI Group Common Stock
(other than a change in par value), or any consolidation or
merger to which the Corporation is a party and for which
approval of any shareholders of the Corporation is required, or
any sale, transfer or lease of all or substantially all of the
properties and assets of the Corporation; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the
Corporation;
then, in any such event, the Corporation shall give written notice, in the
manner provided in herein, to the holders of the Series F Preferred Stock at
their respective addresses as the same appear on the books of the Corporation,
at least twenty days (or ten days in the case of a recommended tender offer as
specified in clause (ii) above) prior to any record date for such action,
dividend or distribution or the date as of which it is expected that holders of
Series A TCI Group Common Stock of record shall be entitled to exchange their
shares of Series A TCI Group Common Stock for securities or other property, if
any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, dissolution, liquidation or winding up; provided,
however, that any notice required by any event described in clause (ii) of this
paragraph 7(j) shall be given in the manner and at the time that such notice is
given to the holders of Series A TCI Group Common Stock. Without limiting the
obligations of the Corporation to provide notice of corporate actions hereunder,
the failure to give the notice required by this paragraph 7(j) or any defect
therein shall not affect the legality or validity of any such corporate action
of the Corporation or the vote upon such action.
(k) Each share of Series F Preferred Stock that ceases to be
owned, of record and beneficially, by a TCI Holder will automatically be
converted without action by the holder thereof into shares of Series A TCI Group
Common Stock at the then applicable Conversion Rate; such conversion shall be
deemed effective immediately prior to the transfer or other event resulting in
such shares of Series F Preferred Stock ceasing to be held of record and
beneficially by a TCI Holder. A pledge or other grant of a security interest in
shares of Series F Preferred Stock shall not be deemed to constitute a direct or
indirect transfer of such shares or another event causing such automatic
conversion until such time as the pledgee or other holder of a security interest
initiates any action for the purpose of exercising on such pledge or security
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<PAGE> 160
interest or foreclosing upon the pledged securities, and from and after the time
of such transfer or other event such shares of Series F Preferred Stock will be
deemed to represent only the right to receive the number of shares of Series A
TCI Group Common Stock issuable upon such conversion.
(l) Before any holder of Series F Preferred Stock shall be
entitled to convert the same into Series A TCI Group Common Stock, such holder
shall surrender the certificate or certificates for such Series F Preferred
Stock at the office of the Corporation or at the office of the transfer agent
for the Series F Preferred Stock, which certificate or certificates, if the
Corporation shall so request, shall be duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the Corporation or in
blank (such endorsements or instruments of transfer to be in form satisfactory
to the Corporation), and shall give written notice to the Corporation at said
office that such holder elects to convert all or a part of the shares
represented by said certificate or certificates in accordance with the terms of
this paragraph 7 (except that no such written notice shall be necessary in the
event of an automatic conversion pursuant to paragraph 7(k) hereof), and shall
state in writing therein the name or names in which such holder wishes the
certificates for Series A TCI Group Common Stock to be issued. Every such notice
of election to convert shall constitute a contract between the holder of such
Series F Preferred Stock and the Corporation, whereby the holder of such Series
F Preferred Stock shall be deemed to subscribe for the amount of Series A TCI
Group Common Stock which such holder shall be entitled to receive upon
conversion of the number of shares of Series F Preferred Stock to be converted,
and, in satisfaction of such subscription, to deposit the shares of Series F
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Series F Preferred Stock to be
converted shall constitute full payment of such subscription for Series A TCI
Group Common Stock to be issued upon such conversion. The Corporation will as
soon as practicable after such deposit of a certificate or certificates for
Series F Preferred Stock, accompanied by the written notice and the statement
above prescribed, issue and deliver at the office of the Corporation or of said
transfer agent to the Person for whose account such Series F Preferred Stock was
so surrendered, or to his nominee(s) or, subject to compliance with applicable
law, transferee(s), a certificate or certificates for the number of full shares
of Series A TCI Group Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided.
If surrendered certificates for Series F Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the aggregate of the unconverted shares. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series F
Preferred Stock to be converted or, in the case of an automatic conversion
pursuant to paragraph 7(k) hereof, as of the date of the transfer or other event
resulting in such automatic conversion, and the Person or Persons entitled to
receive the Series A TCI Group Common Stock issuable upon conversion of such
Series F Preferred Stock shall be treated for all purposes as the record holder
or holders of such Series A TCI Group Common Stock on such date.
Upon the conversion of any share, the Corporation shall pay, to
the holder of record of such share of Series F Preferred Stock, dividends on
such share which have been declared but have not been paid as of the date of the
surrender of such share for conversion or
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<PAGE> 161
the date such automatic conversion shall have been deemed to take place. Such
payment shall be made in cash or, at the election of the Corporation, the
issuance of certificates representing such number of shares of Series A TCI
Group Common Stock as have an aggregate current market price (as determined in
accordance with paragraph 7(f)) on the date of issuance equal to the amount of
such unpaid dividends. Upon the making of such payment to the Person entitled
thereto as determined pursuant to the first sentence of this paragraph, no
further dividends shall accrue on such share or be payable to any other Person.
The issuance of certificates for shares of Series A TCI Group
Common Stock upon conversion of shares of Series F Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance; provided, however, if any such certificate is to be issued in a name
other than that of the registered holder of the share or shares of Series F
Preferred Stock converted, the Person or Persons requesting the issuance thereof
shall pay to the Corporation the amount of any such tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
The Corporation shall not be required to convert any shares of
Series F Preferred Stock, and no surrender of Series F Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Series F Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series F Preferred Stock was
surrendered.
(m) The Corporation shall reserve and keep available
at all times thereafter, solely for the purpose of issuance upon conversion of
the outstanding shares of Series F Preferred Stock, such number of shares of
Series A TCI Group Common Stock as shall be issuable upon the conversion of all
outstanding shares of Series F Preferred Stock, provided that nothing contained
herein shall be construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the outstanding shares of Series F
Preferred Stock by delivery of shares of Series A TCI Group Common Stock which
are held in the treasury of the Corporation. The Corporation shall take all such
corporate and other actions as from time to time may be necessary to insure that
all shares of Series A TCI Group Common Stock issuable upon conversion of shares
of Series F Preferred Stock at the Conversion Rate in effect from time to time
will, upon issue, be duly and validly authorized and issued, fully paid and
nonassessable and free of any preemptive or similar rights, and will be free and
clear of any liens, claims, charges or other encumbrances, except those created
by the holder of the shares of Series F Preferred Stock being converted or the
Person entitled to receive the shares of Series A TCI Group Common Stock
issuable upon such conversion.
(n) All shares of Series F Preferred Stock received by
the Corporation upon conversion thereof into Series A TCI Group Common Stock
shall be retired and shall be restored to the status of authorized and unissued
shares of Series F Preferred Stock (and may be reissued as part of another
series of the Preferred Stock of the Corporation), but such shares shall not be
reissued as shares of Series F Preferred Stock.
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(o) The Corporation shall not be required to issue fractional
shares of Series A TCI Group Common Stock or scrip upon conversion of the Series
F Preferred Stock. As to any final fraction of a share of Series A TCI Group
Common Stock which a holder of one or more Shares would otherwise be entitled to
receive upon conversion of such Shares in the same transaction, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a full share of Series A TCI Group
Common Stock. For purposes of this paragraph 7(o), the market value of a share
of Series A TCI Group Common Stock shall be the last reported sale price regular
way on the business day immediately preceding the date of conversion, or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way on such day, in either case on the
composite tape, or if the shares of Series A TCI Group Common Stock are not
quoted on the composite tape, on the principal United States securities exchange
registered under the Exchange Act on which the shares of Series A TCI Group
Common Stock are listed or admitted to trading, or if the shares of Series A TCI
Group Common Stock are not listed or admitted to trading on any such exchange,
the last reported sale price (or the average of the quoted last reported bid and
asked prices if there were no reported sales) as reported by NASDAQ or any
comparable system, or if the Series A TCI Group Common Stock is not quoted on
NASDAQ or any comparable system, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that purpose or, in the
absence of such quotations, such other method of determining market value as the
Board of Directors shall from time to time deem to be fair.
8. Voting.
(a) VOTING RIGHTS. The holders of Series F Preferred Stock
shall have no voting rights whatsoever, except as required by law and except for
the voting rights described in this paragraph 8. Without limiting the generality
of the foregoing, no vote or consent of the holders of Series F Preferred Stock
shall be required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Series F Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Series F Preferred Stock (but not below the number of shares of
Preferred Stock or Series F Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Series F
Preferred Stock will have the right to vote at any annual or special meeting of
stockholders for the purpose of electing directors. Each share of Series F
Preferred Stock shall have one vote for such purpose, and the holders of such
shares shall vote as a single class with any other class or series of capital
stock of the Corporation entitled to vote in any general election of directors,
unless the instrument creating or evidencing such other class or series of
capital stock otherwise expressly provides.
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9. Waiver.
Any provision which, for the benefit of the holders of Series F
Preferred Stock, prohibits, limits or restricts actions by the Corporation, or
imposes obligations on the Corporation, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent in
writing of the holders of at least a majority of the number of shares of Series
F Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system); provided, however, that no
such waiver shall be binding or be otherwise effective against any holder of
shares of Series F Preferred Stock which does not execute a written consent to
such waiver.
10. Method of Giving Notices.
Any notice required or permitted hereby to be given to the
holders of shares of Series F Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation or supplied by him in writing to the Corporation for the purpose of
such notice.
11. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Series F Preferred Stock, the shares of Series F Preferred Stock shall not have
any designations, preferences, limitations or relative rights other than those
specifically set forth herein.
12. Heading of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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FURTHER RESOLVED, that the appropriate officers of the
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, duly authorized officer
has executed this certificate on this 3rd day of August, 1995.
By: BRENDON R. CLOUSTON
Name: Brendon R. Clouston
Title: Executive Vice President
Attest: STEPHEN M. BRETT
Name: Stephen M. Brett
Title: Secretary
<PAGE> 165
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
_______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF JANUARY, A.D. 1996, AT 3:00 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OR DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2371729 8100 DATE: 7804651
960024220 01-25-96
<PAGE> 166
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 01/25/1996
960024220 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------
SETTING FORTH A COPY OF RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"REDEEMABLE CONVERTIBLE TCI GROUP PREFERRED STOCK, SERIES G"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned, an executive Vice President of TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), HEREBY CERTIFIES that the Board
of Directors of the Company on DECEMBER 13, 1995, duly adopted the following
resolutions creating a new series of the Company's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Company, the Board of Directors hereby creates and
authorizes the issuance of a new series of the Company's Series Preferred
Stock, par value $.01 per share (Series Preferred Stock"), and hereby fixes the
powers, designations, dividend rights, voting powers, rights on liquidation,
conversion rights, redemption rights and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions
thereof set forth in the Restated Certificate of Incorporation that are
applicable to each class and series of the Company's preferred stock, par value
$.01 per share ("Preferred Stock")) as follows:
1. Designation Number of Shares. The designation of the series of
Series Preferred Stock, par value $.01 per share, of the Company created hereby
shall be "Redeemable Convertible TCI Group Preferred Stock, Series G" ("Series
G Preferred Stock"). The designated number of shares of Series G Preferred
Stock shall be 7,259,380. Each share of Series G Preferred Stock shall have a
stated value of $21.60 ("Stated Value").
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Any shares of Series G Preferred Stock redeemed, converted or
otherwise acquired by the Company shall be retired, shall not be reissued as
shares of Series G Preferred Stock and shall resume the status of authorized
and unissued shares of Series Preferred Stock, without designation as to
series, until such shares are once more designated as part of a particular
series of Series Preferred Stock by the Board of Directors.
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Anniversary Date" shall mean JANUARY 25, 1997.
"Average Market Price" as of any Record Date or Special Record Date
for a dividend payment declared by the Board of Directors shall mean the
average of the daily Closing Prices of the Series A TCI Group Common Stock for
the period of ten (10) consecutive trading days ending on the tenth trading day
prior to such Record date or Special Record Date, appropriately adjusted in
such manner as the Board of Directors in good faith deems appropriate to take
into account any stock dividend on the Series A TCI Group Common Stock, or any
subdivision, combination or reclassification of the Series A TCI Group Common
Stock that occurs, or the Ex-Dividend date for which occurs, during the period
following the first trading day in such ten-trading day period and ending on
the last full trading day immediately preceding the Dividend Payment Date or
other date fixed for the payment of dividends to which such Record Date or
Special Record Date relates.
"Board of Directors" shall mean the Board of Directors of the Company,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in The City of New York, New York are not
required to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
the Company.
"Closing Price" of a share of Series A TCI Group Common Stock or of a
share of Series A Liberty Media Group Common Stock, or of a share of any other
class or series of capital stock of the Company into which the Series G
Preferred Stock may hereafter become convertible pursuant to paragraph 7, on
any day shall mean the last reported per share sale price (or, if no sale price
is reported, the average of the high and low bid prices) of the Series A TCI
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Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as the case may be, on such day on the Nasdaq Sock Market or as
quoted by the National Quotation Bureau Incorporated or, if the Series A TCI
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as applicable, is listed on an exchange, on the principal
exchange on which the Series A TCI Group Common Stock, the Series A Liberty
Media Group Common Stock or such capital stock, as the case may be, is listed.
In the event that no such quotation is available for any day, the Board of
Directors shall be entitled to determine the Closing Price on the basis of such
quotations as it in good faith considers appropriate.
"Contingency" shall have the meaning set forth in paragraph 3(a).
"Conversion Date" of a share of Series G Preferred Stock shall mean
the date on which the requirements for conversion of such share set forth in
paragraph 7(b) of this Certificate of designations have been satisfied by the
holder thereof.
"Conversion Rate" shall mean the kind and amount of securities, assets
or other property that as of any date are issuable or deliverable upon
conversion of a share of Series G Preferred Stock. The Conversion Rate of a
share of Series G Preferred Stock shall initially be 1.05 shares of Series A
TCI Group Common Stock for each share of Series G Preferred Stock, subject to
adjustment as set forth in paragraph 7 of this Certificate of Designations. In
the event that pursuant to paragraph 7 the Series G Preferred Stock becomes
convertible into more than one class or series of capital stock of the Company,
the term Conversion Rate, when used with respect to any such class or series,
shall mean the number or fraction of shares or other units of such capital
stock that as of any date would be issued upon conversion of a share of Series
G Preferred Stock.
"Convertible Securities" shall mean any or all options, warrants,
securities and rights which are convertible into or exercisable or exchangeable
for Series A TCI Group Common Stock at the option of the holder thereof, or
which otherwise entitle the holder thereof to subscribe for, purchase or
otherwise acquire Series A TCI Group Common Stock; provided, however, that such
term shall not include the Series B TCI Group Common Stock.
"Career Market Price", on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the Current
Market Price is being calculated, shall mean the average of the daily Closing
Prices of the Series A TCI Group Common Stock for the shortest of:
(i) the period of 30 consecutive trading days commencing 45
trading days before such Determination Date,
(ii) the period commencing on the date next succeeding the
first public announcement of the issuance of rights, warrants or
options or the distribution in
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respect of which the Current Market Price is being calculated and
ending on the last full trading day before such Determination Date,
and
(iii) the period, if any, commencing on the date next
succeeding the Ex-Dividend Date with respect to the next preceding
issuance of rights, warrants or options or distribution for which an
adjustment is required by the provisions of paragraph 7(c)(iv), 7(d)
or 7(e), and ending on the last full trading day before such
Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of paragraph
7(c)(iv), 7(d) or 7(e) (the "preceding adjustment event") precedes the record
date for the issuance or distribution in respect of which the Current Market
Price is being calculated and the Ex-Dividend Date for such preceding
adjustment event is on or after the Determination Date for the issuance or
distribution in respect of which the Current Market Price is being calculated,
then the Current Market Price shall be adjusted by deducting therefrom the fair
market value (on the record date for the issuance or distribution in respect of
which the Current Market Price is being calculated), as determined in good
faith by the Board of Directors, of the capital stock, rights, warrants or
options, assets or debt securities issued or distributed in respect of each
share of Series A TCI Group Common Stock in such preceding adjustment event.
Further, in the event that the Ex-Dividend Date (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which paragraph 7(c)(i), (ii), (iii) or (v) applies occurs
during the period applicable for calculating the Current Market Price, then the
Current Market Price shall be calculated for such period in a manner determined
in good faith by the Board of Directors to reflect the impact of such dividend,
subdivision, combination or reclassification on the Closing Prices of the
Series A TCI Group Common Stock during such period.
"Determination Date" for any issuance of rights, warrants or options
or any distribution to which paragraph 7(d) or 7(e) applies shall mean the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights, warrants or options or the distribution to which such
paragraph applies and (ii) the Ex-Dividend date for such rights, warrants or
options or distribution.
"Dividend Payment Date" shall mean the FIRST day of each FEBRUARY and
AUGUST, commencing with AUGUST 1, 1997, or the next succeeding Business Day if
any such day is not a Business Day.
"Dividend Period" shall mean the period from the Anniversary Date to
but excluding the first Dividend Payment Date and, thereafter, each semi-annual
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.
"Exchange Preferred Stock" shall have the meaning set forth in
paragraph 7(g).
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"Ex-Dividend Date" shall mean the date on which "ex-dividend" trading
commences for a dividend, an issuance of rights, warrants or options or a
distribution to which any of paragraph 7(c), (d), or (e) applies in the
over-the-counter market or on the principal exchange on which the Series A TCI
Group Common Stock is then quoted or listed.
"Issue Date" shall mean the date on which shares of Series G Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii) the
Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv) any
other class or series of capital stock, whether now existing or hereafter
created, of the Company, other than (A) the Series G Preferred Stock, (B) any
class or series of Parity Stock (except to the extent provided under clause (v)
hereof) and (C) any class or series of Senior Stock, and (v) any class or
series of Parity Stock to the extent that it ranks junior to the Series G
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be. For purposes of clause (v) above, a class or
series of Parity Stock shall rank junior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of Series G Preferred Stock shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of such class or series of Parity Stock.
"Liberty Media Group Common Stock" shall mean the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock.
"Liquidation Preference" measured per share of the Series G Preferred
Stock as of any date in question (the "Relevant Date") shall mean an amount
equal to the sum of (a) the Stated Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 3(d)
of this Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
determining the amounts payable pursuant to paragraph 4 and paragraph 5 of this
Certificate of Designations and the definition of Redemption Price, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (a) and (b) above during the period from and including the immediately
preceding Dividend Payment Date (or the Anniversary Date if the Relevant Date
is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Company legally available for the payment of dividends. In connection
with the determination of the Liquidation Preference of a share of Series G
Preferred Stock upon redemption or upon liquidation, dissolution or winding up
of the Company, the Relevant Date shall be the applicable date of redemption or
the date of distribution of amounts payable to stockholders in connection with
any such liquidation, dissolution or winding up.
"Mirror Preferred Stock" shall have the meaning set forth in paragraph
7(g).
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"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board, President or any Senior Vice President of the Company
and by the Treasurer or an Assistant Treasurer of the Company.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Company ranking on a parity
basis with the Series G Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series,
whether now existing or hereafter created, shall rank on a parity as to
dividend rights, rights of redemption or rights on liquidation with the Series
G Preferred Stock, whether or not the dividend rates, dividend payment dates,
redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Series G
Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as
the case may be, in proportion to their respective accumulated and accrued and
unpaid dividends, redemption prices or liquidations prices, respectively,
without preference or priority, one over the other, as between the holders of
shares of such class or series and the holders of Series G Preferred Stock. No
class or series of capital stock that ranks junior to the Series G Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series G Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly so provides. The Series C Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock and the
Series H Preferred Stock rank on a parity basis with the Series G Preferred
Stock as to dividend rights, rights of redemption and rights on liquidation and
constitute "Parity Stock" for purposes of this Certificate of Designations.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
shall mean the 15th day of the month preceding the month during which such
Dividend Payment Date shall occur as and if designated by the Board of
Directors.
"Redeemable Capital Stock" shall have the meaning set forth in
paragraph 7(c).
"Redemption Date" as to any share of Series G Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a) or
5(b) of this Certificate of Designations, provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid in full
on such date or the consideration sufficient for the
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payment thereof, and for no other purpose, has been set apart or deposited in
trust as contemplated by paragraph 5(d) of this Certificate of Designations.
"Redemption Price", as to any share of Series G Preferred Stock that
is to be redeemed on any Redemption Date, shall mean the Liquidation Preference
thereof on such Redemption Date.
"Redemption Securities" shall have the meaning set forth in paragraph
7(g).
"Senior Stock" shall mean any class or series of capital stock of the
Company hereafter created ranking prior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank prior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of such class or series shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of Series G Preferred Stock. No class or
series of capital stock that ranks on a parity basis with or junior to the
Series G Preferred Stock as to rights on liquidation shall rank or be deemed to
rank prior to the Series G Preferred Stock as to dividend rights or rights of
redemption, notwithstanding that the dividend rate, dividend payment dates,
sinking fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Series G Preferred Stock, unless the instrument
creating or evidencing such class or series of capital stock otherwise
expressly so provides.
"Series A Liberty Media Group Common Stock" shall mean the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series A Liberty
Media Group Common Stock, or in the case of a consolidation or merger of the
Company with or into another Person affecting the Series A Liberty Media Group
Common Stock, such capital stock to which a holder of Series A Liberty Media
Group Common Stock shall be entitled upon the occurrence of such event.
"Series A TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series A TCI Group Common Stock, such capital stock to
which a holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B Liberty Media Group Common Stock" shall mean the
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series B Liberty
Media Group Common Stock, or in the case of a
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consolidation or merger of the Company with or into another Person affecting
the Series B Liberty Media Group Common Stock, such capital stock to which a
holder of Series B Liberty Media Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series B TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series C Preferred Stock" shall mean the Convertible Preferred Stock,
Series C, par value $.01 per share, of the Company.
"Series D Preferred Stock" shall mean the Convertible Preferred Stock,
Series D, par value $.01 per share, of the Company.
"Series F Preferred Stock" shall mean the Convertible Redeemable
Participating Preferred Stock, Series F, par value $.01 per share, of the
Company.
"Series G Preferred Stock" shall have the meaning set forth in
paragraph 1 of this Certificate of Designations.
"Series H Preferred Stock" shall mean the Redeemable Convertible
Liberty Media Group Preferred Stock, Series H, par value $.01 per share, of the
Company.
"Special Record Date" hall have the meaning set forth in paragraph
3(d) of this Certificate of Designations.
"Stated Value" of a share of Series G Preferred Stock shall have the
meaning set forth in paragraph 1 of this Certificate of Designations.
"Subsidiary" shall mean (i) a corporation (other than the Company) a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by the Company and/or one or more Subsidiaries of the Company and (ii) any
other Person (other than a corporation) in which the Company and/or one or more
Subsidiaries of the Company, directly or indirectly, has (x) a majority
ownership interest and (y) the power to elect or direct the election of a
majority of the members of the governing body of such entity.
"Target Price" shall initially mean $27 and shall be appropriately
adjusted to take into account any stock dividends on the Series A TCI Group
Common Stock or the Series A Liberty Media Group Common Stock, or any stock
splits, reclassifications or combinations of
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the Series A TCI Group Common Stock or the Series A Liberty Media Group Common
Stock during the period following the Issue Date and ending on the Anniversary
Date or on such earlier date, if any, as of which the Contingency is met.
"TCI Group Common Stock" shall mean the Series A TCI Group Common
Stock and the Series B TCI Group Common Stock.
3. Dividends.
(a) The Contingency. If the sum of (i) the Closing Price of the
Series A TCI Group Common Stock, plus (ii) one-fourth of the Closing Price of
the Series A Liberty Media Group Common Stock equals or exceeds the Target
Price for any ten (10) consecutive trading days during the period of sixty-five
(65) consecutive trading days ending on and including the last trading day
immediately preceding the Anniversary Date (the "Contingency"), no dividends
will accrue or be payable with respect to the Series G Preferred Stock.
(b) Payment. In the event that the Contingency is not met, and
only in such event, the holders of Series G Preferred Stock shall, subject to
the prior preferences and other rights of any Senior Stock and to the
provisions of paragraph 6 hereof, be entitled to receive, when and as declared
by the Board of Directors out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, which
shall accrue as provided herein. Except as otherwise provided in paragraph
3(d) of this Certificate of Designations, dividends on each share of Series G
Preferred Stock will, if the Contingency is not met, accrue on a daily basis at
the rate of 4% per annum of the Liquidation Preference of such share from and
including the Anniversary Date to but excluding the date on which the
Liquidation Preference or Redemption Price of such share is made available
pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations
or the date of conversion of such share pursuant to paragraph 7 hereof, as
applicable. Dividends shall accrue as provided herein whether or not such
dividends have been declared and whether or not there are any unrestricted
funds of the Company legally available for the payment of dividends. Accrued
dividends on the series G Preferred Stock shall be payable semiannually on each
Dividend Payment Date, commencing on AUGUST 1, 1997, to the holders of record
of the Series G Preferred Stock as of the close of business on the applicable
Record Date. For purposes of determining the amount of dividends "accrued" (i)
as of the first Dividend Payment Date and as of any date that is not a Dividend
Payment Date, such amount shall be calculated on the basis of the rate per
annum specified above in this paragraph 3(b) for the actual number of days
elapsed from and including the Anniversary Date (in the case of the first
Dividend Payment Date and any date prior to the first Dividend Payment Date) or
the last preceding Dividend Payment Date (in the case of any other date) to but
excluding the date as of which such determination is to be made, based on a
365-day year, and (ii) as of any Dividend Payment Date after the first Dividend
Payment Date, such amount shall be calculated on the basis of such rate per
annum based on a 360-day year of twelve 30-day months. For so long as the
Liquidation Preference of a share of Series G Preferred Stock is equal to the
Stated Value per share, the amount of the dividend payable per share on the
Dividend Payment Date for each full semi-annual Dividend Period shall be $.432.
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(c) Method of Payment. All dividends payable with respect to the
shares of Series G Preferred Stock may be declared and paid, in the sole
discretion of the Board of Directors, in cash, through the issuance of shares
of Series A TCI Group Common Stock or in any combination of the foregoing. If
any dividend payment declared by the Board of Directors with respect to the
shares of Series G Preferred Stock is to be paid in whole or in part through
the issuance of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Series G Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be
satisfied and paid by the delivery to the holders of record of such shares of
Series G Preferred Stock on the Record Date or Special Record Date, as the case
may be, for such dividend payment, of a number of shares of Series A TCI Group
Common Stock determined by dividing the Stock Dividend Amount by the Average
Market Price of a share of Series A TCI Group Common Stock as of such Record
Date or Special Record Date. The Company shall not be required to issue any
fractional share of Series A TCI Group Common Stock to which any holder of
Series G Preferred Stock may become entitled pursuant to this paragraph 3(c).
The Board of Directors may elect to settle any final fraction of a share of
Series A TCI Group Common Stock which a holder of one or more shares of Series
G Preferred Stock would otherwise be entitled to receive pursuant to this
paragraph 3(c) by having the Company pay to such holder, in lieu of issuing
such fractional share, cash in any amount (rounded upward to the nearest whole
cent) equal to the same fraction of the Average Market Price of a share of
Series A TCI Group Common Stock as of the Record Date or Special Record Date,
as the case may be, for the dividend payment with respect to which such shares
of Series A TCI Group Common Stock are being delivered. Such election, if made,
shall be made as to all holders of Series G Preferred Stock who would otherwise
be entitled to receive a fractional share of Series A TCI Group Common Stock on
the Dividend Payment Date or other date fixed for the payment of such dividend.
All dividends paid with respect to the shares of Series G Preferred
Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series G Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
(d) Unpaid Dividends. If on any Dividend Payment Date the Company,
pursuant to applicable law or otherwise, shall be prohibited or restricted from
paying the full dividends to which holders of Series G Preferred Stock, and any
Parity Stock ranking on a parity basis with the Series G Preferred Stock with
respect to the right to receive dividend payments, shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
otherwise restricted (if any) shall be distributed among the holders of Series G
Preferred Stock and any such Parity Stock ratably in proportion to the full
amounts to which they would otherwise be entitled. On each Dividend Payment
Date, all dividends that have accrued on each share of Series G Preferred
Stock during the Dividend Period ending on such Dividend Payment Date shall, to
the extent not paid on such Dividend Payment Date for any reason (whether or
not such unpaid dividends have been declared or there are any unrestricted
funds of the Company legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such share and will remain a
part thereof until such dividends are paid. The rate per annum at which
dividends accrue in respect of that portion of the Liquidation Preference of
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a share of Series G Preferred Stock that consists of accrued unpaid dividends
that have been added to the Liquidation Preference of such share on a Dividend
Payment Date pursuant to this paragraph 3(d) and remain unpaid on the next
succeeding Dividend Payment Date shall increase to 8.625% per annum from and
after such next succeeding Dividend Payment Date to and including the date on
which the Liquidation Preference or Redemption Price of such share is made
available pursuant to paragraph 4 or 5, respectively, of this Certificate of
Designations or the date of conversion of such share pursuant to paragraph 7
hereof, as applicable, unless the portion of the Liquidation Preference that
consists of such accrued unpaid dividends is earlier declared and paid or an
amount sufficient to pay the same in full is irrevocably set apart in trust for
such purpose. That portion of the Liquidation Preference of a share of Series
G Preferred Stock that consists of accrued unpaid dividends, together with all
dividends accrued in respect thereof, may be declared an paid at any time
(subject to the rights of any Senior Stock and to the concurrent satisfaction
of any dividend arrearage then existing with respect to any Parity Stock that
ranks on a parity basis with the Series G Preferred Stock as to the payment of
dividends), without reference to any regular Dividend Payment Date, to holders
of record as of the close of business on such date, not more than 45 days nor
less than 10 days preceding the payment date thereof, as may be fixed by the
Board of Directors (the "Special Record Date"). Notice of each Special Record
Date shall be given, not more than 45 days nor less than 10 days prior thereto,
to the holders of record of the shares of Series G Preferred Stock.
(e) Credit. Any dividend payment made on the shares of Series G
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to the shares of Series G Preferred Stock.
(f) Authorized Shares. All shares of Series A TCI Group Common Stock
issued in payment of any dividend on the Series G Preferred Stock shall, when
issued, be duly and validly authorized, fully paid, nonassessable and free from
all preemptive or similar rights; the delivery of such shares shall be made in
compliance with all applicable Federal and state securities laws, and such
shares shall have been listed for trading on such national securities exchange
or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which any
Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Series G Preferred Stock shall be entitled to receive from the assets of the
Company available for distribution to stockholders before any payment or
distribution shall be made to the holders of any Junior stock, an amount in
cash (or, at the election of the Company, property at its fair market value, as
determined by the Board of Directors in good faith) per share, equal to the
Liquidation Preference of a share of Series G Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari
passu with, and if the Company has elected to pay in property, in the same form
of property as, any such payment or distribution made to the holders of any
Parity Stock ranking on a parity basis with the Series G Preferred Stock with
respect to distributions upon liquidation, dissolution or winding
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up of the Company. The holders of Series G Preferred Stock shall be entitled
to no other or further distribution of or participation in any remaining assets
of the Company after receiving the Liquidation Preference per share. If, upon
distribution of the Company's assets in liquidation, dissolution or winding up,
the assets of the Company to be distributed among the holders of the Series G
Preferred Stock and to all holders of any Parity Stock ranking on a parity
basis with the Series G Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up shall be insufficient to permit payment
in full to such holders of the respective preferential amounts to which they
are entitled, then the entire assets of the Company to be distributed to holders
of the Series G Preferred Stock and such Parity Stock shall be distributed pro
rata to such holders based upon the aggregate of the full preferential amounts
to which the shares of Series G Preferred Stock and such Parity Stock would
otherwise respectively be entitled. Neither the consolidation or merger of the
Company with or into any other corporation or corporations nor the sale,
transfer, or lease of all or substantially all of the assets of the Company
shall itself be deemed a liquidation, dissolution or winding up of the Company
within the meaning of this paragraph 4. Notice of the liquidation, dissolution
or winding up of the Company shall be given, not less than twenty (20) days
prior to the date on which such liquidation, dissolution or winding up is
expected to take place or become effective to the holders of record of the
shares of Series G Preferred Stock.
5. Redemption.
(a) Optional Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
shares of Series G Preferred Stock may be redeemed, at the option of the
Company by action of the Board of Directors, in whole or from time to time in
part, on any Business Day occurring on or after FEBRUARY 1, 2001, at the
Redemption Price on the Redemption Date. If fewer than all of the outstanding
shares of Series G Preferred Stock are to be redeemed on any Redemption Date,
the shares of Series G Preferred Stock to be redeemed shall be chosen by the
Company pro rata (as nearly as may be practicable) among all holders of Series
G Preferred Stock. The Company shall not be required to register a transfer of
(i) any shares of Series G Preferred Stock for a period of 15 days next
preceding any selection of shares of Series G Preferred Stock to be redeemed or
(ii) any shares of Series G Preferred Stock selected or called for redemption.
(b) Mandatory Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
Company shall redeem, out of funds legally available therefor, on FEBRUARY 1,
2016 (or, if such day is not a Business Day, on the first Business Day
thereafter) all shares of Series G Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Company legally
available for redemption of shares of the Series G Preferred Stock and any
Parity Stock then required to be redeemed are insufficient to redeem the total
number of such shares remaining outstanding, those funds which are legally
available shall, subject to the rights of any Senior Stock and the provisions
of paragraph 6, to be used to redeem the maximum possible number of shares of
Series G Preferred Stock and each such other class or series of Parity Stock.
Subject to the rights of any Senior Stock and the provisions of paragraph 6
hereof, at any time and from time to time
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thereafter when additional funds of the Company are legally available for such
purpose, such funds shall immediately be used to redeem the shares of Series G
Preferred Stock and of each such other class or series of Parity Stock which
were required to be redeemed that the Company failed to redeem until the
balance of such shares have been redeemed. The selection of shares to be
redeemed pursuant to the two immediately preceding sentences shall be made, as
nearly as practicable, on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(c) Notice of Redemption. Notice of redemption shall be given by or
on behalf of the Company at least sixty (60) days prior to the Redemption
Date, in the case of a redemption pursuant to paragraph 5(a), and not more than
sixty (60) days nor less than thirty (30) days prior to the Redemption Date, in
the case of the redemption pursuant to paragraph 5(b), to the holders of record
of the shares of Series G Preferred Stock to be redeemed; but no defect in such
notice or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any shares of Series G Preferred Stock. In addition to
any information required by law or by the applicable rules of any national
securities exchange or national interdealer quotation system on which the
Series G Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Redemption Price, the Redemption Date, the number of
shares to be redeemed and the place at which the shares called for redemption
will, upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and if the Company has elected to deposit the Redemption
Price with a Redemption Agent in accordance with paragraph 5(d), shall state
the name and address of the Redemption Agent and the date on which such deposit
was or will be made. Such notice shall also set forth the then current
Conversion Rate for the shares of Series G Preferred Stock and the place or
places to which a holder desiring to convert shares of Series G Preferred Stock
should deliver the certificate(s) evidencing such shares, together with such
other documents and instruments as are or may be required pursuant to paragraph
7 of this Certificate of Designations. In the event that fewer than the total
number of shares of Series G preferred Stock represented by a certificate are
redeemed, a new certificate representing the number of unredeemed shares will
be issued to the holder thereof without cost to such holder. If the shares of
series G Preferred Stock evidenced by a certificate selected for partial
redemption pursuant to paragraph 5(a) of this Certificate of Designations are
thereafter converted in part pursuant to paragraph 7 hereof, the shares so
converted (as far as may be) will be deemed to be the shares selected for
redemption.
(d) Deposit of Redemption Price. If notice of any redemption by the
Company pursuant to this paragraph 5 shall have been given as provided in
paragraph 5(c) of this Certificate of Designations and if on or before the
Redemption Date specified in such notice an amount in cash sufficient to redeem
in full on the Redemption Date at the Redemption Price all shares of Series G
Preferred Stock called for redemption or required to be redeemed shall have been
set apart so as to be available for such purpose and only for such purpose,
then effective as of the close of business on the Redemption Date, the shares
of Series G Preferred Stock called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all remaining rights with respect
to such shares shall
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forthwith cease and terminate, except the right of the holders thereof to
receive the Redemption Price of such shares, without interest, upon the
surrender of certificates representing the same.
At its election, the Company on or prior to the Redemption Date (but
no more than ninety (90) days prior to the Redemption Date) may deposit
immediately available funds in an amount equal to the aggregate Redemption
Price of the shares of Series G Preferred Stock called for redemption in trust
for the holders thereof with any bank or trust company organized under the laws
of the United States of America or any state thereof having capital, undivided
profits and surplus aggregating at least $450 million (the "Redemption Agent"),
with irrevocable instructions and authority to the Redemption Agent, on behalf
and at the expense of the Company, to mail the notice of redemption as soon as
practicable after receipt of such irrevocable instructions (or to complete such
mailing previously commenced, if it has not already been completed) and to pay,
on and after the Redemption Date or prior thereto, the Redemption Price of the
shares of Series G Preferred Stock to be redeemed to their respective holders
upon the surrender of the certificates therefor. A deposit made in compliance
with the immediately preceding sentence shall be deemed to constitute full
payment for the shares of Series G Preferred Stock to be redeemed and from and
after the later of the close of business on the date of such deposit (although
prior to the Redemption Date) or the date notice of redemption is mailed, the
shares of Series G Preferred Stock to be redeemed shall no longer be deemed
outstanding and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect to such shares except (x)
the right of the holders thereof to receive the Redemption Price of such shares
(calculated through the Redemption Date), without interest, upon surrender of
the certificates therefor and (y) the right to convert such shares in
accordance with paragraph 7 prior to the close of business on the Business Day
immediately preceding the Redemption Date. Any funds so deposited which shall
not be required for the payment of the Redemption Price of any shares of Series
G Preferred Stock to be redeemed because of the conversion of such shares shall
after such conversion be repaid to the Company by the Redemption Agent. Any
interest accrued on the funds so deposited shall be paid to the Company from
time to time. Any funds so deposited with the Redemption Agent which shall
remain unclaimed by the holders of such shares of Series G Preferred Stock at
the end of one year after the Redemption Date shall be returned by the
Redemption Agent to the Company, after which repayment the holders of such
shares of Series G Preferred Stock called for redemption shall look only to the
Company for the payment thereof, without interest, unless an applicable escheat
or abandoned property law otherwise requires.
6. Limitations on Dividends and Redemptions. If at any time the
Company shall have failed to pay, or declare and set aside the consideration
sufficient to pay, full cumulative dividends for all prior dividend periods on
any Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock is entitled to the payment of such cumulative dividends prior
to the redemption, exchange, purchase or other acquisition of the Series G
Preferred Stock, and until full cumulative dividends on such Parity Stock for
all prior dividend periods are paid, or declared and the consideration
sufficient to pay the same in full is set aside so as to be available for such
purpose and no other purpose, neither the Company nor any Subsidiary thereof
shall redeem, exchange, purchase or otherwise acquire any shares of Series
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G Preferred Stock, Parity Stock or Junior Stock, or set aside any money or
assets for any such purpose pursuant to paragraph 5(d) hereof, any sinking fund
or otherwise, unless all then outstanding shares of Series G Preferred Stock,
of such Parity Stock and of any other class or series of parity Stock that by
the terms of the instrument creating or evidencing such parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof.
If at any time the Company shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Series G Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, (i) neither the Company nor
any Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire
any shares of Series G preferred Stock, Parity Stock, or Junior Stock, or set
aside any money or assets for any such purpose pursuant to paragraph 5(d)
hereof, any sinking fund or otherwise, unless all then outstanding shares of
Series G Preferred Stock and of any other class or series of Parity Stock that
by the terms of the instrument creating or evidencing such Parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof, and (ii) the Company shall not declare or pay any
dividend on or make any distribution with respect to any Junior stock or parity
Stock or set aside any money or assets for any such purpose, except that the
Company may declare and pay a dividend on any Parity Stock ranking on a parity
basis with the Series G Preferred Stock with respect to the right to receive
dividend payments, contemporaneously with the declaration and payment of a
dividend on the Series G Preferred Stock, provided that such dividends are
declared and paid pro rata so that the amount of dividends declared and paid
per share of Series G Preferred Stock and such Parity Stock shall in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Series G Preferred Stock and such Parity Stock bear
to each other.
If the Company shall fail to redeem on any date fixed for redemption
pursuant to paragraph 5(a) or 5(b) of this Certificate of Designations any
shares of Series G Preferred Stock called for redemption or required to be
redeemed on such date, and until such shares are redeemed in full, the Company
shall not (x) redeem any Junior Stock or, except as provided in paragraph 5(b)
hereof, Parity Stock or (y) declare or pay any dividend on or make any
distribution with respect to any Junior Stock or, except as provided in the
second paragraph of this paragraph 6, parity Stock, or set aside any money or
assets for any such purpose, and neither the Company nor any Subsidiary thereof
shall purchase or otherwise acquire any Series G Preferred Stock, Parity Stock
or Junior Stock, or set aside any money or assets for any such purpose.
Nothing contained in the first or third paragraph of this paragraph 6
shall prevent (i) the payment of dividends on any Junior Stock solely in shares
of Junior Stock or the redemption, purchase or other acquisition of Junior
Stock solely in exchange for (together with
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a cash adjustment for fractional shares, if any), or (but only in the case of
the first paragraph of this paragraph 6) through the application of the
proceeds from the sale of, shares of Junior Stock; (ii) the payment of
dividends on any Parity Stock solely in shares of Parity Stock and/or Junior
Stock or the redemption, exchange, purchase or other acquisition of Series G
Preferred Stock or Parity Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of the
first paragraph of this paragraph 6) through the application of the proceeds
from the sale of, shares of Parity Stock and/or Junior Stock; or (iii) the
purchase or acquisition of shares of Series G Preferred Stock pursuant to a
purchase or exchange offer made to all holders of outstanding shares of Series
G Preferred Stock, provided that the terms of the purchase or exchange offer
shall be identical for all shares of Series G Preferred Stock and all accrued
dividends on such shares shall have been paid or shall have been declared and
irrevocably set apart in trust for the benefit of the holders of shares of
Series G Preferred Stock and for no other purpose.
The provisions of the first paragraph of this paragraph 6 are for the
sole benefit of the holders of Series G Preferred Stock and Parity Stock having
the terms described therein and accordingly, at any time when there are no
shares of any such class or series of Parity Stock outstanding or if the
holders of each such class or series of Parity Stock have, by such vote or
consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series G Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series G Preferred Stock and
accordingly, if the holders of shares of Series G Preferred Stock shall have
waived as provided in paragraph 10 of this Certificate of Designations) in
whole or in part the benefit of the applicable provision, either generally or
in the specific instance, such provision shall not (to the extent of such
waiver, in the case of a partial waiver) restrict the redemption, exchange,
purchase or other acquisition of, or declaration, payment or making of any
dividends or distributions on, the Series G Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion of Series G Preferred Stock.
(a) Right to Convert. Unless previously redeemed as provided in
paragraph 5 of this Certificate of Designations, shares of Series G Preferred
Stock may be converted at the option of the holder thereof, in the manner and
upon the terms and conditions set forth in this paragraph 7, into fully paid
and nonassessable whole shares of Series A TCI Group Common Stock at the
Conversion Rate in effect on the Conversion Date, at any time prior to the
close of business on the Business Day immediately preceding the Redemption Date
for the redemption of shares of Series G Preferred Stock pursuant to paragraph
5(a) or 5(b) of this Certificate of Designations.
(b) Mechanics of Conversion. In order to convert shares of Series G
Preferred Stock, the holder thereof shall surrender the certificate or
certificates representing the shares of
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Series G Preferred Stock to be converted at the office of the Company or the
office of any transfer agent for the Series G Preferred Stock, which
certificate or certificates shall be duly endorsed to the Company in blank (or
accompanied by duly executed instruments of transfer to the Company in blank)
with signatures guaranteed (such endorsements or instruments of transfer to be
in form satisfactory to the Company), together with a written notice to the
Company at said office of the election to convert the same, specifying the
number of shares of Series G Preferred Stock to be converted and the name or
names (with addresses) in which the certificate or certificates for shares of
Series A TCI Group Common Stock are to be issued. If any transfer is involved
in the issuance or delivery of any certificate or certificates for shares of
Series A TCI Group Common Stock in a name other than that of the registered
holder of the shares of Series G Preferred Stock surrendered for conversion,
such holder shall also deliver to the Company a sum sufficient to pay all
taxes, if any, payable in respect of such transfer or evidence satisfactory to
the Company that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Company shall pay any issue, stamp or other
similar tax in respect of such issuance or delivery.
The Company shall, as soon as practicable after the Conversion Date,
deliver to the holder of the shares of Series G Preferred Stock so surrendered
for conversion, or to such holder's nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
whole shares of Series A TCI Group Common Stock to which such holder shall be
entitled, together with cash or its check in lieu of any fractional share as
provided in paragraph 7(o). If the shares of Series G Preferred Stock
represented by a certificate surrendered for conversion are converted only in
part, the Company will also issue and deliver to the holder, or to such
holder's nominee(s) or, subject to compliance with applicable law,
transferee(s), without charge therefor, a new certificate or certificates
representing in the aggregate the unconverted shares of Series G Preferred
Stock.
The Person in whose name the certificate for shares of Series A TCI
Group Common Stock is issued upon such conversion shall be treated for all
purposes as the stockholder of record of such shares of Series A TCI Group
Common Stock as of the close of business on the Conversion Date; provided,
however, that no surrender of Series G Preferred Stock on any date when the
stock transfer books of the Company are closed for any purpose shall be
effective to constitute the Person or Persons entitled to receive the shares of
Series A TCI Group Common Stock on such date, but such surrender shall be
effective (assuming all other requirements of this paragraph 7 have been
satisfied) to constitute such Person or Persons as the record holders of such
shares of Series A TCI Group Common Stock for all purposes as of the opening of
business on the next succeeding day on which such stock transfer books are
open, and such conversion shall be at the Conversion Rate in effect on the date
that such shares of Series G Preferred Stock were surrendered for conversion
(and such other requirements satisfied) as if the stock transfer books of the
Company had not been closed on such date. Upon conversion of shares of Series
G Preferred stock, the rights of the holder of the shares so converted, as a
holder thereof, will cease.
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Notwithstanding the last sentence of the immediately preceding
paragraph, if the Board of Directors declares any dividend on the Series G
Preferred Stock pursuant to paragraph 3 of this Certificate of Designations,
and the Conversion Date for any shares of Series G Preferred Stock occurs on or
after the Record Date or Special Record Date, as the case may be, and before
the Dividend Payment Date for such dividend (or, in the case of a dividend
declared pursuant to Section 3(d), then the holder of such shares of Series G
Preferred Stock on such Record Date shall be entitled to receive such dividend
on such Dividend Payment Date (or such other date, as the case may be), as if
such Conversion Date had not occurred.
(c) Adjustments for Change in Capital Stock. If after the Issue
Date, the Company:
(i) pays a dividend or makes a distribution on the Series A
TCI Group Common Stock in shares of Series A TCI Group Common Stock;
(ii) subdivides combines the outstanding shares of Series A
TCI Group Common Stock into a greater number of shares;
(iii) combines the outstanding shares of Series A TCI Group
Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on the Series A
TCI Group Common Stock in shares of its capital stock (other than
Series A TCI Group Common Stock or rights, warrants or options for
its capital stock); or
(v) issues by reclassification of its shares of Series A TCI
Group Common Stock (other than a reclassification by way of merger or
binding share exchange that is subject to paragraph 7(f)) any shares
of its capital stock (other than rights, warrants or options for its
capital stock),
then, subject to the following sentence and to paragraph 7(j), the conversion
privilege and the Conversion Rate in effect immediately prior to the opening of
businesses on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of any shares of Series G Preferred Stock
thereafter converted may receive the kind and number of shares of capital stock
of the Company which such holder would have owned immediately following such
event if such holder had converted his shares of Series G Preferred Stock
immediately prior to the record date for, or effective date of, as the case may
be, such event. Notwithstanding the foregoing, if an event listed in clause
(iv) or (v) above would result in the shares of Series G Preferred Stock being
convertible into shares or units (or a fraction thereof) of more than one class
or series of capital stock of the Company and any such class or series of
capital stock provides by its terms a right in favor the Company to call,
redeem, exchange or otherwise acquire all of the outstanding shares or units of
such class or series (such class or series of capital stock being herein
referred
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to as "Redeemable Capital Stock") then, at the option of the Company, the
conversion privilege and Conversion Rate of the Series G Preferred Stock shall
not be adjusted pursuant to this paragraph 7(c) and in lieu thereof, but
subject to paragraph 7(j), the adjustment to the Conversion Rate contemplated
by paragraph 7(e) shall be made with the same effect as if the dividend or
distribution of Redeemable Capital Stock or the issuance of the additional
class or series of Redeemable Capital Stock by reclassification had been a
distribution of assets of the Company.
The adjustment contemplated by this paragraph 7(c) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective immediately after the
record date for the dividend or distribution. For a subdivision, combination
or reclassification, the adjustment shall become effective immediately after
the effective date of the subdivision, combination or reclassification.
If after an adjustment a holder of Series G Preferred Stock would be
entitled to receive upon conversion thereof shares of two or more classes or
series of capital stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken with respect to
any such class or series of capital stock as is contemplated by this paragraph
7 with respect to the Series A TCI Group Common Stock, on terms comparable to
those applicable to the Series A TCI Group Common Stock pursuant to this
paragraph 7.
Any shares of Series A TCI Group Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the time of
the record date for such dividend for purposes of calculating the number of
outstanding shares of Series A TCI Group Common Stock under paragraphs 7(d) and
7(e) below.
(d) Adjustment for Rights Issue. If, after the Company distributes any
rights, warrants or options to holders of shares of Series A TCI Group Common
Stock entitling them, for a period expiring within 45 days after the record date
for the determination of stockholders entitled to receive such distribution, to
purchase shares of Series A TCI Group Common Stock (or Convertible Securities)
at a price per share (or having a conversion price per share, after adding
thereto an allocable portion of the exercise price of the right, warrant or
option to purchase such Convertible Securities, computed on the basis of the
maximum number of shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities) less than the Current Market Price on
the Determination Date, the Conversion Rate shall be adjusted so that it shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the opening of business on such record date by a fraction, of which the
numerator shall be the number of shares of Series A TCI Group Common Stock
outstanding on such record date plus the number of shares of Series A TCI Group
Common Stock which the aggregate offering price of the total number of shares of
Series A TCI Group Common Stock so offered (or the aggregate conversion price
of the Convertible Securities to be so offered, after adding thereto the
aggregate exercise price of the rights, warrants or options to purchase such
Convertible Securities) to the holders of Series A TCI Group Common Stock (and
to the holders of Convertible Securities and Series B TCI Group Common Stock
referred to in the immediately succeeding paragraph of this paragraph 7(d) if
the distribution to which this
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paragraph 7(d) applies is also being made to such holders) would purchase at
such Current Market Price, and of which the denominator shall be the number of
shares of Series A TCI Group Common Stock outstanding on such record date plus
the number of additional shares of Series A TCI Group Common Stock so offered
to the holders of Series A TCI Group Common Stock (and to such holders of
Convertible Securities and Series B TCI Group Common Stock) for subscription or
purchase (or into which the Convertible Securities so offered are convertible).
Shares of Series A TCI Group Common Stock owned by or held for the account of
the Company shall not be deemed to be outstanding the purpose of any such
adjustment.
For purposes of this paragraph 7(d) the number of shares of Series A
TCI Group Common Stock outstanding on any record date shall be deemed to
include (i) the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be necessary to effect the full exercise, exchange or
conversion of all Convertible Securities outstanding on such record date which
are then exercisable, exchangeable or convertible at a price (before giving
effect to any adjustment to such price for the distribution to which this
paragraph 7(d) is being applied) equal or less than the Current Market Price
per share of Series A TCI Group Common Stock on the applicable Determination
Date, if all of such Convertible Securities were deemed to have been exercised,
exchanged or converted immediately prior to the opening of business on such
record date and (ii) if the Series B TCI Group Common Stock is then convertible
into Series A TCI Group Common Stock, the maximum number of shares of Series A
TCI Group Common Stock the issuance of which would be necessary to effect the
full conversion of all shares of Series B TCI Group Common Stock outstanding on
such record date, if all of such shares of Series B TCI Group Common Stock were
deemed to have been converted immediately prior to the opening of business on
such record date.
The adjustment contemplated by this paragraph 7(d) shall be made
successively whenever any such rights, warrants or options are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive the rights, warrants or options. If all of
the shares of Series A TCI Group Common Stock (or all of the Convertible
Securities) subject to such rights, warrants or options have not been issued
when such rights, warrants or options expire (or, in the case of rights,
warrants or options to purchase Convertible Securities which have been
exercised, if all of the shares of Series A TCI Group Common Stock issuable
upon conversion of such Convertible Securities have not been issued prior to
the expiration of the conversion right thereof), then the Conversion Rate shall
promptly be readjusted to the Conversion Rate which would then be in effect had
the adjustment upon the issuance of such rights, warrants or options been made
on the basis of the actual number of shares of Series A TCI Group Common Stock
(or Convertible Securities) issued upon the exercise of such rights, warrants
or options (or conversion of such Convertible Securities).
No adjustment shall be made under this paragraph 7(d) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect immediately
prior to such adjustment.
(e) Adjustments for Other Distributions. If, after the Issue Date
(i) the Company distributes to all holders of shares of Series A TCI Group
Common Stock any assets
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or debt securities or any rights, warrants or options to purchase securities
(excluding (x) dividends or distributions referred to in paragraph 7(c) (except
as otherwise provided in clause (ii) of this sentence) and distributions of
rights, warrants or options referred to in paragraph 7(d) and (y) cash
dividends or other cash distributions, unless such cash dividends or cash
distributions are Extraordinary Cash Dividends), or (ii) the Company makes a
dividend or distribution of Redeemable Capital Stock on, or issues Redeemable
Capital Stock by reclassification of, the Series A TCI Group Common Stock by
reclassification of, the Series A TCI Group Common Stock and determines
pursuant to paragraph 7(c) to treat the same as a distribution of assets of the
Company subject to this paragraph 7(e), then in each such event the Conversion
Rate shall be adjusted by dividing the Conversion Rate in effect immediately
prior to the opening of business on (A) the record date for the determination
of stockholders entitled to receive the distribution or (B) in the case of a
reclassification, the effective date of such reclassification by a fraction, of
which the numerator shall be the total number of shares of Series A TCI Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by the Current Market price on the Determination
Date, less the fair market value (as determined in good faith by the Board of
Directors) on such record date or effective date of said assets (or Redeemable
Capital Stock) or debt securities or rights, warrants or options so distributed
to the holders of Series A TCI Group Common Stock (and to the holders of
Convertible Securities and Series B TCI Group Common Stock referred to in the
immediately succeeding paragraph of this paragraph 7(e) if the distribution to
which this paragraph 7(e) applies is also being made to such holders), and of
which the denominator shall be the total number of shares of Series A TCI Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by such Current Market Price.
For purposes of this paragraph 7(e), the number of shares of Series A
TCI Group Common Stock outstanding on any relevant date shall be deemed to
include (i) the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be outstanding on such date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any adjustment
to such price for the distribution to which this paragraph 7(e) is being
applied) equal to or less than the Current Market Price on the applicable
Determination Date, if all of such Convertible Securities were deemed to have
been exercised, exchanged or converted immediately prior to the opening of
business on such date and (ii) if the Series B TCI Group Stock is then
convertible into Series A TCI Group Common Stock the issuance of which would be
necessary to effect the full conversion of all shares of Series B TCI Group
Common Stock outstanding on such date, if all of such shares of Series B TCI
Group Common Stock were deemed to have been converted immediately prior to the
opening of business on such date.
For purposes of this paragraph 7(e), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to the Series A TCI Group
Common Stock the amount of which, together with the aggregate amount of cash
dividends on the Series A TCI Group Common Stock to be aggregated with such
cash dividend in accordance with the following provisions of this paragraph,
equals or exceeds the threshold percentage set forth below in the following
sentence. If, upon the date prior to the Ex-Dividend Date with respect to a
cash
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dividend on Series A TCI Group Common Stock, the aggregate of the amount of
such cash dividend together with the amounts of all cash dividends on the
Series A TCI Group Common Stock with Ex-Dividend Dates occurring in the 365
consecutive day period ending on the date prior to the Ex-Dividend Date with
respect to the cash dividend to which this provision is being applied (other
than any such other cash dividends with Ex-Dividend Dates occurring in such
period for which a prior adjustment in the Conversion Rate was previously made
under this paragraph 7(e)) equals or exceeds on a per share basis 10% of the
average of the Closing Prices during the period beginning on the date after the
first such Ex-Dividend Date in such period and ending on the date prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of the
Closing Prices shall be the period commencing 365 days prior to the date
immediately prior to the Ex-Dividend Date with respect to the cash dividend to
which this provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Date occurring in such 365-day period
that is aggregated with such cash dividend in accordance with this paragraph
shall be deemed to be an Extraordinary Cash Dividend.
The adjustment pursuant to the foregoing provisions of this paragraph
7(e) shall be made successively whenever any distribution to which this
paragraph 7(e) applies is made, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
distribution (or, in the case of a reclassification, the effective date).
Shares of Series A TCI Group Common Stock owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any such
adjustment.
No adjustment shall be made under this paragraph 7(e) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect prior to such
adjustment. In the event that, with respect to any distribution to which this
paragraph 7(e) would otherwise apply, the numerator of the fraction in the
formula set forth in the first paragraph of this paragraph 7(e) is zero or a
negative number, then the adjustment provided by this paragraph 7(e) shall not
be made. If the Company makes a distribution to all holders of its Series A
TCI Group Common Stock of any of its assets or debt securities or any rights,
warrants or options to purchase securities of the Company that, but for the
immediately preceding sentence, would otherwise result in an adjustment in the
Conversion Rate pursuant to the foregoing provisions of this paragraph 7(e),
then, from and after the record date for determining the holders of Series A
TCI Group Common Stock entitled to receive the distribution, a holder of Series
G Preferred Stock that converts such shares in accordance with the provisions of
this paragraph 7 will upon such conversion be entitled to receive, in addition
to the shares of Series A TCI Group Common Stock into which such shares of
Series G Preferred Stock are convertible, the kind and amount of securities,
cash or other assets comprising the distribution that such holder would have
received if such holder had converted such shares of Series G Preferred Stock
immediately prior to the record date for determining the holders of Series A
TCI Group Common Stock entitled to receive the distribution.
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(f) Consolidation, Merger or Sale of the Company. If the Company
consolidates with or merges into, or transfers (other than by mortgage or
pledge) the properties and assets substantially as an entirety to, another
Person or the Company is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Series A TCI Group Common Stock, the
Company (or its successor in such transaction) or the transferee of such
properties and assets shall make appropriate provision so that the holders of
the shares of Series G Preferred Stock then outstanding shall have the right
thereafter to convert such shares into the kind and amount of securities, cash
or other assets receivable upon such transaction by a holder of the number of
shares of Series A TCI Group Common Stock into which such shares of Series G
Preferred Stock could have been converted immediately before the effective date
of such transaction (assuming, to the extent applicable, that such holder
failed to exercise any rights of election with respect thereto and received per
share of Series A TCI Group Common Stock the kind and amount of securities,
cash or other assets received per share by a plurality of the non-electing
shares of Series A TCI Group Common Stock), and the holders of the Series G
Preferred Stock shall have no other conversion rights under these provisions;
provided that (i) effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of Series G Preferred
Stock shall thereafter be made applicable, as nearly as reasonable may be, to
any such other securities and assets deliverable upon conversion of the Series
G Preferred Stock remaining outstanding or other convertible preferred stock or
other securities received by the holders of Series G Preferred Stock in place
thereof; and (ii) any such resulting or surviving corporation or transferee
shall expressly assume the obligation to deliver, upon the exercise of the
conversion privilege, such securities, cash or other assets as the holders of
the Series G Preferred Stock remaining outstanding, or other convertible
preferred stock or other securities received by the holders in place thereof,
shall be entitled to receive pursuant to the provisions hereof, and to make
provision for the protection of the conversion rights of the Series G Preferred
Stock, or of any other convertible preferred stock or other securities received
by the holders in place thereof, as provided in clause (i) of this sentence.
If this paragraph 7(f) applies, paragraphs 7(c), 7(d) and 7(e) shall
not apply.
(g) Effect of Redemption. Subject to paragraph 7(j) and to the
remaining provisions of this paragraph 7(g), in the event that a holder of
Series G Preferred Stock would be entitled to receive upon conversion thereof
pursuant to this paragraph 7 any Redeemable Capital Stock and the Company
redeems, exchanges or otherwise acquires all of the outstanding shares or other
units of such Redeemable Capital Stock (such event being a "Redemption Event"),
then, from and after the effective date of such Redemption Event, the holders
of shares of Series G Preferred Stock then outstanding shall be entitled to
receive upon conversion of such shares, in lieu of shares or units of such
Redeemable Capital Stock, the kind and amount of securities, cash or other
assets receivable upon the Redemption Event by a holder of the number of shares
or units of such Redeemable Capital Stock into which such shares of Series G
Preferred Stock could have been converted immediately prior to the effective
date of such Redemption Event (assuming, to the extent applicable, that such
holder failed to exercise any rights of election with
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respect thereto and received per share or unit of such Redeemable Capital Stock
the kind and amount of securities, cash or other assets received per share or
unit by a plurality of the non-electing shares or units of such Redeemable
Capital Stock), and (from and after the effective date of such Redemption
Event) the holders of the Series G Preferred Stock shall have no other
conversion rights under these provisions with respect to such Redeemable
Capital Stock.
Notwithstanding the foregoing, if the Redemption price for the shares
of such Redeemable Capital Stock is paid in whole or in part in Redemption
Securities, and the Mirror Preferred Stock Condition is met, the Series G
Preferred Stock shall not be convertible into such Redemption Securities and,
from and after the applicable redemption date, the holders of any shares of
Series G Preferred Stock that have not been exchanged for Mirror Preferred
Stock and Exchange Preferred Stock shall have no conversion rights under these
provisions except for any conversion right that may have existed immediately
prior to the effective date of the Redemption Event with respect to any
securities (including the Series A TCI Group Common Stock), cash or other
assets other than the Redeemable Capital Stock so Redeemed. The Mirror
Preferred Stock Condition will be met in connection with a redemption of any
Redeemable Capital Stock into which the Series G Preferred Stock is then
convertible, if the Company makes appropriate provision so that the holders of
the Series G Preferred Stock have the right to exchange their shares of Series
G Preferred Stock on the effective date of the Redemption Event for Exchange
Preferred Stock of the Company and Mirror Preferred Stock of the issuer of the
Redemption Securities. The sum of the initial liquidation preferences of the
shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in
exchange for a share of Series G Preferred Stock will equal the Liquidation
Preference of a share of Series G Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation
Preference of the shares of Series G Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Redeemable Capital
Stock to be Redeemed (determined immediately prior to the effective date of the
Redemption Event) and the average of the daily Closing Prices of the Redeemable
Capital Stock for the period of ten consecutive trading days ending on the
third trading day prior to the effective date of the Redemption Event, divided
by (y) the sum of the amount determined pursuant to clause (x), plus the fair
value of the securities (other than those being Redeemed), cash or other assets
that would have been receivable by a holder of Series G Preferred Stock upon
conversion thereof immediately prior to the effective date of the Redemption
Event (such fair value to be determined in the case of securities with a
Closing Price in the same manner as provided in clause (x) and otherwise by the
Board of Directors in the exercise of its good faith judgment). The shares of
Exchange Preferred Stock will have an aggregate initial liquidation preference
equal to the difference between the aggregate Liquidation Preference of the
shares of Series G Preferred Stock exchanged therefore and the aggregate
initial liquidation preference of the Mirror Preferred Stock.
When used in connection with a redemption by the Company of any
Redeemable Capital Stock into which the Series G Preferred Stock is then
convertible, the following terms have the following meanings:
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(i) "Redemption Securities" means securities of an issuer
other than the Company that are distributed by the Company in
payment, in whole or in part, of the redemption price for such
Redeemable Capital Stock.
(ii) "Mirror Preferred Stock" means convertible preferred
stock issued by the issuer of the Redemption Securities and having
terms, conditions, designations, dividend rights, voting powers,
rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly
so as is practicable in the good faith judgment of the Board of
Directors, to those of the Series G Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (x) the liquidation
preference will be determined as provided above in this paragraph
7(g), (y) the running of any time periods pursuant to the terms of the
Series G Preferred Stock shall be tacked to the corresponding time
periods in the Mirror Preferred Stock and (z) the Mirror Preferred
Stock shall be convertible into the kind and amount of Redemption
Securities, cash and other assets that the holder of a share of Series
G Preferred Stock in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof would have received upon
redemption of the Redeemable Capital Stock had such shares of Series G
Preferred Stock been converted prior to the effective date of the
Redemption Event.
(iii) "Exchange Preferred Stock" means a series of
convertible preferred stock of the Company having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation
and other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof that are identical, or as nearly so as is practicable in the
good faith judgment of the Board of Directors, to those of the Series
G Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (x) the liquidation preference will be
determined as provided above in this paragraph 7(g), (y) the running
of any time periods pursuant to the terms of the Series G Preferred
Stock shall be tacked to the corresponding time period in the Exchange
Preferred Stock and (z) the Exchange Preferred Stock will not be
convertible into, and the holders will have no conversion rights
thereunder with respect to, the Redeemable Capital Stock redeemed in
the Redemption Event.
Notwithstanding the second paragraph of this paragraph 7(g), the Mirror
Preferred Stock Condition shall only be deemed to have been satisfied in
connection with any Redemption Event if, in the good faith determination of the
Board of Directors: (i) receipt of Mirror Preferred Stock and/or Exchange
Preferred Stock in exchange for Series G Preferred Stock pursuant to the second
paragraph of this paragraph 7(g) would not result in the recognition of gain or
loss by the holders of such Series G Preferred Stock for United States federal
income tax purposes; (ii) an adjustment made in the Conversion Rate of the
Series G Preferred Stock with respect to such Redemption Event, as provided in
the first paragraph of this paragraph 7(g), would result in the recognition of
gain or loss by the holders of Series G Preferred Stock for United States
federal
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<PAGE> 191
income tax purposes; or (iii) receipt of Redemption Securities in redemption of
the Redeemable Capital Stock to be redeemed in the Redemption Event would
result in the recognition of gain or loss by the holders of such Redeemable
Capital Stock, as the case may be.
(h) Simultaneous Adjustments. In the event that this paragraph 7
requires adjustments to the Conversion Rate under more than one of paragraph
7(c)(iv), (d) or (e), and the record dates for the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of paragraph 7(c), second, the
provisions of paragraph 7(e) and, third, the provisions of paragraph 7(d).
(i) When Adjustment May Be Deferred. In any case in which this
paragraph 7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event (x) issuing to the holder of any shares of Series G Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of Series A TCI Group Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the shares of Series A TCI Group Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder cash or
its check in lieu of any fractional interest to which he is entitled pursuant
to paragraph 7(o); provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A TCI Group Common Stock, and
such cash, upon the occurrence of the event requiring such adjustment.
(j) De Minimis Adjustment; When Adjustment Is Not Required. No
adjustments in the Conversion Rate need be made unless the adjustment would
require an increase or decrease of at least one percent (1%) in the Conversion
Rate. Any adjustment which is not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest
cent or to the nearest 1/1000th of a share, as the case may be.
No adjustment need be made for rights to purchase shares of Series A
TCI Group Common Stock or for sales of shares of Series A TCI Group Common
Stock which in either case are made pursuant to a Company plan providing for
reinvestment of dividends or interest or pursuant to a bona fide employee stock
option or stock purchase plan of the Company. No adjustment need be made for a
change in the par value of the Series A TCI Group Common Stock.
No adjustment need be made under this paragraph 7 for a transaction
referred to in paragraph 7(c), 7(d), 7(e) or 7(g) if holders of the Series G
Preferred Stock are to participate in the transaction on a basis and with
notice that the Board of Directors in good faith determines to be fair and
appropriate in light of the basis and notice on which holders of Series A TCI
Group Common Stock participate in the transaction; provided that the basis on
which the holders of shares of Series G Preferred Stock are to participate in
the transaction shall not be deemed to
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<PAGE> 192
be fair if it would require the holder to convert his shares of Series G
Preferred Stock, in order to participate, at any time prior to the expiration
of the conversion period specified for the shares of Series G Preferred Stock
pursuant to paragraph 7(a) of this Certificate of Designations. The
immediately preceding sentence shall apply to any transaction referred to in
paragraph 7(c), 7(d), 7(e) or 7(g) only if, in good faith determination of the
Board of Directors: (i) participation in such transaction by the holders of the
Series G Preferred Stock would not result in the recognition of gain or loss by
such holders of United States federal income tax purposes; (ii) an adjustment
made in the Conversion Rate of the Series G Preferred Stock in lieu of
participating in such transaction, pursuant to this paragraph 7, would result
in the recognition of gain or loss by holders of Series G Preferred Stock for
United States federal income tax purposes; or (iii) participation in such
transaction by the holders of the Series A TCI Group Common Stock would result
in the recognition of gain or loss by such holders for United States federal
income tax purposes.
To the extent the shares of Series G Preferred Stock become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(k) Company Determination Final. Any determination required to be
made pursuant to paragraph 7(c), 7(d), 7(e), 7(f), 7(g), 7(h), 7(j) or 7(o)
shall be made by the Board of Directors (whether or not reference to the Board
of Directors is expressly made in any such paragraph) and any determination so
made in good faith shall be conclusive and binding, absent manifest error, on
the holders of shares of Series G Preferred Stock. In making any determination
as to the expected tax treatment of any action, transaction or event referred
to herein, including, without limitation, the determinations provided for in
the last paragraph of Paragraph 7(g) and the last sentence of the fourth
paragraph of paragraph 7(j), the Board of Directors shall be entitled to rely
conclusively on (i) an opinion of counsel rendered by a law firm acceptable to
the Board of Directors, acting in good faith, or (ii) a private letter ruling
from the Internal Revenue Service, to such effect, which opinion of counsel or
private letter ruling may be based upon such assumptions, and be subject to
such qualifications, conditions and limitations, as the Board of Directors
shall in good faith determine to be appropriate under the circumstances. Any
such determination by the Board of Directors shall be based on the expected
United States federal income tax consequences applicable to the transaction in
question, without regard to special tax rules such as those applicable to
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders ho do not hold the securities or other property
in question as capital assets, or the personal circumstances of any particular
stockholder.
(l) Notice of Adjustment. Whenever the provisions of this paragraph
7 require an adjustment of the Conversion Rate, the Company shall promptly
compute such adjustment and (i) file with the transfer agent for the Series G
Preferred Stock (or with the books of the Company if there is no transfer
agent) an Officers' Certificate setting forth a description of the event
requiring the adjustment, the new Conversion Rate (including a reasonable
detailed calculation thereof), and the kind and amount of capital stock or
other securities or cash or other assets into which the Series G Preferred
Stock shall be convertible after such event, and (ii) cause a notice containing
a summary of the information set forth in said certificate to be given to the
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holders of Series G Preferred Stock. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be given
under the provisions of paragraph 7(m).
(m) Advance Notice of Certain Transactions. If the Company:
(i) takes any action which would require an adjustment in the
Conversion Rate;
(ii) is a party to a consolidation, merger or binding share
exchange, or transfers all or substantially all of its assets to
another Person, and any stockholders of the Company must approve the
transaction; or
(iii) voluntarily or involuntarily dissolves, liquidates or
winds up,
then, in any such event, the Company shall give the holders of the Series G
Preferred Stock, at least twenty (20) days prior to any record date or other
date set for definitive action if there shall be no record date, a notice
stating the record date for and the anticipated effective date of such action
or event and, if the event is a dividend or distribution or issuance by
reclassification of Redeemable Capital Stock, whether the Company has
determined to adjust the Conversion Rate pursuant to paragraph 7(c), or 7(e),
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of Series A
TCI Group Common Stock. Without limiting the obligation of the Company to
provide notice of corporate actions hereunder, the failure to mail the notice
or any defect in it shall not affect the legality or validity or any corporate
action or the vote thereon.
(n) Reservation of Series A TCI Group Common Stock Issuable Upon
Conversion. The Company shall at all times on and after the Issue Date reserve
and keep available out of its authorized but unissued shares of Series A TCI
Group Common Stock, solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock, such number of its shares of Series A TCI
Group Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series G Preferred Stock; provided that
nothing contained herein shall be construed to preclude the Company from
satisfying its obligations in respect of the conversion of the outstanding
shares of Series G Preferred Stock by delivery of shares of Series A TCI Group
Common Stock which are held in the treasury of the Company. The Company shall
take all such corporate and other actions as from time to time may be necessary
to insure that all shares of Series A TCI Group Common Stock issuable upon
conversion of shares of Series G Preferred Stock at the Conversion Rate in
effect from time to time will, when issued, be duly and validly authorized and
issued, fully paid and nonassessable, and free from all preemptive or similar
rights. in order that the Company may issue shares of Company will in good
faith and as expeditiously as possible endeavor to comply with all applicable
Federal and state securities laws and will in good faith and as expeditiously
as possible endeavor to list such shares to be issued upon conversion on such
national securities exchange
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or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
(o) Fractional Shares. No fractional shares of Series A TCI Group
Common Stock or scrip shall be issued upon conversion of the Series G Preferred
Stock. Whether or not fractional shares would otherwise be required to be
issued to a holder of Series G Preferred Stock upon such conversion shall be
determined on the basis of the total number of shares of Series G Preferred
Stock the holder is at the time converting into Series A TCI Group Common Stock
and the total number of shares of Series A TCI Group Common Stock issuable
upon such conversion. In lieu of the issuance of fractional shares of Series A
TCI Group Common Stock, the Company shall pay instead an amount in cash or by
its check equal to the same fraction of the Closing Price of a full share of
Series A TCI Group Common Stock on the last full trading day prior to the
Conversion Date.
(p) Impairment. The Company will not, by amendment of this
Certificate of Designations or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, other than as expressly permitted by
this Certificate of Designations or approved by the requisite vote or written
consent of the holders of Series G Preferred Stock taken or given in accordance
with this Certificate, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this paragraph 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
G Preferred Stock against impairment.
8. Voting.
(a) Voting Rights. The holders of Series G Preferred Stock shall
have no voting rights whatsoever, except as required by law and except for the
voting rights described in this paragraph 8; provided, however, that the number
of authorized shares of Series G Preferred Stock may be increased or decreased
(but not below the number of shares of Series G Preferred Stock then
outstanding) by the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of the Restated Certificate of Incorporation of the
Company (the "Restated Certificate")), voting together as a single class as
provided in Article IX of the Restated Certificate. Without limiting the
generality of the foregoing, no vote or consent of the holders of Series G
Preferred Stock shall be required for (a) the creation of any indebtedness of
any kind of the Company, (b) the creation or designation of any class or series
of Senior Stock, Parity Stock or Junior Stock, or (c) any amendment to the
Restated Certificate that would increase the number of authorized shares of
Preferred Stock or the number of authorized shares of Series G Preferred Stock
or that would decrease the number of authorized shares of Preferred Stock or
the number of authorized shares of Series G Preferred Stock (but not below the
number of shares of Preferred Stock or Series G Preferred Stock, as the case
may be, then outstanding).
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(b) Election of Directors. The holders of the Series G Preferred
Stock shall have the right to vote at any annual or special meeting of
stockholders for the purpose of electing directors. Each share of Series G
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with all other classes or series of capital stock of the Company
that are entitled to vote in any general election of directors, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
9. No Preemptive Rights. The holders of shares of Series G Preferred
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital stock or other securities of the Company convertible
into or carrying rights or options to purchase any such shares.
10. Waiver. Any provision of this Certificate of Designations which,
for the benefit of the holders of Series G Preferred Stock, prohibits, limits
or restricts actions by the Company, or imposes obligations on the Company,
including but not limited to provisions relating to the obligation of the
Company to redeem or convert such shares, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case by the affirmative vote
or with the consent of the holders of at least a majority of the number of
shares of Series G Preferred Stock then outstanding (or such greater percentage
thereof as may be required by applicable law or any applicable rules of any
national securities exchange or national interdealer quotation system), either
in writing or by vote at an annual meeting or a special meeting called for such
purpose at which the holders of Series G Preferred Stock shall vote as a
separate class.
11. Method of Giving Notices. Any notice required or permitted by
the provisions of this Certificate of Designations to be given to the holders
of shares of Series G Preferred Stock shall be deemed duly given if deposited
in the United States mail, first class mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company or
supplied by him in writing to the Company for the purpose of such notice.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and except for the equitable rights and remedies which may otherwise be
available to holders of Series G Preferred Stock, the shares of Series G
Preferred Stock shall not have any designations, preferences, limitations or
relative rights other than those specifically set forth in this Certificate of
Designations.
13. Headings of Subdivisions. The headings of the various
subdivisions of this Certificate of Designations are for convenience of
reference only and shall not affect the interpretation of any of the provisions
of this Certificate of Designations.
FURTHER RESOLVED, that the appropriate officers of this Company are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this
25th day of January, 1996.
/s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
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State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
_______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF JANUARY, A.D. 1996, AT 3:05 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OR DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2371729 8100 DATE: 7804670
960024231 01-25-96
<PAGE> 197
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:05 PM 01/25/1996
980024220 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------
SETTING FORTH A COPY OF RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"REDEEMABLE CONVERTIBLE LIBERTY MEDIA GROUP
PREFERRED STOCK, SERIES H"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------
The undersigned, an executive Vice President of TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), HEREBY CERTIFIES that the Board
of Directors of the Company on December 13, 1995, duly adopted the following
resolutions creating a new series of the Company's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Company, the Board of Directors hereby creates and
authorizes the issuance of a new series of the Company's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of the Company's preferred stock,
par value $.01 per share ("Preferred Stock")) as follows:
1. Designation Number of Shares. The designation of the series of
Series Preferred Stock, par value $.01 per share, of the Company created hereby
shall be "Redeemable Convertible Liberty Media Group Common Stock, Series H"
("Series H Preferred Stock"). The designated number of shares of Series H
Preferred Stock shall be 7,259,380. Each share of Series H Preferred Stock
shall be 7,259,380. Each share of Series H Preferred Stock shall have a stated
value of $5.40 ("Stated Value").
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Any shares of Series H Preferred Stock redeemed, converted or
otherwise acquired by the Company shall be retired, shall not be reissued as
shares of Series H Preferred Stock and shall resume the status of authorized
and unissued shares of Series Preferred Stock, without designation as to
series, until such shares are once more designated as part of a particular
series of Series Preferred Stock by the Board of Directors.
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Anniversary Date" shall mean January 25, 1997.
"Average Market Price" as of any Record Date or Special Record Date
for a dividend payment declared by the Board of Directors shall mean the
average of the daily Closing Prices of the Series A TCI Group Common Stock for
the period of ten (10) consecutive trading days ending on the tenth trading day
prior to such Record date or Special Record Date, appropriately adjusted in
such manner as the Board of Directors in good faith deems appropriate to take
into account any stock dividend on the Series A TCI Group Common Stock, or any
subdivision, combination or reclassification of the Series A TCI Group Common
Stock that occurs, or the Ex-Dividend date for which occurs, during the period
following the first trading day in such ten-trading day period and ending on
the last full trading day immediately preceding the Dividend Payment Date or
other date fixed for the payment of dividends to which such Record Date or
Special Record Date relates.
"Board of Directors" shall mean the Board of Directors of the Company,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday Sunday, or a
day on which banking institutions in The City of New York, New York are not
required to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
the Company.
"Closing Price" of a share of Series A TCI Group Common Stock or of a
share of Series A Liberty Media Group Common Stock, or a share of any other
class or series of capital stock of the Company into which the Series H
Preferred Stock may hereafter become convertible pursuant to paragraph 7, on
any day shall mean the last reported per share sale price (or, if no sale price
is reported, the average of the high and low bid prices) of the Series A TCI
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Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as the case may be, on such day on the Nasdaq Stock Market or as
quoted by the National Quotation Bureau Incorporated or, if the Series A TCI
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as applicable, is listed on an exchange, on the principal
exchange on which the Series A TCI Group Common Stock, the Series A Liberty
Media Group Common Stock or such capital stock, as the case may be, is listed.
In the event that no such quotation is available for any day, the Board of
Directors shall be entitled to determine the Closing Price on the basis of such
quotations as it in good faith considers appropriate.
"Contingency" shall have the meaning set forth in paragraph 3(a.).
"Conversion Date" of a share of Series H Preferred Stock shall mean
the date on which the requirements for conversion of such share set forth in
paragraph 7(b) of this Certificate of designations have been satisfied by the
holder thereof.
"Conversion Rate" shall mean the kind and amount of securities, assets
or other property that as of any date are issuable or deliverable upon
conversion of a share of Series H Preferred Stock. The Conversion Rate of a
share of Series H Preferred Stock shall initially be .2625 shares of Series A
Liberty Media Group Common Stock for each share of Series H Preferred Stock,
subject to adjustment as set forth in paragraph 7 of this Certificate of
Designations. In the event that pursuant to paragraph 7 of the Series H
Preferred Stock becomes convertible into more than one class or series of
capital stock of the Company, the term Conversion Rate, when used with respect
to any such class or series, shall mean the number or fraction of shares or
other units of such capital stock that as of any date would be issued upon
conversion of a share of Series H Preferred Stock.
"Convertible Securities" shall mean any or all options, warrants,
securities and rights which are convertible into or exercisable or exchangeable
for Series A Liberty Media Group Common Stock at the option of the holder
thereof, or which otherwise entitle the holder thereof to subscribe for,
purchase or otherwise acquire Series A Liberty Media Group Common Stock;
provided, however, that such term shall not include the Series B Liberty Media
Group Common Stock.
"Career Market Price", on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the Current
Market Price is being calculated, shall mean the average of the daily Closing
Prices of the Series A Liberty Media Group Common Stock for the shortest of:
(i) the period of 30 consecutive trading days commencing 45
trading days before such Determination Date.
(ii) the period commencing on the date next succeeding the
first public announcement of the issuance of rights, warrants or
options or the distribution in
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respect of which the Current Market Price is being calculated and
ending on the last full trading day before such Determination Date,
and
iii) the period, if any, commencing on the date next
succeeding the Ex-Dividend Date with respect to the next preceding
issuance of rights, warrants or options or distribution for which an
adjustment is required by the provisions of paragraph 7(c)(iv), 7(d)
or 7(e), and ending on the last full trading day before such
Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of paragraph
7(c)(iv), 7(d) or 7(e) (the "preceding adjustment event") precedes the record
date for the issuance or distribution in respect of which the Current Market
Price is being calculated and the Ex-Dividend Date for such preceding
adjustment event is on or after the Determination Date for the issuance or
distribution in respect of which the Current Market Price is being calculated,
then the Current Market Price shall be adjusted by deducting therefrom the fair
market value (on the record date for the issuance or distribution in respect of
which the Current Market Price is being calculated), as determined in good
faith by the Board of Directors, of the capital stock, rights, warrants or
options, assets or debt securities issued or distributed in respect of each
share of Series A Liberty Media Group Common Stock in such preceding adjustment
event. Further, in the event that the Ex-Dividend Date (or in the case of a
subdivision, combination or reclassification to which paragraph 7(c)(i), (ii),
(iii) or (v) applies occurs during the period in a manner determined in good
faith by the Board of Directors to reflect the impact of such dividend,
subdivision, combination or reclassification on the Closing prices of the
Series A Liberty Media Group Common Stock during such period.
"Determination Date" for any issuance of rights, warrants or options
or any distribution to which paragraph 7(d) or 7(e) applies shall mean the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights, warrants or options or the distribution to which such
paragraph applies and (ii) the Ex-Dividend date for such rights, warrants or
options or distribution.
"Dividend Payment Date" shall mean the first day of each February and
August, commencing with August 1, 1997, or the next succeeding Business
Day if any such day is not a Business Day.
"Dividend Period" shall mean the period from the Anniversary Date to
but excluding the first Dividend Payment Date and, thereafter, each semi-annual
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.
"Exchange Preferred Stock" shall have the meaning set forth in
paragraph 7(g).
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"Ex-Dividend Date: shall mean the date on which "ex-dividend" trading
commences for a dividend, an issuance of rights, warrants or options or a
distribution to which any of paragraph 7(c), (d), or (e) applies in the
over-the- counter market or on the principal exchange on which the Series A
Liberty Media Group Common Stock is then quoted or listed.
"Issue Date" shall mean the date on which shares of Series H Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii) the
Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv) any
other class or series of capital stock, whether now existing or hereafter
created, of the Company, other than (A) the Series H Preferred Stock, (B) any
class or series of Parity Stock (except to the extent provided under clause (v)
hereof) and (C) any class or series of Senior Stock, and (v) above, a class or
series of Parity Stock shall rank junior to the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of Series H Preferred Stock shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of such class or series of Parity Stock.
"Liberty Media Group Common Stock" shall mean the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock.
"Liquidation Preference" measured per share of the Series H Preferred
Stock as of any date in question (the "Relevant Date") shall mean an amount
equal to the sum of (a) the Stated Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 3(d)
of this Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
determining the amounts payable pursuant to paragraph 4 and paragraph 5 of this
Certificate of Designations and the definition of Redemption Price, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (a) and (b) above during the period from and including the immediately
preceding Dividend Payment Date (or the Anniversary Date if the Relevant Date
is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Company legally available for the payment of dividends, In connection with
the determination of the Liquidation Preference of a share of Series H
Preferred Stock upon redemption or upon liquidation, dissolution or winding up
of the company, the Relevant Date shall be the applicable date of redemption or
the date of distribution of amounts payable to stockholders in connection with
any such liquidation, dissolution or winding up.
"Mirror Preferred Stock" shall have the meaning set forth in paragraph
7(g).
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"1933 Act" shall mean the Securities act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Officers' Certificate" shall mean a certificate signed by the
chairman of the Board, President or any Senior Vice President of the Company
and by the Treasurer or any Assistant Treasurer of the Company.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created of the Company ranking on a parity
basis with the Series H Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series,
whether now existing or hereafter created, shall rank on a parity as to
dividend rights, rights of redemption or rights on liquidation with the Series
H Preferred Stock, whether or not the dividend rates, dividend payment dates,
redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different form those of the Series H
Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as
the case may be, in proportion to their respective accumulated and accrued and
unpaid dividends, redemption prices or liquidation prices, respectively,
without preference or priority, one over the other, as between the holders of
shares of such class or series and the holders of Series H Preferred Stock. No
class or series of capital stock that ranks junior to the Series H Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series H Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly so provides. The Series C Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock and the
Series G Preferred Stock rank on a parity basis with the Series H Preferred
Stock as to dividend rights, rights of redemption and rights on liquidation and
constitute "Parity Stock" for purposes of this Certificate of Designations.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
shall mean the 15th day of the month preceding the month during which such
Dividend Payment Date shall occur as and if designated by the Board of
Directors.
"Redeemable Capital Stock" shall have the meaning set forth in
paragraph 7(c).
"Redemption Date" as to any share of Series H Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a) or
5(b) of this Certificate of Designation, provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid in full
on such date or the consideration sufficient for the
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payment thereof, and for no other purpose, has been set apart or deposited in
trust as contemplated by paragraph 5(d) of this Certificate of Designations.
"Redemption Price", as to any share of Series H Preferred Stock that
is to be redeemed on any Redemption Date, shall mean the Liquidation Preference
thereof on such Redemption Date.
"Redemption Securities" shall have the meaning set forth in paragraph
7(g).
"Senior Stock" shall mean any class or series of capital stock of the
Company hereafter created ranking prior the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank prior to the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of such class or series shall be entitled to dividend payments,
payments of the Company, as the case may be, in preference or priority to the
holders of shares of Series H Preferred Stock. No class or series of capital
stock that ranks on a parity basis with or junior to the Series H Preferred
Stock as to rights on liquidation shall rank or be deemed to rank prior to the
Series H Preferred Stock as to dividend rights or rights of redemption,
notwithstanding that the dividend rate, dividend payment dates, sinking fund
provisions, if any, or mandatory redemption provisions thereof are different
from those of the Series H Preferred Stock, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly so
provides.
"Series A Liberty Media Group Common Stock" shall mean the Tele-
Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series A Liberty
Media Group Common Stock, or in the case of a consolidation or merger of the
Company with or into another Person affecting the Series A Liberty Media Group
Common Stock, such capital stock to which a holder of Series A Liberty Media
Group Common Stock shall be entitled upon the occurrence of such event.
"Series A TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series A TCI Group Common Stock, such capital stock to
which a holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B Liberty Media Group Common Stock" shall mean the Tele-
Communications, Inc. Series B Liberty Media Group Common Stock par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series B Liberty
Media Group Common Stock, or in the case of a
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consolidation or merger of the Company with or into another Person affecting
the Series B Liberty Media Group Common Stock, such shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series B TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series C Preferred Stock" shall mean the Convertible Preferred Stock,
Series C, par value $.01 per share, of the Company.
"Series D Preferred Stock" shall mean the Convertible Preferred Stock,
Series D, par value $.01 per share, of the Company.
"Series F Preferred Stock" shall mean the Convertible Redeemable
Participating Preferred Stock, Series F, par value $.01 per share, of the
Company.
"Series G Preferred Stock" shall have the meaning set forth in
paragraph 1 of this Certificate of Designations.
"Series H Preferred Stock" shall mean the Redeemable Convertible
Liberty Media Group Preferred Stock, Series H, par value $.01 per share, of the
Company.
"Special record Date" hall have the meaning set forth in paragraph
3(d) of this Certificate of Designations.
"Shared Value" of a share of Series H Preferred Stock shall have the
meaning set forth in paragraph 1 of this Certificate of Designations.
"Subsidiary" shall mean (i) a corporation (other than the Company) a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by the Company and/or one or more Subsidiaries of the Company and (ii) any
other Person (other than a corporation) in which the Company and/or one or more
Subsidiaries of the Company, directly or indirectly, has (x) a majority
ownership interest and (y) the power to elect or direct the election of a
majority of the members of the governing body of such entity.
"Target Price" shall initially mean $27 and shall be appropriately
adjusted to take into account any stock dividends on the Series A TCI Group
Common Stock or the Series A Liberty Media Group Common Stock, or any stock
splits, reclassifications or combinations of
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the Series A TCI Group Common Stock or the Series A Liberty Media Group Common
Stock during the period following the Issue Date and ending on the Anniversary
Date or on such earlier date, if any, as of which the Contingency is met.
"TCI Group Common Stock" shall mean the Series A TCI Group
Common Stock and the Series B TCI Group Common Stock.
3. Dividends
(a) The Contingency. If the sum of (i) the Closing Price of the
Series A TCI Group Common Stock, plus (ii) one-fourth of the Closing Price of
the Series A Liberty Media Group Common Stock equals or exceeds the Target
Price for any ten (10) consecutive trading days during the period of sixty-five
(65) consecutive trading days ending on and including the last trading day
immediately preceding the Anniversary Date (the "Contingency"), no dividends
will accrue or be payable with respect to the Series H Preferred Stock.
(b) Payment. In the event that the Contingency is not met, and
only in such event, the holders of Series H Preferred Stock shall, subject to
the prior preferences and other rights of any Senior Stock and to the
provisions of paragraph 6 hereof, be entitled to receive, when and as declared
by the Board of Directors out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, which
shall accrue as provided herein. Except as otherwise provided in paragraph
3(d) of this Certificate of Designations, dividends on each share of Series H
Preferred Stock will, if the Contingency is not met, accrue on a daily basis at
the rate of 4% per annum of the Liquidation Preference of such share from and
including the Anniversary Date to but excluding the date on which the
Liquidation Preference or Redemption Price of such share is made available
pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations
or the date of conversion of such share pursuant to paragraph 7 hereof, as
applicable. Dividends shall accrue as provided herein whether or not such
dividends have been declared and whether or not there are any unrestricted
funds of the Company legally available for the payment of dividends. Accrued
dividends on the series H Preferred Stock shall be payable semiannually on each
Dividend Payment Date, commencing on August 1, 1997, to the holders of record
of the Series H Preferred Stock as of the close of business on the applicable
Record Date. For purposes of determining the amount of dividends "accrued" (i)
as of the first Dividend Payment Date and as of any date that is not a Dividend
Payment Date, such amount shall be calculated on the basis of the rate per
annum specified above in this paragraph 3(b) for the actual number of days
elapsed from and including the Anniversary Date (in the case of the first
Dividend Payment Date and any date prior to the first Dividend Payment Date) or
the last preceding Dividend Payment Date (in the case of any other date) to but
excluding the date as of which such determination is to be made, based on a
365-day year, and (ii) as of any Dividend Payment Date after the first Dividend
payment Date, such amount shall be calculated on the basis of such rate per
annum based on a 360-day year of twelve 30-day months. For so long as the
Liquidation Preference of a share of Series H Preferred Stock is equal to the
Stated Value per share, the amount of the dividend payable per share on the
Dividend Payment Date for each full semi-annual Dividend Period shall be $.108.
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(c) Method of Payment. All dividends payable with respect to the
shares of Series H Preferred Stock may be declared and paid, in the sole
discretion of the Board of Directors, in cash, through the issuance of shares
of Series A TCI Group Common Stock or in any combination of the foregoing. If
any dividend payment declared by the Board of Directors with respect to the
shares of Series H Preferred Stock is to be paid in whole or in part through
the issuance of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Series H Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be
satisfied and paid by the delivery to the holders of record of such shares of
Series H Preferred Stock on the Record Date or Special Record Date, as the case
may be, for such dividend payment, of a number of shares of Series A TCI Group
Common Stock determined by dividing the Stock Dividend Amount by the Average
Market Price of a share of Series A TCI Group Common Stock as of such Record
Date or Special Record Date. The Company shall not be required to issue any
fractional share of Series A TCI Group Common Stock to which any holder of
Series H Preferred Stock may become entitled pursuant to this paragraph 3(c).
The Board of Directors may elect to settle any final fraction of a share of
Series A TCI Group Common Stock which a holder of one or more shares of Series
H Preferred Stock would otherwise be entitled to receive pursuant to this
paragraph 3(c) by having the Company pay to such holder, in lieu of issuing
such fractional share, cash in an amount (rounded upward to the nearest whole
cent) equal to the same fraction of the Average Market Price of a share of
Series A TCI Group Common Stock as of the Record Date or Special Record Date,
as the case may be, for the dividend payment with respect to which such shares
of Series A TCI Group Common Stock who would otherwise be entitled to receive a
fractional share of Series A TCI Group Common Stock on the Dividend payment
Date or other date fixed for the payment of such dividend.
All dividends paid with respect to the shares of Series H Preferred
Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series H Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
(d) Unpaid Dividends. If an any Dividend Payment Date the Company,
pursuant to applicable law or otherwise, shall be prohibited or restricted from
paying the full dividends of which holders of Series H Preferred Stock, and any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to the right to receive dividend payments, shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
otherwise restricted (if any) shall be distributed among the holders of Series H
Preferred Stock and any such Parity Stock ratably in proportion to the full
amounts to which they would otherwise be entitled. On each Dividend Payment
Date, all dividends that have accrued ton each share of Series H Preferred
Stock during the Dividend Period ending on such Dividend Payment Date shall, to
the extent not paid on such Dividend Payment Date for any reason (whether or
not such unpaid dividends have been declared or there are any unrestricted
funds of the Company legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such share and will remain a part
thereof until such dividends are paid. The rate per annum at which dividends
accrue in respect of that portion of the Liquidation Preference of
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a share of Series H Preferred Stock that consists of accrued unpaid dividends
that have been added to the Liquidation Preference of such share on a Dividend
Payment Date pursuant to this paragraph 3(d) and remain unpaid on the next
succeeding Dividend Payment Date shall increase to 8.625% per annum from and
after such next succeeding Dividend Payment Date to and including the date on
which the Liquidation Preference or Redemption Price of such share is made
available pursuant to paragraph 4 or 5, respectively, of this Certificate of
Designations or the date of conversion of such share pursuant to paragraph 7
hereof, as applicable, unless the portion of the Liquidation Preference that
consists of such accrued unpaid dividends is earlier declared and paid or an
amount sufficient to pay the same in full is irrevocably set apart in trust for
such purpose. That portion of the Liquidation Preference of a share of Series
H Preferred Stock that consists of accrued unpaid dividends, together with all
dividends accrued in respect thereof, may be declared an paid at any time
(subject to the rights of any Senior Stock and to the concurrent satisfaction
of any dividend arrearages that existing with respect to any Parity Stock that
ranks on a parity basis with the Series H Preferred Stock as to the payment of
dividends), without reference to any regular Dividend Payment Date, to holders
of record as of the close of business, on such date, not more than 45 days nor
less than 10 days prior thereto, to the holders of record of the shares of
Series H Preferred Stock.
(e) Credit. Any dividend payment made on the shares of Series H
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to the shares of Series H Preferred Stock.
(f) Authorized Shares. All shares of Series A TCI Group Common Stock
issued in payment of any dividend on the Series H Preferred Stock shall, when
issued, be duly and validly authorized, fully paid, nonassessable and free from
all preemptive or similar rights; the delivery of such shares shall be made in
compliance with all applicable Federal and state securities losses, and such
shares shall have been listed for trading on such national securities exchange
or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which any
Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Series H Preferred Stock shall be entitled to receive from the assets of the
company available for distribution to stockholders before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in
cash (or, at the election of the Company, property at its fair market value, as
determined by the Board of Directors in good faith) per share, equal to the
Liquidation Preference of a share of Series H Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari
passu with, and if the Company has elected to pay in property, in the same form
of property as, any such payment or distribution made to the holders of any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to distributions upon liquidation, dissolution or winding
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up of the Company. The holders of Series H Preferred Stock shall be entitled
to no other or further distribution of or participation in any remaining assets
of the Company after receiving the Liquidation Preference per share. If, upon
distribution of the Company's assets in liquidation, dissolution or winding up,
the assets of the company to be distributed among the holders of the Series H
Preferred Stock and to all holders of any Parity Stock ranking on a parity
basis with the Series H Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up shall be insufficient to permit payment
in full to such holders of the respective preferential amounts to which they
are entitled, then the entire assets of the Company to be distributed to holders
of the Series H Preferred Stock and such Parity Stock shall be distributed pro
rata to such holders based upon the aggregate of the full preferential amounts
to which the shares of Series H Preferred Stock and such Parity Stock would
otherwise respectively be entitled. Neither the consolidation or merger of the
Company with or into any other corporation or corporations nor the sale,
transfer, or lease of all or substantially all of the assets of the Company
shall itself be deemed a liquidation, dissolution or winding up of the Company
within the meaning of this paragraph 4. Notice of the liquidation, dissolution
or winding up of the Company shall be given, not less than twenty (20) days
prior to the date on which such liquidation, dissolution or winding up is
expected to take place or become effective to the holders of record of the
shares of Series H Preferred Stock.
5. Redemption.
(a) Optional Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designation, the
shares of Series H Preferred Stock may be redeemed, at the option of the
Company by action of the Board of Directors, in whole or from time to time in
part, on any Business Day occurring on or after February 1, 2001, at the
Redemption Price on the Redemption Date. If fewer than all of the outstanding
shares of Series H Preferred Stock are to be redeemed on any Redemption Date,
the shares of Series H Preferred Stock to be redeemed shall be chosen by the
Company pro rata (as nearly as may be practicable) among all holders of Series
H Preferred Stock. The Company shall not be required to register a transfer of
(i) any shares of Series H Preferred stock for a period of 15 days next
preceding any selection of shares of Series H Preferred Stock to be redeemed or
(ii) any shares of Series H Preferred Stock selected or called for redemption.
(b) Mandatory Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
Company shall redeem, out of funds legally available therefor, on February 1,
2016 (or, if such day is not a Business Day, on the first Business Day
thereafter) all shares of Series H Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Company legally
available for redemption of shares of the Series H Preferred Stock and any
Parity Stock then required to be redeemed are insufficient to redeem the total
number of such shares remaining outstanding, those funds which are legally
available shall, subject to the rights of any Senior Stock and the provisions
of paragraph 6, to be used to redeem the maximum possible number of shares of
Series H Preferred Stock and each such other class or series of Parity Stock.
Subject to the rights of any Senior Stock and the provisions of paragraph 6
hereof, at any time and from time to time
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thereafter when additional funds of the Company are legally available for such
purpose, such funds shall immediately be used to redeem the shares of Series H
Preferred Stock and of each such other class or series of Parity Stock which
were required to be redeemed that the Company failed to redeem until the
balance of such shares have been redeemed. The selection of shares to be
redeemed pursuant to the two immediately preceding sentences shall be made, as
nearly as practicable, on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(c) Notice of Redemption. Notice of redemption shall be given by or
on behalf other the Company at least sixty (60) days prior to the Redemption
Date, in the case of a redemption pursuant to paragraph 5(a) and not more than
sixty (60) days nor less than thirty (30) days prior to the Redemption Date, in
the case of the redemption pursuant to paragraph 5(b), to the holders of record
of the shares of Series H Preferred Stock to be redeemed; but no defect in such
notice or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any shares of Series H Preferred Stock. In addition to
any information required by law or by the applicable rules of an national
securities exchange or national interdealer quotation system on which the
Series H Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Redemption Price, the Redemption Date, the number of
shares to be redeemed and the place at which the shares called for redemption
will, upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and if the Company has elected to deposit the Redemption
Price with a Redemption Agent in accordance with paragraph 5(d), shall state
the name and address of the Redemption Agent and the date on which such deposit
was or will be made. Such notice shall also set forth the then current
Conversion Rate for the shares of Series H Preferred Stock and the place or
places to which a holder desiring to convert shares of Series H Preferred Stock
should deliver the certificate(s) evidencing such shares, together with such
other documents and instruments as are or may be required pursuant to paragraph
7 of this Certificate of Designations. In the event that fewer than the total
number of shares of Series H preferred Stock represented by a certificate are
redeemed, a new certificate representing the number of unredeemed shares will
be issued to the holder thereof without cost to such holder. If the shares of
Series H Preferred Stock evidenced by a certificate selected for partial
redemption pursuant to paragraph 5(a) of this Certificate of Designations are
thereafter converted in part pursuant to paragraph 7 hereof, the shares so
converted (as far as may be) will be deemed to be the shares selected for
redemption.
(d) Deposit of Redemption Price. If notice of any redemption by the
Company pursuant to this paragraph 5 shall have been given as provided in
paragraph 5(c) of this Certificate of Designations and if on or before the
Redemption Date specified in such notice an amount in cash sufficient to redeem
in full on the Redemption Date at the Redemption Price all shares of Series H
Preferred Stock call for redemption or required to be redeemed shall have been
set apart so as to be available for such purpose and only for such purpose,
then effective as of the close of business on the Redemption Date, the shares
of Series H Preferred Stock called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all remaining rights with respect
to such shares shall
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forthwith cease and terminate, except the right of the holders thereof to
receive the Redemption Price of such shares, without interest, upon the
surrender of certificates representing the same.
At its election, the Company on or prior to the Redemption Date (but
no more than ninety (90) days prior to the Redemption Date) may deposit
immediately available funds in an amount equal to the aggregate Redemption
Price of the shares of Series H Preferred Stock called for redemption in trust
for the holders thereof with any bank of trust company organized under the laws
of the United States of America or any state thereof having capital, undivided
profits and surplus aggregating at least $50 million (the "Redemption Agent"),
with irrevocable instructions and authority to the Redemption Agent on behalf
and at the expense of the Company, to mail the notice of redemption as soon as
practicable after receipt of such irrevocable instructions (or to complete such
mailing previously commenced, if it has not already been completed) and to pay,
on and after the Redemption Date or prior thereto, the Redemption Price of the
shares of Series H Preferred Stock to be redeemed to their respective holders
upon the surrender of the certificates therefor. A deposit made in compliance
with the immediately receding sentence shall be deemed to constitute full
payment for the shares of Series H Preferred Stock to be redeemed and from and
after the later of the close of business on the date of such deposit (although
prior to the Redemption Date) or the date notice of redemption is mailed, the
shares of Series H Preferred Stock to be redeemed shall no longer be deemed
outstanding and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect to such shares except (x)
the right of the holders thereof to receive the Redemption Price of such shares
(calculated through the Redemption date), without interest, upon surrender of
the certificates therefor and (y) the right to convert such shares in
accordance with paragraph 7 prior to the close of business on the Business Day
immediately preceding the Redemption Date. Any funds so deposited which shall
not be required for the payment of the Redemption Price of any shares of Series
H Preferred Stock to be redeemed because of the conversion of such shares shall
after such conversion be repaid to the Company by the Redemption Agent. Any
interest accrued on the funds so deposited shall be paid to the Company from
time to time. Any funds so deposited with the Redemption Agent which shall
remain unclaimed by the holders of such shares of Series H Preferred Stock at
the end of one year after the Redemption Date shall be returned by the
Redemption Agent to the Company, after which repayment the holders of such
shares of Series H Preferred Stock called for redemption shall look only to the
Company for the payment thereof, without interest, unless an applicable escheat
or abandoned property law otherwise requires.
6. Limitations on Dividends and Redemptions. If at any time the
Company shall have failed to pay, or declare and set aside the consideration
sufficient to pay, full cumulative dividends for all prior dividend periods on
any Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock is entitled to the payment of such cumulative dividends prior
to the redemption, exchange, purchase or other acquisition of the Series H
Preferred Stock, and until full cumulative dividends on such Parity Stock for
all prior dividend periods are paid, or declared and the consideration
sufficient to pay the same in full is set aside so as to be available for such
purpose and no other purpose, neither the Company nor any Subsidiary thereof
shall redeem, exchange, purchase or otherwise acquire any shares of Series
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H Preferred Stock, Parity Stock or Junior Stock, or set aside any money or
assets for any such purpose pursuant to paragraph 5(d) hereof, any sinking fund
or otherwise, unless all then outstanding shares of Series H Preferred Stock,
of such Parity Stock and of any other class or series of Parity Stock that by
the terms of the instrument creating or evidencing such Parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof.
If at any time the Company shall have failed to pay, or declare and
set aside the consideration sufficient to pay, full cumulative dividends on the
Series H Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative
dividends on the Series H Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series H Preferred Stock for all dividend Periods
ending before the immediately preceding Dividend Payment Date are paid, or
declared and the consideration sufficient to pay the same in full is set aside
so as to be available for such purpose and no other purpose, (i) neither the
Company nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series H Preferred Stock, Parity Stock, or
Junior Stock, or set aside any money or assets for any such purpose pursuant to
paragraph 5(d) hereof, any sinking fund or otherwise, unless all then
outstanding shares of Series H Preferred Stock and of any other class or series
of Parity Stock that by the terms of the instrument creating or evidencing such
Parity Stock is required to be redeemed under such circumstances are redeemed
or exchanged pursuant to the terms hereof and thereof, and (ii) the Company
shall not declare or pay any dividend on or make any distribution with respect
to any Junior Stock or Parity Stock or set aside any money or assets for any
such purpose, except that the Company may declare and pay a dividend on any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to the right to receive dividend payments, contemporaneously with the
declaration and payment of a dividend on the Series H Preferred Stock, provided
that such dividends are declared and paid pro rata so that the amount of
dividends declared and paid per share of Series H Preferred Stock and such
Parity Stock shall in all cases bear to each other the same ratio that
accumulated and accrued and unpaid dividends per share on the Series H
Preferred Stock and such Parity Stock bear to each other.
If the Company shall fail to redeem on any date fixed for redemption
pursuant to paragraph 5(a) or 5(b) of this Certificate of Designations any
shares of Series H Preferred Stock called for redemption or required to be
redeemed on such date, and until such shares are redeemed in full, the Company
shall not (x) redeem any Junior Stock or, except as provided in paragraph 5(b)
hereof, Parity Stock or (y) declare or pay any dividend on or make any
distribution with respect to any Junior Stock or, except as provided in the
second paragraph of this paragraph 6, Parity Stock, or set aside any money or
assets for any such purpose, and neither the Company nor any Subsidiary thereof
shall purchase or otherwise acquire any Series H Preferred Stock, Parity Stock
or Junior Stock, or set aside any money or assets for any such purpose.
Nothing contained in the first or third paragraph of this paragraph 6
shall prevent (i) the payment of dividends on any Junior Stock solely in shares
of Junior Stock or the redemption, purchase or other acquisition of Junior
Stock solely in exchange for (together with
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a cash adjustment for fractional shares, if any), or (but only in the case of
the first paragraph of this paragraph 6) through the application of the
proceeds from the sale of shares of Junior Stock; (ii) the payment of dividends
on any Parity Stock solely in shares of Parity Stock and/or Junior Stock or the
redemption, exchange, purchase or other acquisition of Series H Preferred Stock
or Parity Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first paragraph of
this paragraph 6) through the application of the proceeds from the sale of,
shares of Parity Stock and/or Junior Stock; or (iii) the purchase or
acquisition of shares of Series H Preferred Stock pursuant to a purchase or
exchange offer made to all holders of outstanding shares of Series H Preferred
Stock, provided that the terms of the purchase or exchange offer shall be
identical for all shares of Series H Preferred Stock and all accrued dividends
on such shares shall have been paid or shall have been declared and irrevocably
set apart in trust for the benefit of the holders of shares of Series H
Preferred Stock and for no other purpose.
The provisions of the first paragraph of this paragraph 6 are for the
sole benefit of the holders of Series H Preferred Stock and Parity Stock having
the terns described therein and accordingly, at any time when there are no
shares of any such class or series of Parity Stock outstanding or if the
holders of each such class or series of Parity Stock have, by such vote or
consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series H Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series H Preferred Stock and
accordingly, if the holders of shares of Series H Preferred Stock shall have
waived as provided in paragraph 10 of this Certificate of Designations) in
whole or in part the benefit of the applicable provision, either generally or
in the specific instance, such provision shall not (to the extent of such
waiver, in the case of a partial waiver) restrict the redemption, exchange,
purchase or other acquisition of, or declaration, payment or making of any
dividends or distributions on, the Series H Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion of Series H Preferred Stock.
(a) Right to Convert. Unless previously redeemed as provided in
paragraph 5 of this Certificate of Designations, shares of Series H Preferred
Stock may be converted at the option of the holder thereof, in the manner and
upon the terms and conditions set forth in this paragraph 7, into fully paid
and nonassessable whole shares of Series A Liberty Media Group Common Stock at
the Conversion Rate in effect on the Conversion Date, at any time prior to the
close of business on the Business Day immediately preceding the Redemption Date
for the redemption of shares of Series H Preferred Stock pursuant to paragraph
5(a) or 5(b) of this Certificate of Designations.
(b) Mechanics of Conversion. In order to convert shares of Series H
Preferred Stock, the holder thereof shall surrender the certificate or
certificates representing the shares of
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<PAGE> 213
Series H Preferred Stock to be converted at the office of the Company or the
office of any transfer agent for the Series H Preferred Stock, which
certificate or certificates shall be duly endorsed to the Company in blank (or
accompanied by duly executed instruments of transfer to the Company in blank)
with signatures guaranteed (such endorsements or instruments of transfer to be
in form satisfactory to the Company), together with a written notice to the
Company at said office of the election to convert the same, specifying the
number of shares of Series H Preferred Stock to be converted and the name or
names (with addresses) in which the certificate or certificates for shares of
Series A Liberty Media Group Common Stock are to be issued. If any transfer
certificates for shares of Series A Liberty Media Group Common Stock are to be
issued. If any transfer is involved in the issuance or delivery of any
certificate or certificates for shares of Series A Liberty Media Group Common
Stock in a name other than that of the registered holder of the shares of
Series H Preferred Stock surrendered for conversion, such holder shall also
deliver to the Company a sum sufficient to pay all taxes, if any, payable is
respect of such transfer or evidence satisfactory to the company that such
taxes have been paid. Except as provided in the immediately preceding
sentence, the Company shall pay any issue, stamp or other similar tax in
respect of such issuance or delivery.
The Company shall, as soon as practicable after the Conversion Date,
deliver to the holder of the shares of Series H Preferred Stock so surrendered
for conversion, or to such holder's nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
whole shares of Series A Liberty Media Group Common Stock to which such holder
shall be entitled, together with cash or its check in lieu of any fractional
share as provided in paragraph 7(o). If the shares of Series H Preferred Stock
represented by a certificate surrendered for conversion are converted only in
part, the Company will also issue and deliver to the holder, or to such
holder's nominee(s) or, subject to compliance with applicable law,
transferee(s), without charge therefor, a new certificate or certificates
representing in the aggregate the unconverted shares of Series H Preferred
Stock.
The Person in whose name the certificate for shares of Series A
Liberty Media Group Common Stock is issued upon such conversion shall be
treated for all purposes as the stockholder of record of such shares of Series
A Liberty Media Group Common Stock as of the close of business on the
Conversion Date; provided, however, that no surrender of Series H Preferred
Stock on any date when the stock transfer books of the Company are closed for
any purpose shall be effective to constitute the Person or Persons entitled to
receive the shares of Series A Liberty Media Group Common Stock on such date,
but such surrender shall be effective (assuming all other requirements of this
paragraph 7 have been satisfied) to constitute such Person or Persons as the
record holders of such shares of Series A Liberty Media Group Common Stock for
all purposes as of the opening of business on the next succeeding day on which
such stock transfer books are open, and such conversion shall be at the
Conversion Rate in effect on the date that such shares of Series H Preferred
Stock were surrendered for conversion (and such other requirements satisfied)
as if the stock transfer books of the Company had not been closed on such date.
upon conversion of shares of Series H Preferred stock, the rights of the holder
of the shares so converted as a holder thereof, will cease.
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Notwithstanding the last sentence of the immediately preceding
paragraph, if the Board of Directors declares any dividend on the Series H
Preferred Stock pursuant to paragraph 3 of this Certificate of Designations,
and the Conversion Date for any shares of Series H Preferred Stock occurs on or
after the Record Date or Special Record Date, as the case may be, and before
the Dividend payment Date for such dividend (or, in the case of a dividend
declared pursuant to Section 3(d), then the holder of such shares of Series H
Preferred Stock on such Record Date shall be entitled to receive such dividend
on such Dividend Payment Date (or such other date, as the case may be), as if
such Conversion Date had not occurred.
(c) Adjustments for Change in Capital Stock. If after the Issue
Date, the Company:
(i) pays a dividend or makes a distribution on the Series A
Liberty Media Group Common Stock in shares of Series A Liberty Media
Group Common Stock;
(ii) subdivides the outstanding shares of Series A Liberty
Media Group Common Stock into a greater number of shares;
(iii) combines the outstanding shares of Series A Liberty
Media Group Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on the Series A
Liberty Media Group Common Stock in shares of its capital stock (other
than Section A Liberty Media Group Common Stock or rights, warrants or
options for its capital stock), or
(v) issues by reclassification of its shares of Series A
Liberty Media Group Common Stock (other than a reclassification by way
of merger or binding share exchange that is subject to paragraph 7(f))
any shares of its capital stock (other than rights, warrants or
options for its capital stock).
then, subject to the following sentence and to paragraph 7(j), the conversion
privilege and the Conversion Rate in effect immediately prior to the opening of
business on the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the holder of any shares of Series H Preferred Stock thereafter converted
may receive the kind and number of shares of capital stock of the Company which
such holder would have owned immediately following such event if such holder
had converted his shares of Series H Preferred Stock immediately prior to the
record date for, or effective date of, as the case may be, such event.
Notwithstanding the foregoing, if an event listed in clause (iv) of (v) above
would result in the shares of Series H Preferred Stock being convertible into
shares or units (or a fraction thereof) of more than one class or series of
capital stock of the Company and any such class or series of capital stock
(other than Series A
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<PAGE> 215
Liberty Media Group Stock) provides by its terms a right in favor the Company
to call, redeem, exchange or otherwise acquire all of the outstanding shares or
units of such class or series (such class or series of capital stock being
herein referred to as "Redeemable Capital Stock") then, at the option of the
Company, the conversion privilege and Conversion Rate of the Series H Preferred
Stock shall not be adjusted pursuant to this paragraph 7(c) and in lieu
thereof, but subject to paragraph (j), the adjustments to the Conversion Rate
contemplated by paragraph 7(e) shall be made with the same effect as if the
dividend or distribution of Redeemable Capital Stock or the issuance of the
additional class or series of Redeemable Capital stock by reclassification had
been a distribution of assets of the Company.
The adjustment contemplated by this paragraph 7(c) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective immediately after the
record date for the dividend or distribution. For a subdivision, combination
or reclassification, the adjustment shall become effective immediately after
the effective date of the subdivision, combination or reclassification.
If after an adjustment a holder of Series H Preferred Stock would be
entitled to receive upon conversion thereof shares of two or more classes or
series of capital stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken with respect to
any such class or series of capital stock as is contemplated by this paragraph
7 with respect to the Series A Liberty Media Group Common Stock, on terms
comparable to those applicable to the Series A Liberty Media Group Common Stock
pursuant to this paragraph 7.
Any shares of Series A Liberty Media Group Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the time of the record date for such dividend for purposes of calculated the
number of outstanding shares of Series A Liberty Media Group Common Stock under
paragraphs 7(d) and 7(e) below.
(d) Adjustment for Rights Issue. If, after the Company distributes
any rights, warrant or options to holders of shares of Series A Liberty Media
Group Common Stock entitling them for a period expiring within 45 days after
the record date of the determination of stockholders entitled to receive such
distribution, to purchase shares of Series A Liberty Media Group Common Stock
(or Convertible Securities) as a price per share (or having a conversion price
per share, after adding thereto an allocable portion of the exercise price of
the right, warrant or option to purchase such Convertible Securities, computed
on the basis of the maximum number of shares of Series A Liberty Media Group
Common Stock issuable upon conversion of such Convertible Securities) less than
the Current Market Price on the Determination Date, the Conversion Rate in
effect immediately prior to the opening of business on such record date by a
fraction, of which the numerator shall be the number of shares of Series A
Liberty Media Group Common Stock outstanding on such record date plus the
number of shares of Series A Liberty Media Common Stock which the aggregate
offering price of the total number of shares of Series A Liberty Media Group
Common Stock so offered
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<PAGE> 216
(or the aggregate conversion price of the Convertible Securities to be so
offered, after adding thereto the aggregate exercise price of the rights,
warrants or options to purchase such Convertible Securities) to the holders of
Series A Liberty Media Group Common Stock (and to the holders of Convertible
Securities and Series B Liberty Media Group Common Stock referred to in the
immediately succeeding paragraph of this paragraph 7(d) if the distribution to
which this paragraph 7(d) applies is also being made to such holders) would
purchase at such Current Market Price, and of which the denominator shall be
the number of shares of Series A Liberty Media Group Common Stock outstanding
on such record date plus the number of additional shares of Series A Liberty
Media Group Common Stock so offered to the holders of Series A Liberty Media
Group Common Stock (and to such holders of Convertible Securities and Series B
Liberty Media Group Common Stock) for subscription or purchase (or into which
the Convertible Securities so offered are convertible). Shares of Series A
Liberty Media Group Common Stock owned by or held for the account of the
Company shall not be deemed to be outstanding the propose of any such
adjustment.
For purposes of this paragraph 7(d) the number of shares of Series A
Liberty Media Group Common Stock outstanding on any record date shall be deemed
to include (i) the maximum number of shares of Series A Liberty Media Group
Common Stock the issuance of which would be necessary to effect the full
exercise, exchange or conversion of all Convertible Securities outstanding on
such record date which are then exercisable, exchangeable or convertible at a
price (before giving effect to any adjustment to such price for the
distribution to which this paragraph 7(d) is being applied) equal or less than
the Current Market Price per share of Series A Liberty Media Group Common Stock
on the applicable Determination Date, if all of such Convertible Securities
were deemed to have been exercised, exchanged or converted immediately prior to
the opening of business on such record date and (ii) if the Series B Liberty
Media Group Common Stock is then convertible into Series A Liberty Media Group
Common Stock, the maximum number of shares of Series A Liberty Media Group
Common Stock the issuance of which would be necessary to effect the full
conversion of all shares of Series B Liberty Media Group Common Stock
outstanding on such record date, if all of such shares of Series B Liberty
Media Group Common Stock were deemed to have been converted immediately prior
to the opening of business on such record date.
The adjustment contemplated by this paragraph 7(d) shall be made
successively whenever any such rights, warrants or options are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive the rights, warrants or options. If all of
the share of Series A Liberty Media Group Common Stock (or all of the
Convertible Securities) subject to such rights, warrants or options have not
been issued when such rights, warrants or options expire (or, in the case of
rights, warrants or options to purchase Convertible Securities which have been
exercised, if all of the shares of Series A Liberty Media Group Common Stock
issuable upon conversion of such Convertible Securities have not been issued
prior to the expiration of the conversion right hereof), then the Conversion
Rate shall promptly be readjusted to the Conversion Rate which would then be in
effect had the adjustment upon the issuance of such rights, warrants or options
been made on the basis of the actual number of shares of Series A Liberty Media
Group Common Stock (or Convertible Securities) issued
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upon the exercise of such rights, warrants or options (or conversion of such
Convertible Securities).
No adjustment shall be made under this paragraph 7(d) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect immediately
prior to such adjustment.
(e) Adjustments for Other Distributions. If, after the Issue Date
(i) the Company distributes to all holders of shares of Series A Liberty Media
Group Common Stock any assets or debt securities or any rights, warrants or
options to purchase securities (excluding (x) dividends or distributions
referred to in paragraph 7(c) (except as otherwise provide in clause (ii) of
this sentence) and distributions of rights, warrants or options referred to in
paragraph 7(d) and (y) cash dividends or other cash distributions, unless such
cash dividends or cash distributions are Extraordinary Cash Dividends), or (ii)
the Company makes a dividend or distribution of Redeemable Capital Stock on, or
issues Redeemable Capital Stock by reclassification of, the Series A Liberty
Media Group Common Stock by reclassification of, the Series A Liberty Media
Group Common Stock and determines pursuant to paragraph 7(c) to treat the same
as a distribution of assets of the Company subject to this paragraph 7(e),
then in each such event the Conversion Rate shall be adjusted by dividing the
Conversion Rate in effect immediately prior to the opening of business on (A)
the record date for the determination of stockholders entitled to receive the
distribution or (B) in the case of a reclassification, the effective date of
such reclassification by a fraction, of which the numerator shall be the total
number of shares or Series A Liberty Media Group Common Stock outstanding on
such record date or immediately prior to such effective date multiplied by the
Current Market price on the Determination Date, less the fair market value (as
determined in good faith by the Board of Directors) on such record date or
effective date of said assets (or Redeemable Capital Stock) or debt securities
or rights, warrants or options so distributed to the holders of Series A
Liberty Media Group Common Stock (and to the holders of Convertible Securities
and Series B Liberty Media Group Common Stock referred to in the immediately
succeeding paragraph of this paragraph 7(e) if the distribution to which this
paragraph 7(e) applies is also being made to such holders), and of which the
denominator shall be the total number of shares of Series A Liberty Media Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by such Current Market Price.
For purposes of this paragraph 7(e), the number of shares of Series A
Liberty Media Group Common Stock outstanding on any relevant date shall be
deemed to include (i) the maximum number of shares of Series A Liberty Media
Group Common Stock the issuance of which would be outstanding on such date
which are then exercisable, exchangeable or convertible at a price (before
giving effect to any adjustment to such price for the distribution to which
this paragraph 7(e) is being applied) equal to or less than the Current Market
Price on the applicable Determination Date, if all of such Convertible
Securities were deemed to have been exercised, exchanged or converted
immediately prior to the opening of business on such date and (ii) if the
Series B Liberty Media Group Stock is then convertible into Series A Liberty
Media Group Common Stock the issuance of which would be necessary to effect the
full conversion of all
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shares of Series B Liberty Media Group Common Stock outstanding on such date,
if all of such shares of Series B Liberty Media Group Common Stock were deemed
to have been converted immediately prior to the opening of business on such
date.
For purposes of this paragraph 7(e), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to the Series A Liberty
Media Group Common Stock the amount of which, together with the aggregate
amount of cash dividends on the Series A Liberty Media Group Common Stock to be
aggregated with such cash dividend in accordance with the following provisions
of this paragraph, equals or exceeds the threshold percentage set forth below
in the following sentence. If, upon the date prior to the Ex-Dividend Date
with respect to a cash dividend on Series A Liberty Media Group Common Stock,
the aggregate of the amount of such cash dividend together with the amounts of
all cash dividends on the Series A Liberty Media Group Common Stock with
Ex-Dividend Dates occurring in the 365 consecutive day period ending on the
date prior to the Ex-Dividend Date with respect to the cash dividend to which
this provision is being applied (other than any such other cash dividends with
Ex-Dividend Dates occurring in such period for which a prior adjustment in the
Conversion Rate was previously made under this paragraph 7(e)) equals or
exceeds on a per share basis 10% of the average of the Closing Prices during
the period beginning on the date after the first such Ex-Dividend Date in such
period and ending on the date prior to the Ex-Dividend Date with respect to the
cash dividend to which this provision is being applied (except that if no other
cash dividend has had an Ex-Dividend Date occurring in such period, the period
for calculating the average of the Closing Prices shall be the period
commencing 365 days prior to the date immediately prior to the Ex-Dividend Date
with respect to the cash dividend to which this provision has been applied),
such cash dividend together with each other cash dividend to which this
provision is being applied), such cash dividend with an Ex-Dividend Date
occurring in such 365-day period that is aggregated with such cash dividend in
accordance with this paragraph shall be deemed to be an Extraordinary Cash
Dividend.
The adjustment pursuant to the foregoing provisions of this paragraph
7(e) shall be made successively whenever any distribution to which this
paragraph 7(e) applies is made, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
distribution (or, in the case of a reclassification, the effective date).
Shares of Series A Liberty Media Group Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such adjustment.
No adjustment shall be made under this paragraph 7(e) if the adjusted
Conversion Rate would be lower than the conversion rate in effect prior to such
adjustment. In the event that, with respect to any distribution to which this
paragraph 7(e) would otherwise apply, the numerator of the fraction in the
formula set forth in the first paragraph of this paragraph 7(e) is zero or a
negative number, then the adjustment provided by this paragraph 7(e) shall not
be made. If the Company makes a distribution to all holders of its Series A
Liberty Media Group Common Stock of any of its assets or debt securities or any
rights, warrants or options to purchase securities of the Company that, but for
the immediately preceding sentence, would otherwise result in an adjustment in
the Conversion Rate pursuant to the foregoing provisions of this paragraph
7(e), then, from and after the record date for determining the holders of
Series A
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<PAGE> 219
Liberty Media Group Common Stock entitled to receive the distribution, a holder
of Series H Preferred Stock that converts such shares in accordance with the
provisions of this paragraph 7 will upon such conversion be entitled to
receive, in addition to the shares of Series A Liberty Media Group Common
Stock into which such shares of Series H Preferred Stock are convertible, the
kind and amount of securities, cash or other assets comprising the distribution
that such holder would have received if such holder had converted such shares
of Series H Preferred Stock immediately prior to the record date for
determining the holders of Series A Liberty Media Group Common Stock entitled
to receive the distribution.
(f) Consolidation, Merger or Sale of the Company. If the Company
consolidates with or merges into, or transfers (other than by mortgage or
pledge) its properties and assets substantially as an entirety to, another
Person or Company is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Series A Liberty Media Group Common
Stock, the Company (or its successor in such transaction) or the transferee of
such properties and assets shall make appropriate provision so that the
holders of the shares of Series H Preferred Stock then outstanding shall have
the right thereafter to convert such shares into the kind and amount of
securities, cash or other assets receivable upon such transaction by a holder
of the number of shares of Series A Liberty Media Group Common Stock, the
Company (or its successor in such transaction) or the transferee of such
properties and assets shall make appropriate provision so that the holders of
the shares of Series H Preferred Stock then outstanding shall have the right
thereafter to convert such shares into the kind and amount of securities, cash
or other assets receivable upon such transaction by a holder of the number of
shares of Series A Liberty Media Group Common Stock into which such shares of
Series H Preferred Stock could have been converted immediately before the
effective date of such transaction (assuming, to the extent applicable, that
such holder failed to exercise any rights of election with respect thereto and
received per share of Series A Liberty Media Group Common Stock the kind and
amount of securities, cash or other assets received per share by a plurality of
the non-electing shares of Series A Liberty Media Group Common Stock), and the
holders of the Series H Preferred Stock shall have no other conversion rights
under these provisions; provided that (i) effective provision shall be made, in
the Articles or Certificate of Incorporation of the resulting or surviving
corporation or otherwise or in any contracts of sale or transfer, so that the
provisions set forth herein for the protection of the conversion rights of
Series H Preferred Stock shall thereafter be made applicable, as nearly as
reasonable may be, to any such other securities and assets deliverable upon
conversion of the Series H Preferred Stock remaining outstanding or other
convertible preferred stock or other securities received by the holders of
Series H Preferred Stock in place thereof, and (ii) any such resulting or
surviving corporation or transferee shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such securities, cash
or other assets as the holders of the Series H Preferred Stock remaining
outstanding, or other convertible preferred stock or other securities received
by the holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provision for the protection of the conversion
rights of the Series H Preferred Stock, or of any other convertible preferred
stock or other securities received by the holders in place thereof, as provided
in clause (i) of this sentence.
If this paragraph 7(f) applies, paragraphs 7(c), 7(d) and 7(e) apply.
(g) Effect of Redemption. Subject to paragraph 7(j) and to the
remaining provisions of this paragraph 7(g), in the event that (i) the Company
redeems all, and not less than all, of the outstanding shares of Series A
Liberty Media Group Common Stock in accordance
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with the terms thereof or (ii) a holder of Series H Preferred Stock would be
entitled to receive upon conversion thereof pursuant to this paragraph 7 any
Redeemable Capital Stock and the Company redeems, exchanges or otherwise
acquires all of the outstanding shares or other units of such Redeemable
Capital Stock (such event referred to in clause (i) and (ii) being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series H Preferred Stock then outstanding shall
be entitled to receive upon conversion of such shares, in lieu of shares or
units of such Redeemable Capital Stock, the kind and amount of securities cash
or other assets receivable upon the redemption Event by a holder of the number
of shares or units of such Redeemable Capital Stock into which such shares of
Series H Preferred Stock could have been converted immediately prior to the
effective date of such Redemption Event (assuming, to the extent applicable,
that such holder failed to exercise any rights of election with respect thereto
and received per share or unit of such Redeemable Capital Stock the kind and
amount of securities, cash or other assets received per shares or unit by a
plurality of the non-electing shares or units of such Redeemable Capital
Stock), and (from and after the effective date of such Redemption Event) the
holders of the Series H Preferred Stock shall have no other conversion rights
under these provisions with respect to such Redeemable Capital Stock, as the
case may be.
Notwithstanding the foregoing, if the redemption price for the shares
of Series A Liberty Media Group Common Stock or Redeemable Capital Stock
is paid in whole or in part in Redemption Securities, and the Mirror Preferred
Stock Condition is met, the Series H Preferred Stock shall not be convertible
into such Redemption Securities and, from and after the applicable redemption
date, the holders of any shares of Series H Preferred Stock that have not been
exchanged for Mirror Preferred Stock shall have no conversion rights under
these provisions except for any conversion right that may have existed
immediately prior to the effective date of the Redemption Event with respect to
any securities, cash or other assets other than the Series A Liberty Media
Group Common Stock or Redeemable Capital Stock so redeemed. The Mirror
Preferred Stock Condition will be met in connection with a redemption of the
Series A Liberty Media Group Common Stock or the Redeemable Capital Stock into
which the Series H Preferred Stock is then convertible, assuming that the
Series H Preferred Stock is not then convertible into any other security, cash
or other assets, if the Company makes appropriate provision so that the holders
of the Series H Preferred Stock have the right to exchange their shares of
Series H Preferred Stock on the effective date of the Redemption Event for
shares of Mirror Preferred Stock of the issuer of the Redemption Securities,
which Mirror Preferred Stock shall have an aggregate initial liquidation
preference equal to the aggregate Liquidation Preference of the shares of
Series H Preferred Stock exchanged therefor.
If before giving effect to a Redemption Even, a holder of Series H
Preferred Stock would be entitled to receive upon conversion of such Series H
Preferred Stock any Securities, cash (other than cash in lieu of fractional
securities) or other assets in addition to the Series A Liberty Media Group
Common Stock or Redeemable Capital Stock being redeemed, and
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<PAGE> 221
the redemption price payable upon such Redemption Event will include Redemption
Securities, then to satisfy the Mirror Preferred Stock Condition, the Company
would be required to make appropriate provision so that the holders of the
Series H Preferred Stock have the right to exchange their shares of Series H
Preferred Stock on the effective date of the Redemption Event for Exchange
Preferred Stock of the Company and Mirror Preferred Stock of the issuer of the
Redemption Securities. The sum of the initial liquidation preferences of the
shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in
exchange for a share of Series H Preferred Stock will equal the Liquidation
Preference of a share of Series H Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation
Preference of the shares of Series H Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Series A Liberty
Media Group Common Stock or Redeemable Capital stock to be redeemed (determined
immediately prior to the effective date of the Redemption Event) and the
average of the daily Closing Prices of the Series A Liberty Media Group Common
Stock or Redeemable Capital Stock, as the case may be, for the period of ten
consecutive trading days ending on the third trading day prior to the effective
date of the Redemption event, divided by (y) the sum of the amount determined
pursuant to clause (x), plus the fair value of the securities (other than those
being redeemed), cash or other assets that would have been receivable by a
holder of Series H Preferred Stock upon conversion thereof immediately prior to
the effective date of the Redemption event (such fair value to be determined in
the case of securities with a Closing Price in the same manner as provided in
clause (x) and otherwise by the Board of Directors in the exercise of its good
faith judgment). The shares of exchange Preferred stock will have an aggregate
initial liquidation preference equal to the difference between the aggregate
Liquidation Preference of the shares of Series H Preferred Stock exchanged
therefore and the aggregate initial liquidation preference of the Mirror
Preferred Stock.
When used in connection with a redemption by the Company of any
redeemable Capital Stock into which the Series H Preferred stock is then
convertible, the following terms have the following meanings:
(i) "Redemption Securities' means securities of an issuer
other than the Company that are distributed by the company, in
payment, in whole or in part, of the redemption price for the Series A
Liberty Media Group Common Stock or such Redeemable Capital Stock.
(ii) "Mirror Preferred Stock" means convertible preferred
stock issued by the issuer of the Redemption Securities and having
terms, conditions, designations, dividend rights, voting powers,
rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly
so as is practicable in the good faith judgment of the Board of
Directors, to those of the Series H Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (x) the liquidation
preference will be determined as provided above in this paragraph
7(g), (y) the running of any time periods pursuant to the terms of
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<PAGE> 222
the Series H Preferred Stock shall be tacked to the corresponding time
periods in the Mirror Preferred stock and (z) the Mirror Preferred
stock shall be convertible into the kind and amount of Redemption
Securities, cash and other assets that the holder of a share of Series
H Preferred Stock in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof would have received upon
redemption of the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock, as the case may be, had such shares of
Series H Preferred Stock been converted prior to the effective date
of the Redemption Event.
(iii) "Exchange Preferred Stock" means a series of
convertible preferred stock of the company having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation
and other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof that are identical, or as nearly so as is practicable in the
good faith judgment of the Board of Directors, to those of the Series
H Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (x) the liquidation preference will be
determined as provided above in this paragraph 7 (g), (y) the running
of any time periods pursuant to the terms of the Series H Preferred
Stock and (z) the Exchange Preferred Stock will not be convertible
into, and the holders will have no conversion rights thereunder with
respect to, the Redeemable Capital Stock redeemed in th Redemption
Event.
Notwithstanding the second paragraph of this paragraph 7(g), the
Mirror Preferred Stock condition shall only be deemed to have been satisfied in
connection with any Redemption Event if, in the good faith determination of the
Board of Directors: (i) receipt of Mirror Preferred stock and/or Exchange
Preferred Stock in exchange for Series H Preferred Stock pursuant to the second
paragraph of this paragraph 7(g) would not result in the recognition of gain or
loss by the holders of such Series H Preferred Stock for United States federal
income tax purposes; (ii) an adjustment made in the Conversion Rate of the
Series H Preferred Stock with respect to such Redemption Event, as provided in
the first paragraph of this paragraph of this paragraph 7(g), would result in
the recognition of gain or loss by the holders of Series H Preferred Stock for
United States federal income tax purposes; or (iii) receipt of Redemption
Securities in redemption of the Series A Liberty Media Group Common Stock or
the Redeemable Capital Stock to be redeemed in the Redemption Event would
result in the recognition of gain or loss by the holders of such Redeemable
Capital Stock, as the case may be.
(h) Simultaneous Adjustments. In the event that this paragraph 7
requires adjustments to the conversion Rate under more than one of paragraph
7(c)(iv), (d) or (e), and the record dates of the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of paragraph 7(c), second, the
provisions of paragraph 7(e) and, third, the provisions of paragraph 7(d).
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<PAGE> 223
(i) When Adjustment May be Deferred. In any case in which this
paragraph 7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event (x) issuing to the holder of any shares of Series H Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of Series A Liberty Media Group Common Stock issuable upon
such Series A Liberty Media Group Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder cash or
its check in lieu of any fractional interest to which he is entitled pursuant
to paragraph 7(o); provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A Liberty Media Common Stock
and such cash, upon the occurrence of the event requiring such adjustment.
(j) De Minimis Adjustment; When Adjustment is Not Required. No
adjustments in the Conversion Rate need be made unless the adjustment would
require an increase or decrease of at least one percent (1%) in the Conversion
Rate. Any adjustment which is not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest
cent or to the nearest 1/1000th of a share, as the case may be.
No adjustment need be made for rights to purchase shares of Series A
Liberty Media Group Common Stock or for sales of shares of Series A Liberty
Media Group Common Stock which in either case are made pursuant to a Company
plan providing for reinvestment of dividends or interest or pursuant to a bona
fide employee stock option or stock purchase plan of the Company. No
adjustment need be made for a change in the par value of the Series A Liberty
Media Group Common Stock.
No adjustment need be made under this paragraph 7 for a transaction
referred to in paragraph 7(c), 7(d), 7(e), or 7(g) if holders of the Series H
Preferred stock are to participate in the transaction on a basis and with the
notice that the Board of Directors in good faith determines to be fair and
appropriate in light of the basis and notice on which holders of Series A
Liberty Media Group Common Stock participate in the transaction; provided that
the basis on which the holders of shares of Series H Preferred Stock are to
participate in the transaction shall not be deemed to be fair if it would
require the holder to convert his shares of Series H Preferred Stock, in order
to participate, at any time prior to the expiration of the conversion period
specified for the share of Series H Preferred Stock pursuant to paragraph 7(a)
of this Certificate of Designations. The immediately preceding sentence shall
apply to any transaction referred to in paragraph 7(c), 7(d), 7(e) or 7(g) only
if, in good faith determination of the Board of Directors: (i) participation in
such transaction by the holders of the Series H Preferred stock would not
result in the recognition of gain or loss by such holders of United States
federal income tax purposes, (ii) an adjustment made in the Conversion Rate of
the Series H Preferred Stock in lieu of participating in such transaction,
pursuant to this paragraph 7, would result in the recognition of gain or loss
by holders of Series H Preferred Stock for United States federal
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<PAGE> 224
income tax purposes; or (iii) participation in such transaction by the holders
of the Series A Liberty Media Group Common Stock would result in the
recognition of gain or loss by such holders for United States federal income
tax purposes.
To the extent the shares of Series H Preferred stock become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(k) Company Determination Final. Any determination required to be
made pursuant to paragraph 7(c), 7(d), 7(e), 7(f), 7(g), 7(g), 7(j) or 7(o)
shall be made by the Board of Directors (whether or not reference to the Board
of directors is expressly made in any such paragraph) and any determination so
made in good faith shall be conclusive and binding, absent manifest error, on
the holders of shares of Series H Preferred stock. In making any determination
as to the expected tax treatment of any action, transaction or event referred
to herein, including, without limitation, the determinations provided for in
the last paragraph of Paragraph 7(g) and the last sentence of the fourth
paragraph of paragraph 7(j), the Board of Directors shall be entitled to rely
conclusively on (i) an opinion of counsel rendered by a law firm acceptable to
the Board of Directors, acting in good faith, or (ii) a private letter ruling
from the Internal Revenue Service, to such effect, which opinion of counsel or
private letter ruling may be based upon such assumptions, and be subject to
such qualifications, conditions and limitations, as the Board of Directors
shall in good faith determine to be appropriate under the circumstances. Any
such determination by the Board of Directors shall be based on the expected
United States federal income tax consequences applicable to the transaction, in
question, without regard to special tax rules such as those applicable to
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders ho do not hold the securities or other property
in question as capital assets, or the personal circumstances of any particular
stockholder.
(l) Notice of Adjustment. Whenever the provisions of this paragraph
7 require an adjustment of the Conversion rate, the Company shall promptly
compute such adjustment and (i) file with the transfer agent for the Series H
Preferred Stock (or with the books of the Company if there is no transfer
agent) an Officers' Certificate setting forth a description of the event
requiring the adjustment, the new Conversion Rate (including a reasonable
detailed calculation thereof), and the kind and amount of capital stock or
other securities or cash or other assets into which the Series H Preferred
Stock shall be convertible after such event, and (ii) cause a notice containing
a summary of the information set forth in said certificate to be given to the
holders of Series H Preferred Stock. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be given
under the provisions of paragraph 7(m).
(m) Advance Notice of Certain Transactions. If the Company:
(i) takes any action which would require an adjustment in the
Conversion Rate;
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<PAGE> 225
(ii) is a party to a consolidation, merger or binding share
exchange, or transfers all or substantially all of its assets to
another Person, and any stockholders of the Company must approve the
transaction; or
(iii) voluntarily or involuntarily dissolves, liquidates or
winds up.
then, in any such event, the Company shall give the holders of the Series H
Preferred Stock, at least twenty (20) days prior to any record date or other
date set for definitive action if there shall be no record date, a notice
stating the record date for and the anticipated effective date of such action
or event and, if the event is a dividend or distribution or issuance by
reclassification of Redeemable Capital Stock, whether the Company has
determined to adjust the Conversion Rate pursuant to paragraph 7(c), or 7(e),
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of Series A
Liberty Media Group Common Stock. Without limiting the obligation of the
Company to provide notice of corporate actions hereunder, the failure to mail
the notice or any defect in it shall not affect the legality or validity or any
corporate action or the vote thereon.
(n) Reservation of Series A Liberty Media Group Common Stock Issuable
Upon Conversion. The Company shall at all times on and after the Issue Date
reserve and keep available out of its authorized but unissued shares of Series
A Liberty Media Group Common Stock, solely for the purpose of effecting the
conversion of the shares of Series H Preferred Stock, such number of its shares
of Series A Liberty Media Group Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series H
Preferred Stock; provided that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of the outstanding shares of Series H Preferred Stock by delivery of
shares of Series A Liberty Media Group Common Stock which are held in the
treasury of the Company. The Company shall take all such corporate and other
actions as from time to time may be necessary to insure that all shares of
Series A Liberty Media Group Common Stock issuable upon conversion of shares of
Series H Preferred Stock at the Conversion Rate in effect from time to time
will, when issued, be duly and validly authorized and issued, fully paid and
nonassessable, and free from all preemptive or similar rights. in order that
the Company may issue shares of Series A Liberty Media Group Common Stock upon
conversion of the Series H Preferred Stock, the Company will in good faith and
as expeditiously as possible endeavor to comply with all applicable Federal
and state securities laws and will in good faith and as expeditiously as
possible endeavor to list such shares to be issued upon conversion on such
national securities exchange or national securities association, if any, on
which the Series A Liberty Media Group Common Stock is then listed.
(o) Fractional Shares. No fractional shares of Series A Liberty
Media Group Common Stock or scrip shall be issued upon conversion of the Series
H Preferred Stock. Whether or not fractional shares would otherwise be
required to be issued to a holder of Series H Preferred Stock upon such
conversion shall be determined on the basis of the total number of shares of
Series H Preferred Stock the holder is at the time converting into Series A
Liberty Media Group Common Stock and the total number of shares of Series A
Liberty Media Group
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<PAGE> 226
Common Stock issuable upon such conversion. In lieu of the issuance of
fractional shares of Series A Liberty Media Group Common Stock, the Company
shall pay instead an amount in cash or by its check equal to the same fraction
of the Closing Price of a full share of Series A Liberty Media Group Common
Stock on the last full trading day prior to the Conversion Date.
(p) Impairment. The Company will not, by amendment of this
Certificate of Designations or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, other than as expressly permitted by this Certificate of
Designations or approved by the requisite vote or written consent of the
holders of Series H Preferred Stock taken or given in accordance with this
Certificate, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
paragraph 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
H Preferred Stock against impairment.
8. Voting.
(a) Voting Rights. The holders of Series H Preferred Stock shall
have no voting rights whatsoever, except as required by law and except for the
voting rights described in this paragraph 8; provided, however, that the number
of authorized shares of Series H Preferred Stock may be increased or decreased
(but not below the number of shares of Series H Preferred Stock then
outstanding) by the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of the Restated Certificate of Incorporation of the
Company (the "Restated Certificate")), voting together as a single class as
provided in Article IX of the Restated Certificate. Without limiting the
generality of the foregoing, no vote or consent of the holders of Series H
Preferred Stock shall be required for (a) the creation of any indebtedness of
any kind of the Company, (b) the creation or designation of any class or series
of Senior Stock, Parity Stock or Junior Stock, or (c) any amendment to the
Restated Certificate that would increase the number of authorized shares of
Preferred Stock or the number of authorized shares of Series H Preferred Stock
or that would decrease the number of authorized shares of Preferred Stock or
the number of authorized shares of Series H Preferred stock (but not below the
number of shares of Preferred Stock or Series H Preferred Stock, as the case
may be, then outstanding).
(b) Election of Directors. The holders of the Series H Preferred
Stock shall have the right to vote at any annual or special meeting of
stockholders for the purpose of electing director. Each shares of Series H
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with all other classes or series of capital stock of the Company
that are entitled to vote in any general election of directors, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
9. No Preemptive Rights. The holders of shares of Series H Preferred
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital
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<PAGE> 227
stock or other securities of the Company convertible into or carrying rights or
options to purchase any such shares.
10. Waiver. Any provision of this Certificate of Designations which,
for the benefit of the holders of Series H Preferred Stock, prohibits, limits
or restricts actions by the Company, or imposes obligations on the Company,
including but not limited to provisions relating to the obligation of the
Company to redeem or convert such shares, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case by the affirmative vote
or with the consent of the holders of at least a majority of the number of
shares of Series H Preferred Stock then outstanding (or such greater percentage
thereof as may be required by applicable law or any applicable rules of any
national securities exchange or national interdealer quotation system), either
in writing or by vote at an annual meeting or a special meeting called for such
purpose at which the holders of Series H Preferred Stock shall vote as a
separate class.
11. Method of Giving Notices. Any notice required or permitted by
the provisions of this Certificate of Designations to be given to the holders
of shares of Series H Preferred Stock shall be deemed duly given if deposited
in the United States mail, first class mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company or
supplied by him in writing to the Company for the purpose of such notice.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and except for the equitable rights and remedies which may otherwise be
available to holders of Series H Preferred Stock, the shares of Series H
Preferred Stock shall not have any designations, preferences, limitations or
relative rights other than those specifically set forth in this Certificate of
Designations.
13. Headings of Subdivisions. The headings of the various
subdivisions of this Certificate of Designations are for convenience of
reference only and shall not affect the interpretation of any of the provisions
of this Certificate of Designations.
FURTHER RESOLVED, that the appropriate officers of this Company are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded in
accordance with the requirements of section 151(g) of the General Corporation
Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this
25th day of January, 1996.
/s/ STEPHEN M. BRETT
--------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
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<PAGE> 228
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
APRIL, A.D. 1997, AT 8:30 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8526540
DATE: 06-24-97
<PAGE> 229
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: That the Restated Certificate of Incorporation of the Corporation is
hereby amended as follows:
(I) THE FIRST PARAGRAPH OF ARTICLE IV OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY
AS FOLLOWS:
"AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is three billion six hundred two million three hundred
seventy-five thousand ninety-six (3,602,375,096) shares, which shall be divided
into the following classes:
(a) Three billion five hundred fifty million (3,550,000,000) shares
shall be of a class designated Common Stock, par value $1.00 per share
("Common Stock"), such class to be divided into series as provided in
Section E of this Article IV;
(b) Seven hundred thousand (700,000) shares shall be of a class
designated Class A Preferred Stock, par value $.01 per share ("Class A
Preferred Stock");
(c) One million six hundred seventy-five thousand ninety-six
(1,675,096) shares shall be of a class designated Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share
("Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock");
and
(d) Fifty million (50,000,000) shares shall be of a class designated
Series Preferred Stock, par value $.01 per share ("Series Preferred
Stock"), such class to be issuable in series as provided in Section D of
this Article IV.
The Class A Preferred Stock, the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and the Series Preferred Stock are
collectively referred to as "Preferred Stock.""
(II) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED 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 TELEPHONY GROUP COMMON STOCK AND
SERIES B TELEPHONY 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
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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 Telephony Group Common Stock (the "Series A Telephony 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 Telephony Group Common
Stock (the "Series B Telephony 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 Telephony Group Common Stock and each share of
Series B Telephony 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 Telephony Group Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Series B Telephony 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 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 Telephony Group Common Stock, the holders of
shares of Series B Telephony 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 Telephony Group Common Stock, the holders of
shares of Series B Telephony 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
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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 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 TELEPHONY GROUP COMMON STOCK INTO SERIES A
TELEPHONY GROUP COMMON STOCK. Each share of Series B Telephony Group Common
Stock shall be convertible, at the option of the holder thereof, into one share
of Series A Telephony Group Common Stock. Any such conversion may be effected by
any holder of Series B Telephony Group Common Stock by surrendering such
holder's certificate or certificates for the Series B Telephony Group Common
Stock to be converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Series B Telephony 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 Telephony 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 Telephony 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
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certificates for the number of shares of Series A Telephony 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 Telephony Group Common Stock
issuable on such conversion shall be treated for all purposes as the record
holder or holders of such Series A Telephony Group Common Stock on that date. A
number of shares of Series A Telephony Group Common Stock equal to the number of
shares of Series B Telephony Group Common Stock outstanding from time to time
shall be set aside and reserved for issuance upon conversion of shares of Series
B Telephony Group Common Stock. Shares of Series A Telephony Group Common Stock
shall not be convertible into shares of Series B Telephony 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 convertible 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
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
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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 TELEPHONY GROUP COMMON STOCK INTO SERIES A TCI
GROUP COMMON STOCK AND SERIES B TELEPHONY 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
Telephony Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series A TCI Group Common Stock equal to
the Telephony Group Optional Conversion Ratio, and (B) all shares of Series B
Telephony 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 Telephony Group Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(e), the "Telephony Group Optional
Conversion Ratio" shall mean the quotient (calculated to the nearest five
decimal places) obtained by dividing (A) the Telephony 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
Telephony 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 Telephony 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
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such private market value. If the Higher Appraised Amount is not more than 120%
of the Lower Appraised Amount, the Telephony 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 Telephony 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 Telephony 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 Telephony Group Private Market
Value, the Appraiser or Appraisers whose final views of the private market value
of the Telephony Group were used in the calculation of the Telephony Group
Private Market Value shall determine the Adjusted Outstanding Shares of
Telephony Group Common Stock together with any further appropriate adjustments
to the Telephony Group Private Market Value resulting from such determination.
The "Adjusted Outstanding Shares of Telephony 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 Telephony Group Common Stock and
Series B Telephony Group Common Stock outstanding, the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest, and the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock issuable upon the conversion, exercise or exchange of those
Convertible 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 "Telephony Group Common Stock Per Share Value" shall
mean the quotient obtained by dividing the Telephony Group Private Market Value
by the Adjusted Outstanding Shares of Telephony Group Common Stock, provided
that if such Appraiser(s) do not agree on the determinations provided for in
this subparagraph (iv), the Telephony 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 Telephony
Group Common Stock into Series A TCI Group Common Stock and shares of Series B
Telephony Group Common Stock into Series B TCI Group Common Stock at the
Telephony 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 Telephony Group Common Stock
Per Share Value as of a subsequent date.
(vi) The Corporation shall not convert shares of Series A Telephony Group
Common Stock into shares of Series A TCI Group Common Stock without converting
shares of Series B Telephony Group Common Stock into shares of Series B TCI
Group Common Stock, and the Corporation shall not convert shares of Series B
Telephony Group Common Stock into shares of Series B TCI Group Common Stock
without converting shares of Series A Telephony Group Common Stock into shares
of Series A TCI Group Common Stock. The Series A Telephony Group Common Stock
and the Series B Telephony Group Common Stock shall also be convertible at the
option of the Corporation in accordance with paragraph 6(b)(iii) of this Section
E.
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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 TELEPHONY GROUP COMMON STOCK AND SERIES B
TELEPHONY GROUP COMMON STOCK. Dividends on the Series A Telephony Group Common
Stock and the Series B Telephony 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 Telephony 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 Telephony Group Common Stock, the
Corporation shall also pay to the holders of Series B Telephony Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A Telephony Group Common Stock, and whenever a dividend is paid to the
holders of Series B Telephony Group Common Stock, the Corporation shall also pay
to the holders of Series A Telephony Group Common Stock a dividend per share
equal to the dividend per share paid to the holders of Series B Telephony 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 Telephony Group Common Stock and
Series B Telephony 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 Telephony
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 Media Group Common Stock, or the Series A Telephony
Group Common Stock and the Series B Telephony 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 Telephony Group Common Stock, Series B Telephony 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.
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(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 Telephony
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Telephony 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 Telephony Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony 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 Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of Series A Telephony Group Common Stock) to holders of Series A TCI
Group Common Stock and, on an equal per share basis, shares of Series B
Telephony Group Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Series B Telephony 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 Telephony Group
Common Stock and Series B Telephony Group Common Stock to be so distributed
(or the number of such shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock which would be issuable upon
conversion, exercise or exchange of any Convertible Securities to be so
distributed) and (B) the number of shares of Series A Telephony Group
Common Stock and Series B Telephony 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, is less
than or equal to the Number of Shares Issuable with Respect to the
Telephony 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
Telephony Group Common Stock or Series B Telephony Group Common Stock (or
Convertible
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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 Telephony Group Common Stock or Series B Telephony 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 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 Telephony Group
Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony 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
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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 TELEPHONY GROUP COMMON STOCK AND SERIES B
TELEPHONY GROUP COMMON STOCK. If at any time a share distribution is to be made
with respect to the Series A Telephony Group Common Stock or Series B Telephony
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 Telephony
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Telephony Group Common
Stock) to holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, on an equal per share basis; or consisting of
shares of Series B Telephony Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony Group Common Stock) to holders of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, on an equal per share
basis; or consisting of shares of Series A Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of Series A Telephony Group Common Stock) to holders of Series A
Telephony Group Common Stock and, on an equal per share basis, shares of
Series B Telephony Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony Group Common Stock) to holders of Series B Telephony 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
Stock) either on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock, or on the basis of a
distribution of one class or series of securities to holders of Series A
Telephony Group Common Stock and another class or series of securities to
holders of Series B Telephony Group Common Stock, provided that the
securities so distributed (and, if the distribution consists of Convertible
Securities, the securities
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<PAGE> 239
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 Telephony 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 Telephony Group Common Stock
and the Series B Telephony 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 Telephony
Group Common Stock and the Series B Telephony 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
Telephony Group Common Stock without reclassifying, subdividing or combining the
Series B Telephony Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B Telephony
Group Common Stock without reclassifying, subdividing or combining the Series A
Telephony 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.
(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
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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);
such redemption to be effected in accordance with the applicable provisions
of paragraph 5(d) of this Section E; or
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(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 Board of Directors or the holder of such
share of Series A Liberty
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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
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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 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, 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
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(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 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
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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 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,
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.
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(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 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
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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 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 Telephony Group
Common Stock and Series B Telephony Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF TELEPHONY GROUP SUBSIDIARIES. At
any time at which all of the assets and liabilities attributed to the Telephony
Group have become and continue to be held directly or indirectly by any one or
more Qualifying Subsidiaries (the "Telephony Group Subsidiaries"), the Board of
Directors may, subject to the availability of assets of the Corporation legally
available therefor, redeem, on a
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pro rata basis, all of the outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock in exchange for an aggregate
number of outstanding fully paid and nonassessable shares of common stock of
each Telephony Group Subsidiary equal to the product of the Telephony Group
Outstanding Interest Fraction and the number of outstanding shares of common
stock of such Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series
B Telephony Group Common Stock in exchange for shares of separate classes or
series of common stock of each Telephony 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 Telephony Group Common Stock and Series B Telephony Group
Common Stock, with holders of shares of Series B Telephony Group Common Stock
receiving the class or series having the higher relative voting rights, or (ii)
redeem shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock in exchange for shares of a single class of common stock of
each Telephony Group Subsidiary without distinction between the shares
distributed to the holders of the Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF DISPOSITION OF
TELEPHONY 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 Telephony 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 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 Telephony Group Common Stock and Series B Telephony
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 Telephony Group Outstanding Interest Fraction as of the record date
for determining the holders entitled to receive such dividend and the
Telephony Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation legally
available therefor and the Telephony 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 Telephony Group, redeem all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony 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 Telephony Group Outstanding Interest Fraction as of
the date of such redemption and the Telephony Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence of this
paragraph 6(b)) to shares of Series A Telephony Group Common Stock and
Series B Telephony 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
Telephony Group Common Stock and each share of Series B Telephony Group
Common Stock is the same); or
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(B) if such Disposition involves substantially all (but not all) of
the properties and assets of the Telephony Group, apply an aggregate
amount of cash and/or securities or other property (other than Common
Stock) equal to the product of the Telephony Group Outstanding Interest
Fraction as of the date shares are selected for redemption and the
Telephony Group Net Proceeds to the redemption of outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock, such aggregate amount to be allocated (subject to the last
sentence of this paragraph 6(b)) to shares of Series A Telephony Group
Common Stock and Series B Telephony 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 Telephony 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 Telephony Group Common
Stock and each share of Series B Telephony 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 Telephony 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 Telephony 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 Telephony
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).
For purposes of this paragraph 6(b):
(x) as of any date, "substantially all of the properties and assets of
the Telephony 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
Telephony 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
Telephony 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
Telephony Group Common Stock and another class or series of securities to
holders of Series B Telephony 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 Telephony 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 Telephony Group Common Stock and the Series B Telephony Group Common
Stock), provided that if such
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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 Telephony Group Common Stock
and Series B Telephony 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
Telephony Group Common Stock and Series B Telephony Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless the
provisions of any class or series of Convertible Securities which are or become
convertible into or exercisable or exchangeable for shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock provide specifically
to the contrary, after any Conversion Date or Redemption Date on which all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock were converted or redeemed, any share of Series A
Telephony Group Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony 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 Telephony Group Net Proceeds of
such Disposition, (B) the number of outstanding shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, (C) the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock into or for which Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof, and (D) the Telephony 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 Telephony Group Common
Stock and Series B Telephony 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 Telephony Group Common Stock and Series B
Telephony Group Common Stock, (D) the Telephony Group Net Proceeds of such
Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and the number of shares of Series A Telephony Group Common Stock
and Series B Telephony 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
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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 Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of all (not merely substantially all) of the properties
and assets of the Telephony 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 Telephony Group Common Stock and Series B
Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series B Telephony Group Common Stock
outstanding on the Redemption Date, (D) the Telephony Group Net Proceeds of such
Disposition, (E) the Telephony 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 Telephony Group Common Stock and Series B
Telephony 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 Telephony Group
Common Stock and Series B Telephony Group Common Stock and the number of shares
of Series A Telephony Group Common Stock and Series B Telephony 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 (H) 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 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 Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of substantially all (but not all) of the properties and
assets of the Telephony 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 Telephony Group Common Stock and
Series B Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series B Telephony Group
Common Stock selected for redemption, (D) the Telephony Group Net Proceeds of
such Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and the number of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and the
conversion or
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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 Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Common Stock and Series B
Telephony Group Common Stock to be so redeemed, a notice setting forth (A) the
number of shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock held by such holder to be redeemed, (B) a statement that such
shares of Series A Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series B Telephony 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
Telephony Group Common Stock or Series B Telephony 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 Telephony Group Common Stock
and Series B Telephony Group Common Stock to be redeemed shall be redeemed by
the Corporation pro rata among the holders of Series A Telephony Group Common
Stock and Series B Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common Stock or Series B Telephony Group
Common Stock, including details as to the calculation thereof, (D) the place or
places where certificates for shares of Series A Telephony Group Common Stock or
Series B Telephony 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 Telephony Group
Common Stock and Series B Telephony Group Common Stock and the number of shares
of Series A Telephony Group Common Stock and Series B Telephony 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
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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 Telephony
Group Common Stock and Series B Telephony 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 Telephony Group Common Stock and Series B
Telephony 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 Telephony Group Common Stock and Series B
Telephony Group Common Stock shall be redeemed in exchange for shares of common
stock of the Telephony Group Subsidiaries, (B) the Redemption Date, (C) the
Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Subsidiaries, (E) the number of
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and the number of shares of Series A Telephony
Group Common Stock and Series B Telephony 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 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 Telephony Group Common Stock, Series B
Telephony 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 Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony 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 Telephony Group Common Stock or Series B Telephony
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.
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(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Telephony Group Common Stock
or Series B Telephony Group Common Stock; provided, however, that if the
Conversion Date or the Redemption Date with respect to the Series A Telephony
Group Common Stock or Series B Telephony 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 Telephony Group
Common Stock or Series B Telephony 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 Telephony Group Common Stock or
Series B Telephony 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
Telephony Group Common Stock or Series B Telephony 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 Telephony Group Common Stock or Series B Telephony 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 Telephony
Group Common Stock or Series B Telephony Group Common Stock deliver to the
person for whose account shares of Series A Telephony Group Common Stock or
Series B Telephony 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 Telephony Group Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony Group Common Stock not
redeemed. The Corporation shall not be required to register a transfer of (1)
any shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock for a period of 15 Trading Days next preceding any selection of
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock to be redeemed or (2) any shares of Series A Telephony Group Common
Stock or Series B Telephony 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 Telephony Group Common Stock or Series
B Telephony Group Common Stock that were converted or redeemed shall cease
except for the right, upon surrender of the certificates representing shares of
Series A Telephony Group Common Stock or Series B Telephony 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 Telephony
Group Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony Group Common Stock,
represented shares of Series A Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Common Stock or Series B
Telephony 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
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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 Telephony Group Common Stock or Series B Telephony Group Common Stock, the
Corporation shall, however, be entitled to treat the certificates for shares of
Series A Telephony Group Common Stock or Series B Telephony 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 Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Common
Stock or Series B Telephony 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 (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 Telephony
Group Common Stock and the holders of the Series B Telephony 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 Telephony Group Common Stock and
the Series B Telephony 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 Telephony Group Common Stock and
the Series B Telephony 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.
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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.
"Appraisal Date," with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony 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.
"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 it 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 Telephony
Group Common Stock and Series B Telephony 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.
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"Convertible Securities" shall mean any securities of the Corporation
(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, 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 Telephony Group," for
any period, shall mean the net earnings or loss of the Telephony Group for
such period determined on a basis consistent with the determination of the
net earnings or loss of the Telephony Group for such period as presented in
the combined financial statements of the Telephony Group for such period,
including income and expenses of the Corporation attributed to the
operations of the Telephony 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.
"First Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony 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 Telephony Group Private
Market Value, 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
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(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 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.
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"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 Telephony 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 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 Telephony Group Private
Market Value, 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.
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"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 Telephony Group Private
Market Value, 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
Telephony 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 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
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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 Telephony Group
Inter-Group Interest" shall initially be that number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock
which represent 100% of the common stockholders' equity value of the
Corporation attributable to the Telephony Group, as determined by the Board
of Directors of the Corporation prior to the first issuance of shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common
Stock, 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 Telephony Group Common Stock and Series B Telephony Group
Common Stock and dividends or distributions of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock to
holders of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock and other reclassifications of the Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock,
(b) decreased (but not to less than zero) by (i) the aggregate
number of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock issued or sold by the Corporation the
proceeds of which are attributed to the TCI Group, (ii) the aggregate
number of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities, the proceeds of which
are attributed to the TCI Group, (iii) the aggregate number of shares of
Series A Telephony Group Common Stock or Series B Telephony 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
Telephony Group Common Stock or Series B Telephony Group Common Stock
issued or delivered upon the conversion, exercise or exchange of any
Convertible Securities issued or delivered by the Corporation as a
dividend or distribution or by reclassification or exchange to holders
of Series A
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TCI Group Common Stock and Series B TCI Group Common Stock and (v) the
aggregate number of shares of Series A Telephony Group Common Stock and
Series B Telephony 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
Telephony Group that are transferred from the Telephony Group to the TCI
Group in consideration of a reduction in the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest, divided by the
Market Value of one share of Series A Telephony Group Common Stock as of
the date of such transfer, and
(c) increased by (i) the aggregate number of any shares of Series A
Telephony Group Common Stock and Series B Telephony 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
Telephony Group in consideration of an increase in the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest,
divided by the Market Value of one share of Series A Telephony Group
Common Stock as of the date of such contribution and (iii) the aggregate
number of shares of Series A Telephony Group Common Stock and Series B
Telephony 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
Telephony 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.
"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
Telephony Group Common Stock and Series B Telephony 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.
"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 Telephony Group
Common Stock and Series B Telephony 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 Telephony 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 Telephony 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 Telephony 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 Telephony Group, as the case may be, prior to
such Disposition, as determined in good faith by the Board of Directors.
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"Second Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony 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 Telephony 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
Telephony 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 Telephony Group equal to the Telephony 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 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 Telephony Group Common Stock or Series B Telephony
Group Common Stock (other than a dividend or other distribution payable
in shares of Series A Telephony Group Common Stock or Series B Telephony
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 Telephony Group Inter-Group Interest," or in other
securities of the Corporation attributed to the Telephony 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 Telephony 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 Telephony Group
Common Stock or Series B Telephony Group Common Stock multiplied by a
fraction the numerator of which is equal to the Telephony 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 Telephony Group Outstanding Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution; and
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(f) any assets or properties transferred from the Liberty Media
Group or the Telephony Group to the TCI Group;
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 Telephony
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
Telephony 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 Telephony
Group Common Stock or Series B Telephony Group Common Stock payable in
other securities of the Corporation attributed to the Telephony 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 Telephony Group
Common Stock and Series B Telephony 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 Telephony
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 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.
"Telephony Group" shall mean, as of any date that any shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common Stock
have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its subsidiaries
in TCI Telephony Services, Inc. ("TCI Telephony") 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,
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(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 TCI Telephony 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 Telephony 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 Telephony 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 Telephony Group Common Stock or Series B
Telephony Group Common Stock (other than a dividend or other distribution
payable in shares of Series A Telephony Group Common Stock or Series B
Telephony 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 Telephony Group Inter-Group Interest," or in
other securities of the Corporation attributed to the Telephony Group for
which provision shall be made as set forth in the penultimate sentence of
this definition), the Telephony 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 Telephony Group
Common Stock or Series B Telephony Group Common Stock multiplied by a
fraction the numerator of which is equal to the Telephony 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
Telephony 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 Telephony Group to
the TCI Group, the Telephony 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 Telephony Group
Common Stock or Series B Telephony Group Common Stock payable in securities
of the Corporation attributed to the Telephony Group other than Series A
Telephony Group Common Stock and Series B Telephony 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 Telephony Group
Common Stock and Series B Telephony Group Common Stock, the Telephony 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 Telephony
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 Telephony Group.
"Telephony Group Available Dividend Amount," as of any date, shall
mean the product of the Telephony Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the
Telephony Group less the total liabilities (not including preferred stock)
of the Telephony 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 Telephony Group Common Stock, Series B
Telephony Group Common Stock and each class or series of Preferred Stock
attributed to the Telephony
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Group or (b) in case there is no such excess, an amount equal to the
Corporation Earnings (Loss) Attributable to the Telephony Group (if
positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year.
"Telephony 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 Telephony 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 Telephony Group Inter-Group Interest as of
such date and (b) the aggregate number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock outstanding as
of such date.
"Telephony Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the
Telephony 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 Telephony 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 Telephony Group. For purposes of this definition, any properties and
assets of the Telephony 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.
"Telephony 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 Telephony Group Common Stock and Series B Telephony 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 Telephony Group Common
Stock and Series B Telephony Group Common Stock outstanding on such date
and (b) the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest as of such date.
"Telephony Group Private Market Value" shall mean an amount equal to
the private market value of the Telephony 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 Telephony 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 Telephony Group, as if the
Telephony 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 Telephony Group other than that which would
have existed if the Telephony 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.""
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(IV)SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED 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 Telephony Group Common Stock, Series
B Telephony 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 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."
(V)SECTION A OF ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED 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 Telephony Group Common Stock, the Series B Telephony 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.
SECOND: That said amendments were duly adopted by the Board of Directors of
the Corporation, and pursuant to resolution of the Board of Directors of the
Corporation, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute and the Restated Certificate of Incorporation
of the Corporation were voted in favor of said amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware."
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IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 7th day of April, 1997.
TELE-COMMUNICATIONS, INC.
By: /s/ JOHN C. MALONE
------------------------------------
Name: John C. Malone
Title: Chief Executive Officer
ATTEST:
By: /s/ STEPHEN M. BRETT
- ------------------------------------
Name: Stephen M. Brett
Title: Secretary
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<PAGE> 269
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF
AUGUST, A.D. 1997, AT 1 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATION HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
-----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8627798
-----------------
DATE: 08-28-97
<PAGE> 270
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: That the Restated Certificate of Incorporation of the Corporation is
hereby amended as follows:
(I) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED 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
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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
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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
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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
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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 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
conversion, exercise or 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
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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
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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
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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
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(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
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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 Qualifying Subsidiaries (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.
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(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);
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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
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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
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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
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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
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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
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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
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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
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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).
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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 conversion,
exercise or exchange of any Pre-Exchange Offer 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 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 conversion, exercise or 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 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 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
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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
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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
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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
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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
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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
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(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 conversion, exercise or 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.
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"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
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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 August 7, 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.
"Initial Ventures Options" means those certain options to purchase
shares of Series A TCI Ventures Group Common Stock that are issued effective
upon the consummation of the Exchange Offers, in connection with the adjustment
of the Adjustable Options. For purposes of this definition, the term
"Adjustable Options" means those options to purchase shares of Series A TCI
Group Common Stock that are outstanding immediately prior to the consummation
of the Exchange Offers under any Existing Stock Plan (as defined below), which
options the Board of Directors and, if applicable, the committee of the Board
of Directors charged with the administration of such Existing Stock Plan,
determined to adjust for the effects of the Exchange Offers by the issuance, in
substitution for and in cancellation of each such Adjustable Option effective
upon the consummation of the Exchange Offers, of an Initial Ventures Option to
purchase a number of shares of Series A TCI Ventures Group Common Stock
initially equal to 30% (rounded up to the next whole number) of the number of
shares of Series A TCI Group Common Stock that would have been issuable upon
exercise of such Adjustable Option immediately prior to the consummation of the
Exchange Offers, and an option to purchase a number shares of Series A TCI Group
Common Stock equal to 70% (rounded down to the next whole number) of the
number of shares of Series A TCI Group Common Stock that would have been
issuable upon exercise of such Adjustable Option immediately prior to the
consummation of the Exchange Offers, together with such other securities as
were then issuable upon exercise of such Adjustable Option (and in each case,
having such other terms consistent with the terms of the Adjustable Option for
which they are exchanged as the Board of Directors or the committee, as
applicable, determines). The term "Existing Stock Plans" means each of the
following: the Tele-Communications, Inc. 1994 Stock Incentive Plan, the
Tele-Communications, Inc. 1995 Employee Stock Incentive Plan and the
Tele-Communications, Inc. 1996 Incentive Plan.
"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
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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
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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
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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 204,927,700 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,
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(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 the TCI-UA Notes and the
Initial Ventures Options.
"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.
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"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
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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
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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-UA Notes" 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 and Series A Liberty Media Group Common
Stock.
"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: TCI Ventures Group, LLC, Tele-Communications
International, Inc., TCI Telephony Holdings, Inc., New Jersey Fiber
Technologies, L.P., Louisville Lightwave, 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., TCI
SUMMITrak LLC, DigiVentures, LLC, Kitty Hawk Capital Limited
Partners, II, New Enterprise Associates IV, Limited Partnership,
Venture First II, L.P., TVSM, 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) the proceeds of exercise of the Initial Ventures
Options and the expense of exercise of any related stock appreciation
rights,
(d) all assets and properties contributed or otherwise
transferred to the TCI Ventures Group from the TCI Group, and
(e) 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
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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
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than 188,661,300 (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 16,266,400 (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 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 they could be paid (i)
through the transfer of cash or other assets from the TCI Ventures Group to the
TCI Group, (ii) through the reduction of amounts owed by the TCI Group to the
TCI Ventures Group, (iii) through the deemed transfer of taxable losses of the
TCI Ventures Group to the TCI Group pursuant to the tax sharing agreement among
the TCI Ventures Group, the TCI Group and the Liberty Media Group, effective
for periods after October 1, 1997 (in an amount equal to the highest corporate
tax rate in effect at the time of the dividend multiplied by the amount of
taxable losses deemed transferred), but only if such taxable losses have not
been utilized in any calculation under such tax sharing agreement or (iv)
through the cancellation of amounts owed by the TCI Group under such tax
sharing agreement with respect to utilized tax benefits of 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 thereon 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 on the sum
of the amounts specified in clauses (a) and (b) 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.
(II) SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED 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
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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."
(III) SECTION A OF ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION
OF THE CORPORATION IS HEREBY AMENDED 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."
SECOND: That said amendments were duly adopted by the Board of Directors of
the Corporation, and pursuant to resolution of the Board of Directors of the
Corporation, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute and the Restated Certificate of Incorporation
of the Corporation were voted in favor of said amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware."
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<PAGE> 308
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 28th day of August, 1997.
TELE-COMMUNICATIONS, INC.
By: /s/ LEO J. HINDERY, JR.
------------------------------------
Name: Leo J. Hindery, Jr.
Title: President
ATTEST:
By: /s/ STEPHEN M. BRETT
- ------------------------------------
Name: Stephen M. Brett
Title: Secretary
<PAGE> 309
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF DECEMBER, A.D. 1997, AT 9:01 O'CLOCK A.M.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8843698
DATE: 12-31-97
<PAGE> 310
Series C-TCI Group
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PREFERRED STOCK, SERIES C-TCI GROUP"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------------
The undersigned, an Executive Vice President of
TELE-COMMUNICATIONS, INC., a Delaware corporation (this "Corporation"), HEREBY
CERTIFIES that the Board of Directors of this Corporation on December 16, 1997,
duly adopted the following resolutions creating a new series of this
Corporation's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted
by the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of this Corporation, the Board of Directors hereby creates and
authorizes the issuance of a new series of this Corporation's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of this Corporation's preferred
stock, par value $.01 per share ("Preferred Stock")), as follows:
1. Designation and Number. The designation of
the series of Series Preferred Stock, par value $.01 per share, of this
Corporation authorized hereby is "Convertible Preferred Stock, Series C-TCI
Group" (the "Series C-TCI Group Preferred Stock"). The number of shares
constituting the Series C-TCI Group Preferred Stock shall be 70,575.
<PAGE> 311
Series C-TCI Group
2. Certain Definitions. Unless the context
otherwise requires, the terms defined in this paragraph 2 shall, for all
purposes of this Certificate of Designations, have the meanings herein
specified:
"Board of Directors": The Board of Directors of this
Corporation and, to the extent permitted by law, unless the context indicates
otherwise, any committee thereof authorized with respect to any particular
matter to exercise the power of the Board of Directors of this Corporation with
respect to such matter.
"Capital Stock": Any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
this Corporation.
"Class B Preferred Stock": The Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
this Corporation.
"Closing Price": Of any security for any day, the
last reported sale price of such security regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the composite tape, or if such
security is not quoted on the composite tape, on the principal United States
securities exchange registered under the Exchange Act on which such security is
listed or admitted to trading, or if such security is not listed or admitted to
trading on any such exchange, the last reported sale price (or the average of
the quoted closing bid and asked prices if there were no reported sales) on The
Nasdaq Stock Market or any comparable quotation system, or if such security is
not quoted on The Nasdaq Stock Market or any comparable system, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors shall from time to
time deem to be fair.
"Common Stock": The Common Stock, $1.00 par value per
share, of this Corporation, and all series thereof now existing or hereafter
created.
"Conversion Rate": The kind and amount of securities,
assets or other property that as of any date are issuable or deliverable upon
conversion of a share of Series C-TCI Group Preferred Stock. The Conversion
Rate of Series C-TCI Group Preferred Stock shall initially be as set forth in
paragraph 4(b), subject to adjustment as set forth in paragraph 4 of this
Certificate of Designations. In the event that pursuant to paragraph 4 the
Series C-TCI Group Preferred Stock becomes convertible into more than one class
or series of capital stock of this Corporation, the term Conversion Rate, when
used with respect to any such class or series, shall mean the number or
fraction of shares or other units of such capital stock that as of any date
would be issued upon conversion of a share of Series C-TCI Group Preferred
Stock.
2
<PAGE> 312
Series C-TCI Group
"Convertible Securities": Securities, other than the
Series B TCI Group Common Stock, that are convertible at the option of the
holder into Series A TCI Group Common Stock.
"Debt Instrument": Any bond, debenture, note,
indenture, guarantee or other instrument or agreement evidencing any
Indebtedness, whether existing at the Issue Date or thereafter created,
incurred, assumed or guaranteed.
"Determination Date": For any issuance of rights or
warrants or any distribution to which paragraph 4(d) or 4(e) applies, the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights or warrants or the distribution to which such paragraph
applies and (ii) the Ex-Dividend Date for such rights, warrants or
distribution.
"Exchange Act": The Securities Exchange Act of 1934,
as amended.
"Exchange Offer": An issuer tender offer (within
the meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by
the Securities and Exchange Commission under the Exchange Act, as such Rule is
in effect on the date hereof), including, without limitation, one that is
effected through the distribution of rights or warrants, made to holders of
Series A TCI Group Common Stock (or to holders of other stock of this
Corporation receivable by a holder of Series C-TCI Group Preferred Stock upon
conversion thereof), to issue stock of this Corporation or of a Subsidiary of
this Corporation and/or other property to a tendering stockholder in exchange
for shares of Series A TCI Group Common Stock (or such other stock) validly
tendered pursuant to such issuer tender offer.
"Exchange Preferred Stock": A series of convertible
preferred stock of this Corporation, having terms, conditions, designations,
dividend rights, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Board of Directors, to those of the Series
C-TCI Group Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (i) the liquidation preference will be determined as
provided in paragraph 4(h) or 4(i), as applicable, (ii) the running of any time
periods pursuant to the terms of the Series C-TCI Group Preferred Stock shall
be tacked to the corresponding time periods in the Exchange Preferred Stock and
(iii) the Exchange Preferred Stock will not be convertible into, and the
holders will have no conversion rights thereunder with respect to, (x) in the
case of a redemption of Redeemable Capital Stock, the Redeemable Capital Stock
redeemed, or the Redemption Securities issued, in the Redemption Event, and (y)
in the case of a Spin Off, the Spin Off Securities.
3
<PAGE> 313
Series C-TCI Group
"Exchange Securities": Stock of this Corporation or
of a Subsidiary of this Corporation that is issued in exchange for shares of
Series A TCI Group Common Stock (or other stock of this Corporation receivable
by a holder of Series C-TCI Group Preferred Stock upon conversion thereof)
pursuant to an Exchange Offer.
"Ex-Dividend Date": The date on which "ex-dividend"
trading commences for a dividend, an issuance of rights or warrants or a
distribution to which paragraph 4(c), 4(d) or 4(e) applies in the
over-the-counter market or the principal exchange on which the Series A TCI
Group Common Stock is then quoted or listed.
"Indebtedness": Any (i) liability, contingent or
otherwise, of this Corporation (x) for borrowed money whether or not the
recourse of the lender is to the whole of the assets of this Corporation or
only to a portion thereof), (y) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given other than in
connection with the acquisition of inventory or similar property in the
ordinary course of business, or (z) for the payment of money relating to an
obligation under a lease that is required to be capitalized for financial
accounting purposes in accordance with generally accepted accounting
principles; (ii) liability of others described in the preceding clause (i)
which this Corporation has guaranteed or which is otherwise its legal
liability; (iii) obligations secured by a mortgage, pledge, lien, charge or
other encumbrance to which the property or assets of this Corporation are
subject whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be this Corporation's legal liability; and (iv) any
amendment, renewal, extension or refunding of any liability of the types
referred to in clauses (i), (ii) and (iii) above.
"Issue Date": December 31, 1997, such date being the
first date on which any shares of the Series C-TCI Group Preferred Stock are
first issued or deemed to have been issued.
"Junior Securities": All shares of Class B Preferred
Stock, 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, any other series of Common Stock and, for purposes of paragraph 3
hereof, any class or series of stock of this Corporation not entitled to
receive any assets upon liquidation, dissolution or winding up of the affairs
of this Corporation until the Series C-TCI Group Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
"Liquidation Value": Measured per Share of the
Series C-TCI Group Preferred Stock as of any particular date, $2,208.35.
4
<PAGE> 314
Series C-TCI Group
"Mirror Preferred Stock": Convertible preferred
stock issued by (a) in the case of a redemption of Redeemable Capital Stock,
the issuer of the applicable Redemption Securities, (b) in the case of a Spin
Off, the issuer of the applicable Spin Off Securities, and (c) in the case of
an Exchange Offer, the issuer of the applicable Exchange Securities, and having
terms, conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof
that are identical, or as nearly so as practicable in the judgment of the Board
of Directors, to those of the Series C-TCI Group Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (i) the liquidation preference
will be determined as provided in paragraph 4(h), 4(i) or 5, as applicable,
(ii) the running of any time periods pursuant to the terms of the Series C-TCI
Group Preferred Stock shall be tacked to the corresponding time periods in the
Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be
convertible into the kind and amount of Redemption Securities, Spin Off
Securities or Exchange Securities, as applicable, and other securities and
property that the holder of a share of Series C-TCI Group Preferred Stock in
respect of which such Mirror Preferred Stock is issued pursuant to the terms
hereof would have received (x) in the case of the redemption of Redeemable
Capital Stock, upon such redemption had such share of Series C-TCI Group
Preferred Stock been converted immediately prior to the effective date of the
Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such
share of Series C-TCI Group Preferred Stock been converted immediately prior to
the record date for such Spin Off and (z) in the case of an Exchange Offer,
upon consummation thereof had such share of Series C-TCI Group Preferred Stock
that such holder elects to tender pursuant to Section 5 been converted and the
shares of Series A TCI Group Common Stock received upon such conversion been
tendered in full pursuant to such Exchange Offer prior to the expiration
thereof and the same percentage of such tendered shares had been accepted for
exchange as the percentage of validly tendered shares of Series A TCI Group
Common Stock were accepted for exchange pursuant to such Exchange Offer, as the
case may be.
"Parity Securities": Any class or series of stock of
this Corporation entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Series C-TCI
Group Preferred Stock. The Series C-Liberty Media Group Preferred Stock, the
Series D Preferred Stock, the Series F Preferred Stock, the Series G Preferred
Stock and the Series H Preferred Stock rank on a parity with the Series C-TCI
Group Preferred Stock as to rights to receive assets upon liquidation,
dissolution or winding up of the affairs of this Corporation and accordingly,
constitute "Parity Securities" for purposes of this Certificate of
Designations.
"person": A natural person, corporation, limited
liability company, partnership or other legal entity.
5
<PAGE> 315
Series C-TCI Group
"Redeemable Capital Stock": A class or series of
Capital Stock of this Corporation that provides by its terms a right in favor
of this Corporation to call, redeem, exchange or otherwise acquire all of the
outstanding shares or units of such class or series.
"Redemption Date": As to any Share, the date fixed
for redemption of such Share as specified in the notice of redemption given in
accordance with paragraph 6(c), provided that no such date will be a Redemption
Date unless the applicable Redemption Price is actually paid on such date or
the consideration sufficient for the payment thereof, and for no other purpose,
has been set apart, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so set apart then the Redemption Date will be
the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart.
"Redemption Price": As to any Share that is to be
redeemed on any Redemption Date, the Liquidation Value as in effect on such
Redemption Date.
"Redemption Securities": With respect to the
redemption of any Redeemable Capital Stock, stock of a Subsidiary of this
Corporation that is distributed by this Corporation in payment, in whole or in
part, of the redemption price of such Redeemable Capital Stock.
"Senior Securities": Any class or series of stock of
this Corporation ranking senior to the Series C-TCI Group Preferred Stock in
respect of the right to participate in any distribution upon liquidation,
dissolution or winding up of the affairs of this Corporation.
"Series A Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Liberty Media Group Common Stock may thereafter have been changed.
"Series A TCI Group Common Stock": The
Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series A TCI Group
Common Stock may thereafter have been changed.
"Series A TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A TCI Ventures Group Common Stock may thereafter have been changed.
"Series B Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the
6
<PAGE> 316
Series C-TCI Group
date of this Certificate of Designations, and Capital Stock of any other class
or series into which such Series B Liberty Media Group Common Stock may
thereafter have been changed.
"Series B TCI Group Common Stock": The
Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series B TCI Group
Common Stock may thereafter have been changed.
"Series B TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B TCI Ventures Group Common Stock may thereafter have been changed.
"Series C-Liberty Media Group Preferred Stock": The
Convertible Preferred Stock, Series C-Liberty Media Group, par value $.01 per
share, of this Corporation.
"Series D Preferred Stock": The Convertible Preferred
Stock, Series D, par value $.01 per share, of this Corporation.
"Series F Preferred Stock": The Convertible
Redeemable Participating Preferred Stock, Series F, par value $.01 per share,
of this Corporation.
"Series G Preferred Stock": The Redeemable
Convertible TCI Group Preferred Stock, Series G, par value $.01 per share, of
this Corporation.
"Series H Preferred Stock": The Redeemable
Convertible Liberty Media Group Preferred Stock, Series H, par value $.01 per
share, of this Corporation.
"Share": A share of Series C-TCI Group Preferred
Stock.
"Spin Off": The distribution of stock of a
Subsidiary of this Corporation as a dividend to all holders of Series A TCI
Group Common Stock.
"Spin Off Securities": Stock of a Subsidiary of this
Corporation that is distributed to holders of Series A TCI Group Common Stock
in a Spin Off.
7
<PAGE> 317
Series C-TCI Group
"Subsidiary": With respect to any person, any
corporation, limited liability company, partnership or other legal entity more
than 50% of whose outstanding voting securities or membership, partnership or
other ownership interests, as the case may be, are directly or indirectly owned
by such person.
3. Liquidation. Upon any liquidation,
dissolution or winding up of this Corporation, whether voluntary or
involuntary, the holders of Series C-TCI Group Preferred Stock shall be
entitled to be paid an amount in cash equal to the aggregate Liquidation Value
at the date fixed for liquidation of all Shares outstanding before any
distribution or payment is made upon any Junior Securities, which payment shall
be made pari passu with any such payment made to the holders of any Parity
Securities. The holders of Series C-TCI Group Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of this Corporation after receiving the Liquidation Value per
Share. If upon such liquidation, dissolution or winding up, the assets of this
Corporation to be distributed among the holders of Series C-TCI Group Preferred
Stock and to all holders of Parity Securities are insufficient to permit
payment in full to such holders of the aggregate preferential amounts which
they are entitled to be paid, then the entire assets of this Corporation to be
distributed to such holders shall be distributed ratably among them based upon
the full preferential amounts to which the shares of Series C-TCI Group
Preferred Stock and such Parity Securities would otherwise respectively be
entitled. Upon any such liquidation, dissolution or winding up, after the
holders of Series C-TCI Group Preferred Stock and Parity Securities have been
paid in full the amounts to which they are entitled, the remaining assets of
this Corporation may be distributed to the holders of Junior Securities. This
Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Series C-TCI Group Preferred Stock not less
than 30 days prior to the payment date stated in such written notice. Neither
the consolidation or merger of this Corporation into or with any other
corporation or corporations, nor the sale, transfer or lease by this
Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of this Corporation within the meaning
of this paragraph 3.
4. Conversion.
(a) Unless previously called for
redemption as provided in paragraph 6 hereof, the Series C-TCI Group Preferred
Stock may be converted at any time or from time to time, in such manner and
upon such terms and conditions as hereinafter provided in this paragraph 4 into
fully paid and non-assessable full shares of Series A TCI Group Common Stock.
In the case of Shares called for redemption by this Corporation pursuant to
paragraph 6(a) hereof, the conversion right provided by this paragraph 4 shall
terminate at the close of business on the fifteenth day preceding the date
fixed for redemption. In the case of Shares required to be redeemed pursuant
to paragraph 6(b), the conversion right provided by this paragraph 4 shall
terminate immediately upon receipt by this Corporation of a notice given
pursuant to said paragraph. In case
8
<PAGE> 318
Series C-TCI Group
cash, securities or property other than Series A TCI Group Common Stock shall
be payable, deliverable or issuable upon conversion as provided herein, then
all references to Series A TCI Group Common Stock in this paragraph 4 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for
adjustment hereinafter set forth in this paragraph 4, the Series C-TCI Group
Preferred Stock may be converted into Series A TCI Group Common Stock at the
initial conversion rate of 132.86 fully paid and non-assessable shares of
Series A TCI Group Common Stock for one share of the Series C-TCI Group
Preferred Stock.
(c) In case this Corporation shall, on
or after the Issue Date, (i) pay a dividend or make a distribution on its then
outstanding shares of Series A TCI Group Common Stock in shares of Series A TCI
Group Common Stock, (ii) subdivide the then outstanding shares of Series A TCI
Group Common Stock into a greater number of shares of Series A TCI Group Common
Stock, (iii) combine the then outstanding shares of Series A TCI Group Common
Stock into a smaller number of shares of Series A TCI Group Common Stock, (iv)
pay a dividend or make a distribution on its then outstanding shares of Series
A TCI Group Common Stock in shares of its Capital Stock (other than Series A
TCI Group Common Stock or rights, warrants or options for its Capital Stock),
or (v) issue by reclassification of its then outstanding shares of Series A TCI
Group Common Stock (other than a reclassification by way of merger or binding
share exchange that is subject to paragraph 4(g)) any shares of any other class
or series of Capital Stock of this Corporation (other than rights, warrants or
options for its Capital Stock), then, subject to the following sentence and to
paragraph 4(k), the conversion privilege and the Conversion Rate in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that the holder of each share of the
Series C-TCI Group Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number and kind of shares of Capital Stock of this
Corporation that such holder would have owned or been entitled to receive
immediately following such action had such shares of Series C-TCI Group
Preferred Stock been converted immediately prior to such time.
An adjustment made pursuant to this paragraph 4(c) for a
dividend or distribution shall become effective immediately after the record
date for the dividend or distribution and an adjustment made pursuant to this
paragraph 4(c) for a subdivision, combination or reclassification shall become
effective immediately after the effective date of the subdivision, combination
or reclassification. Such adjustment shall be made successively whenever any
action listed above shall be taken.
Any shares of Series A TCI Group Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the time of the record date for such
9
<PAGE> 319
Series C-TCI Group
dividend for purposes of calculating the number of outstanding shares of Series
A TCI Group Common Stock under paragraph 4(d) below.
(d) In case this Corporation shall, on
or after the Issue Date, distribute any rights or warrants to all holders of
shares of Series A TCI Group Common Stock entitling them (for a period expiring
within 45 days after the record date for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or purchase
shares of Series A TCI Group Common Stock (or Convertible Securities) at a
price per share of Series A TCI Group Common Stock (or having an initial
exercise price or conversion price per share of Series A TCI Group Common
Stock, after adding thereto an allocable portion of the exercise price of the
right or warrant to purchase such Convertible Securities, computed on the basis
of the maximum number of shares of Series A TCI Group Common Stock issuable
upon conversion of such Convertible Securities) less than the current market
price per share of Series A TCI Group Common Stock (as determined in accordance
with the provisions of paragraph 4(f) below) on the Determination Date, the
number of shares of Series A TCI Group Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on such record date by
a fraction of which the numerator shall be the number of shares of Series A TCI
Group Common Stock outstanding on such record date plus the number of
additional shares of Series A TCI Group Common Stock offered for subscription
or purchase (or into which the Convertible Securities so offered are initially
convertible) and of which the denominator shall be the number of shares of
Series A TCI Group Common Stock outstanding on such record date plus the number
of shares of Series A TCI Group Common Stock which the aggregate offering price
of the total number of shares of Series A TCI Group Common Stock so offered (or
the aggregate initial conversion or exercise price of the Convertible
Securities so offered, after adding thereto the aggregate exercise price of the
rights or warrants to purchase such Convertible Securities) would purchase at
the current market price per share of Series A TCI Group Common Stock (as
determined in accordance with the provisions of paragraph 4(f) below) on the
Determination Date. Such adjustment shall be made successively whenever any
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Series A TCI Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities have not been issued prior to the
expiration of the conversion right thereof), then the Conversion Rate shall be
readjusted retroactively to be the Conversion Rate which would then be in
effect had the adjustment upon the issuance of such rights or warrants been
made on the basis of the actual number of shares of Series A TCI Group Common
Stock (or Convertible Securities) issued upon the exercise of such rights or
warrants (or the conversion of such Convertible Securities); but such
subsequent adjustment shall not affect the
10
<PAGE> 320
Series C-TCI Group
number of shares of Series A TCI Group Common Stock issued upon the conversion
of any Share prior to the date such subsequent adjustment is made.
(e) In case this Corporation, on or
after the Issue Date, shall distribute to all holders of shares of Series A TCI
Group Common Stock any evidences of its indebtedness or assets or rights or
warrants to purchase shares of Series A TCI Group Common Stock or Series B TCI
Group Common Stock or securities convertible into shares of Series A TCI Group
Common Stock or Series B TCI Group Common Stock (excluding (x) dividends or
distributions referred to in paragraph 4(c), distributions of rights or
warrants referred to in paragraph 4(d), distributions of Spin Off Securities
referred to in paragraph 4(i) and distributions of rights or warrants
exercisable for Exchange Securities (which shall be governed by paragraph 5)
and (y) cash dividends or distributions unless such cash dividends or cash
distributions are Extraordinary Cash Dividends), then in each such case the
number of shares of Series A TCI Group Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on (A) the record date
for the determination of stockholders entitled to receive the distribution or
(B) in the case of a reclassification, the effective date of such
reclassification, by a fraction of which the numerator shall be the current
market price per share of the Series A TCI Group Common Stock (as determined in
accordance with the provisions of paragraph 4(f) below) on the Determination
Date and of which the denominator shall be such current market price per share
of Series A TCI Group Common Stock less the fair market value (as determined by
the Board of Directors of this Corporation, whose determination shall be
conclusive) on such record date or effective date of the portion of the assets
or evidences of indebtedness or rights or warrants so to be distributed
applicable to one share of Series A TCI Group Common Stock; provided, however,
that in the event the denominator of the foregoing fraction is zero or
negative, in lieu of the foregoing adjustment, adequate provision shall be made
so that each holder of a Share shall have the right to receive upon conversion
of such Share, in addition to the shares of Series A TCI Group Common Stock to
which the holder is entitled, the assets or evidences of indebtedness or rights
or warrants such holder would have received had such holder converted such
Share immediately prior to the record date for such distribution. Such
adjustment shall be made successively whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
For purposes of this paragraph 4(e), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A TCI
Group Common Stock the amount of which, together with the aggregate amount of
cash dividends on the Series A TCI Group Common Stock to be aggregated with
such cash dividend in accordance with the following provisions of this
paragraph, equals or exceeds the threshold percentage set forth below in the
following sentence. If, upon the date prior to the Ex-Dividend Date with
respect to a cash dividend on Series A TCI Group Common Stock, the aggregate of
the amount of such cash dividend together with the amounts of all
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Series C-TCI Group
cash dividends on the Series A TCI Group Common Stock with Ex-Dividend Dates
occurring in the 365 consecutive day period ending on the date prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied (other than any such other cash dividends with Ex-Dividend Dates
occurring in such period for which a prior adjustment in the Conversion Rate
was previously made under this paragraph 4(e)) equals or exceeds on a per share
basis 10% of the average of the Closing Prices during the period beginning on
the date after the first such Ex-Dividend Date in such period and ending on the
date prior to the Ex-Dividend Date with respect to the cash dividend to which
this provision is being applied (except that if no other cash dividend has had
an Ex-Dividend Date occurring in such period, the period for calculating the
average of the Closing Prices shall be the period commencing 365 days prior to
the date immediately prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied), such cash dividend together
with each other cash dividend with an Ex-Dividend Date occurring in such
365-day period that is aggregated with such cash dividend in accordance with
this paragraph shall be deemed to be an Extraordinary Cash Dividend.
(f) For the purpose of any computation
under paragraph 4(d), 4(e) or 4(m), the current market price per share of
Series A TCI Group Common Stock on any Determination Date or date of issuance,
as the case may be, shall be deemed to be the average of the daily Closing
Prices for a share of Series A TCI Group Common Stock for the ten (10)
consecutive trading days before the Determination Date or date of issuance, as
applicable, in question.
(g) If this Corporation consolidates
with any other entity or merges into another entity, or in case of any sale or
transfer to another entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, or if the
Corporation is a party to a merger or binding share exchange which reclassifies
or changes its outstanding Series A TCI Group Common Stock, this Corporation
(or its successor in such transaction) or the purchaser of such properties and
assets shall make appropriate provision so that the holder of a Share shall
have the right thereafter to convert such Share into the kind and amount of
shares of stock and other securities and property that such holder would have
owned immediately after such consolidation, merger, sale or transfer if such
holder had converted such Share into Series A TCI Group Common Stock
immediately prior to the effective date of such consolidation, merger, sale or
transfer (taking into account for this purpose (to the extent applicable) the
valid exercise by such holder of any rights of election made available to
holders of Series A TCI Group Common Stock, which rights of election shall
simultaneously be made available to holders of Shares on the same basis as if
such Shares had theretofore been converted into shares of Series A TCI Group
Common Stock), and the holders of the Series C-TCI Group Preferred Stock shall
have no other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate of
Incorporation of the resulting or surviving corporation or otherwise or in any
contracts of sale or transfer, so that the provisions set forth herein for the
protection of the conversion rights of the Series C-TCI Group Preferred Stock
shall thereafter be made applicable, as
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Series C-TCI Group
nearly as reasonably may be, to any such other shares of stock and other
securities and property deliverable upon conversion of the Series C-TCI Group
Preferred Stock remaining outstanding or other convertible preferred stock or
other Convertible Securities received by the holders of Series C-TCI Group
Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series C-TCI Group
Preferred Stock remaining outstanding, or other convertible preferred stock or
other convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provision
for the protection of the conversion rights as above provided.
(h) Subject to paragraph 4(k) and to the
remaining provisions of this paragraph 4(h), in the event that a holder of
Series C-TCI Group Preferred Stock would be entitled to receive upon conversion
thereof pursuant to this paragraph 4 any Redeemable Capital Stock and this
Corporation redeems, exchanges or otherwise acquires all of the outstanding
shares or other units of such Redeemable Capital Stock (such event being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series C-TCI Group Preferred Stock then
outstanding shall be entitled to receive upon conversion of such shares, in
lieu of shares or units of such Redeemable Capital Stock, the kind and amount
of shares of stock and other securities and property receivable upon the
Redemption Event by a holder of the number of shares or units of such
Redeemable Capital Stock into which such shares of Series C-TCI Group Preferred
Stock could have been converted immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed
to exercise any rights of election with respect thereto and received per share
or unit of such Redeemable Capital Stock the kind and amount of stock and other
securities and property received per share or unit by a plurality of the
non-electing shares or units of such Redeemable Capital Stock), and (from and
after the effective date of such Redemption Event) the holders of the Series
C-TCI Group Preferred Stock shall have no other conversion rights under these
provisions with respect to such Redeemable Capital Stock.
Notwithstanding the foregoing, if the redemption price for the
shares of such Redeemable Capital Stock is paid in whole or in part in
Redemption Securities, and the Mirror Preferred Stock Condition is met, the
Series C-TCI Group Preferred Stock shall not be convertible into such
Redemption Securities and, from and after the applicable redemption date, the
holders of any shares of Series C-TCI Group Preferred Stock that have not been
exchanged for Mirror Preferred Stock and Exchange Preferred Stock shall have no
conversion rights under these provisions except for any conversion right that
may have existed immediately prior to the effective date of the Redemption
Event with respect to any shares of stock (including the Series A TCI Group
Common Stock) or other securities or property other than the Redeemable Capital
Stock so redeemed. This Corporation shall use all commercially reasonable
efforts to ensure that the Mirror Preferred Stock
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Series C-TCI Group
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of any Redeemable Capital Stock into which the
Series C-TCI Group Preferred Stock is then convertible if appropriate provision
is made so that the holders of the Series C-TCI Group Preferred Stock have the
right to exchange their shares of Series C-TCI Group Preferred Stock on the
effective date of the Redemption Event for Exchange Preferred Stock of this
Corporation and Mirror Preferred Stock of the issuer of the Redemption
Securities. The sum of the initial liquidation preferences of the shares of
Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a
share of Series C-TCI Group Preferred Stock will equal the Liquidation Value of
a share of Series C-TCI Group Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation Value
of the shares of Series C-TCI Group Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Redeemable Capital
Stock to be redeemed (determined immediately prior to the effective date of the
Redemption Event) and the average of the daily Closing Prices of the Redeemable
Capital Stock for the period of ten consecutive trading days ending on the
third trading day prior to the effective date of the Redemption Event, divided
by (y) the sum of the amount determined pursuant to clause (x), plus the fair
value of the shares of stock or other securities or property (other than the
Redeemable Capital Stock being redeemed) that would have been receivable by a
holder of Series C-TCI Group Preferred Stock upon conversion thereof
immediately prior to the effective date of the Redemption Event (such fair
value to be determined in the case of stock or other securities with a Closing
Price in the same manner as provided in clause (x) and otherwise by the Board
of Directors in the exercise of its judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Value of the shares of Series
C-TCI Group Preferred Stock exchanged therefor and the aggregate initial
liquidation preference of the Mirror Preferred Stock.
(i) If this Corporation effects a Spin
Off, this Corporation shall make appropriate provision so that the holders of
the Series C-TCI Group Preferred Stock have the right to exchange their shares
of Series C-TCI Group Preferred Stock on the effective date of the Spin Off for
Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the
issuer of the Spin Off Securities. The sum of the initial liquidation
preferences of the shares of Exchange Preferred Stock and Mirror Preferred
Stock delivered in exchange for a share of Series C-TCI Group Preferred Stock
will equal the Liquidation Value of a share of Series C-TCI Group Preferred
Stock on the effective date of the Spin Off. The Mirror Preferred Stock will
have an aggregate liquidation preference equal to the product of the aggregate
Liquidation Value of the shares of Series C-TCI Group Preferred Stock exchanged
therefor and the quotient of (x) the product of the number (or fraction) of
Spin Off Securities that would have been receivable upon such Spin Off by a
holder of the number of shares of Series A TCI Group Common Stock issuable upon
conversion of a share of Series C-TCI Group Preferred Stock immediately prior
to the effective date of the Spin Off and the average of the daily Closing
Prices of the Spin Off Securities for the period of ten consecutive
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Series C-TCI Group
trading days commencing on the tenth trading day following the effective date
of the Spin Off, divided by (y) the sum of the amount determined pursuant to
clause (x), plus the fair value of the shares of Series A TCI Group Common
Stock and other securities or property (other than Spin Off Securities) that
would have been receivable by a holder of a share of Series C-TCI Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Spin Off (such fair value to be determined in the case of Series A TCI
Group Common Stock or other securities with a Closing Price in the same manner
as provided in clause (x) and otherwise by the Board of Directors in the
exercise of its judgment). The shares of Exchange Preferred Stock will have an
aggregate initial liquidation preference equal to the difference between the
aggregate Liquidation Value of the shares of Series C-TCI Group Preferred Stock
exchanged therefor and the aggregate initial liquidation preference of the
Mirror Preferred Stock. From and after the effective date of such Spin Off,
the holders of any shares of Series C-TCI Group Preferred Stock that have not
been exchanged for Mirror Preferred Stock and Exchange Preferred Stock as
provided above shall have no conversion rights under these provisions with
respect to such Spin Off Securities.
(j) Whenever the Conversion Rate or the
conversion privilege shall be adjusted as provided in this paragraph 4, this
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series C-TCI Group Preferred Stock describing the nature of the event
requiring such adjustment, the Conversion Rate in effect immediately thereafter
and the kind and amount of stock or other securities or property into which the
Series C-TCI Group Preferred Stock shall be convertible after such event.
Where appropriate, such notice may be given in advance and included as a part
of a notice required to be mailed under the provisions of paragraph 4(l).
(k) This Corporation may, but shall not
be required to, make any adjustment of the Conversion Rate if such adjustment
would require an increase or decrease of less than 1% in such Conversion Rate;
provided, however, that any adjustments which by reason of this paragraph 4(k)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
In any case in which this paragraph 4(k) shall require that an adjustment shall
become effective immediately after a record date for such event, the
Corporation may defer until the occurrence of such event (x) issuing to the
holder of any shares of Series C-TCI Group Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Series A TCI Group Common Stock or other Capital Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the shares of Series A TCI Group Common Stock, or other Capital Stock issuable
upon such conversion before giving effect to such adjustment and (y) paying to
such holder cash in lieu of any fractional interest to which such holder is
entitled pursuant to paragraph 4(p); provided, however, that, if requested by
such holder, this Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares of Series A
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Series C-TCI Group
TCI Group Common Stock or other Capital Stock, and such cash, upon the
occurrence of the event requiring such adjustment.
To the extent the shares of Series C-TCI Group Preferred Stock
become convertible into cash, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
(l) In case at any time:
(i) this Corporation shall take any
action which would require an adjustment in the Conversion
Rate pursuant to this paragraph;
(ii) there shall be any capital
reorganization or reclassification of the Series A TCI Group
Common Stock (other than a change in par value), or any
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of this Corporation
is required, or any sale, transfer or lease of all or
substantially all of the properties and assets of the
Corporation, or a tender offer for shares of Series A TCI
Group Common Stock representing at least a majority of the
total voting power represented by the outstanding shares of
Series A TCI Group Common Stock which has been recommended by
the Board of Directors as being in the best interests of the
holders of Series A TCI Group Common Stock; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of this
Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in the first sentence of paragraph 6(c) hereof, to the holders
of the Series C-TCI Group Preferred Stock at their respective addresses as the
same appear on the books of the Corporation, at least twenty days (or ten days
in the case of a recommended tender offer as specified in clause (ii) above)
prior to any record date for such action, dividend or distribution or the date
as of which it is expected that holders of Series A TCI Group Common Stock of
record shall be entitled to exchange their shares of Series A TCI Group Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer, lease,
tender offer, dissolution, liquidation or winding up; provided, however, that
any notice required by any event described in clause (ii) of this paragraph
4(l) shall be given in the manner and at the time that such notice is given to
the holders of Series A TCI Group Common Stock. Without limiting the
obligations of this Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this paragraph 4(l) or
any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
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Series C-TCI Group
(m) Before any holder of Series C-TCI
Group Preferred Stock shall be entitled to convert the same into Series A TCI
Group Common Stock, such holder shall surrender the certificate or certificates
for such Series C-TCI Group Preferred Stock at the office of this Corporation
or at the office of the transfer agent for the Series C-TCI Group Preferred
Stock, which certificate or certificates, if this Corporation shall so request,
shall be duly endorsed to this Corporation or in blank or accompanied by proper
instruments of transfer to this Corporation or in blank (such endorsements or
instruments of transfer to be in form satisfactory to this Corporation), and
shall given written notice to this Corporation at said office that it elects to
convert all or a part of the Shares represented by said certificate or
certificates in accordance with the terms of this paragraph 4, and shall state
in writing therein the name or names in which such holder wishes the
certificates for Series A TCI Group Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such Series C-TCI Group Preferred Stock and the Corporation, whereby the
holder of such Series C-TCI Group Preferred Stock shall be deemed to subscribe
for the amount of Series A TCI Group Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Series C-TCI
Group Preferred Stock to be converted, and, in satisfaction of such
subscription, to deposit the shares of Series C-TCI Group Preferred Stock to be
converted, and thereby this Corporation shall be deemed to agree that the
surrender of the shares of Series C-TCI Group Preferred Stock to be converted
shall constitute full payment of such subscription for Series A TCI Group
Common Stock to be issued upon such conversion. This Corporation will as soon
as practicable after such deposit of a certificate or certificates for Series
C-TCI Group Preferred Stock, accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of this Corporation
or of said transfer agent to the person for whose account such Series C-TCI
Group Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates
for the number of full shares of Series A TCI Group Common Stock to which such
holder shall be entitled, together with cash in lieu of any fraction of a share
as hereinafter provided. If surrendered certificates for Series C-TCI Group
Preferred Stock are converted only in part, this Corporation will issue and
deliver to the holder, or to his nominee(s), without charge therefor, a new
certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made as of the date of
such surrender of the Series C-TCI Group Preferred Stock to be converted; and
the person or persons entitled to receive the Series A TCI Group Common Stock
issuable upon conversion of such Series C-TCI Group Preferred Stock shall be
treated for all purposes as the record holder or holders of such Series A TCI
Group Common Stock on such date.
The issuance of certificates for shares of Series A TCI Group
Common Stock upon conversion of shares of Series C-TCI Group Preferred Stock
shall be made without charge for any issue, stamp or other similar tax in
respect of such issuance, provided, however, if any such certificate is to be
issued in a name other than that of the registered holder of the share or
shares of Series C-TCI Group Preferred Stock converted, the person or persons
requesting the issuance thereof
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Series C-TCI Group
shall pay to this Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
This Corporation shall not be required to convert any shares
of Series C-TCI Group Preferred Stock, and no surrender of Series C-TCI Group
Preferred Stock shall be effective for that purpose, while the stock transfer
books of this Corporation are closed for any purpose; but the surrender of
Series C-TCI Group Preferred Stock for conversion during any period while such
books are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
Series C-TCI Group Preferred Stock was surrendered.
(n) This Corporation shall at all times
reserve and keep available, solely for the purpose of issuance upon conversion
of the outstanding shares of Series C-TCI Group Preferred Stock, such number of
shares of Series A TCI Group Common Stock (or other Capital Stock) as shall be
issuable upon the conversion of all outstanding Shares, provided that nothing
contained herein shall be construed to preclude this Corporation from
satisfying its obligations in respect of the conversion of the outstanding
shares of Series C-TCI Group Preferred Stock by delivery of shares of Series A
TCI Group Common Stock (or such other Capital Stock) which are held in the
treasury of this Corporation. This Corporation shall take all such corporate
and other actions as from time to time may be necessary to insure that all
shares of Series A TCI Group Common Stock (or other Capital Stock) issuable
upon conversion of shares of Series C-TCI Group Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(o) All shares of Series C-TCI Group
Preferred Stock received by this Corporation upon conversion thereof into
Series A TCI Group Common Stock shall be retired and shall be restored to the
status of authorized and unissued shares of preferred stock (and may be
reissued as part of another series of the preferred stock of this Corporation,
but such shares shall not be reissued as Series C-TCI Group Preferred Stock).
(p) This Corporation shall not be
required to issue fractional shares of Series A TCI Group Common Stock or scrip
upon conversion of the Series C-TCI Group Preferred Stock. As to any final
fraction of a share of Series A TCI Group Common Stock which a holder of one or
more Shares would otherwise be entitled to receive upon conversion of such
Shares in the same transaction, this Corporation shall pay a cash adjustment in
respect of such final fraction in an amount equal to the same fraction of the
market value of a full share of Series A TCI Group Common Stock. For purposes
of this paragraph 4(p), the market value of a share of Series
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Series C-TCI Group
A TCI Group Common Stock shall be the Closing Price thereof on the trading day
immediately preceding the date of conversion.
5. Exchange Option.
(a) In the event an Exchange Offer is
made by this Corporation or a Subsidiary thereof (the applicable of the
foregoing being the "Offeror"), the Offeror shall concurrently therewith make
an equivalent offer to the holders of Series C-TCI Group Preferred Stock
pursuant to which such holders may tender Shares, based upon the number of
shares of Series A TCI Group Common Stock into which such tendered Shares are
then convertible (and in lieu of tendering outstanding shares of Series A TCI
Group Common Stock), together with such other consideration as may be required
to be tendered pursuant to such Exchange Offer, and receive in exchange
therefor, in lieu of Exchange Securities (and other property, if applicable),
Mirror Preferred Stock with an aggregate liquidation preference equal to the
aggregate Liquidation Value of the shares of Series C-TCI Group Preferred Stock
exchanged therefor. Whether or not a holder of Shares elects to accept such
offer and tender Shares, no adjustment to the Conversion Rate of the Shares
will be made pursuant to paragraph 4 in connection with the Exchange Offer.
(b) If an Exchange Offer is made as
discussed above, the Offeror shall, concurrently with the distribution of the
offering circular or prospectus and related documents to holders of Series A
TCI Group Common Stock, provide each holder of Series C-TCI Group Preferred
Stock with a notice setting forth the offer described in paragraph 5(a) above
and describing the Exchange Offer, the Exchange Securities and the Mirror
Preferred Stock. Such notice shall be accompanied by the offering circular,
prospectus or similar document provided to holders of Series A TCI Group Common
Stock in respect of the Exchange Offer and a copy of the certificate of
designations (or similar document) proposed to be filed by the Offeror in order
to establish the Mirror Preferred Stock. No failure to mail the notice
contemplated by this paragraph 5(b) or any defect therein or in the mailing
thereof shall affect the validity of the applicable Exchange Offer.
6. Redemption.
(a) Subject to the provisions of
paragraph 6(f), the shares of Series C-TCI Group Preferred Stock may be
redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, at any time after August 8, 2001 at the Redemption Price per Share as
of the applicable Redemption Date. If less than all outstanding Shares are to
be redeemed, Shares shall be redeemed ratably among the holders thereof.
(b) Subject to the rights of any Parity
Securities and the provisions of paragraph 6(f) and subject to any prohibitions
or restrictions contained in any Debt Instrument,
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Series C-TCI Group
at any time on or after August 8, 2001, any holder shall have the right, at
such holder's option, to require redemption by this Corporation at the
Redemption Price per Share as of the applicable Redemption Date of all or any
portion of his Shares having an aggregate Liquidation Value in excess of
$1,000,000, by written notice to this Corporation stating the number of Shares
to be redeemed. This Corporation shall redeem, out of funds legally available
therefor and not restricted in accordance with the first sentence of this
paragraph 6(b) or, at this Corporation's election, through the issuance of
fully paid and nonassessable shares of Series A TCI Group Common Stock (the
value of which for this purpose shall be deemed to be equal to, on a per share
basis, the average of the daily Closing Prices of the Series A TCI Group Common
Stock for the 20 consecutive trading days ending on and including the fifth
trading day preceding the date fixed for redemption pursuant to this sentence),
the Shares so requested to be redeemed on such date within 60 days following
this Corporation's receipt of such notice as this Corporation shall state in
its notice given pursuant to paragraph 6(c). If the funds of this Corporation
legally available for redemption of Shares and not restricted in accordance
with the first sentence of this paragraph 6(b) are insufficient to redeem the
total number of Shares required to be redeemed pursuant to this paragraph 6(b)
and the Corporation has not elected to pay the Redemption Price or the
applicable portion thereof in shares of Series A TCI Group Common Stock, then,
those funds which are legally available for redemption of such Shares and not
so restricted will be used to redeem the maximum possible number of such Shares
ratably among the holders who have required Shares to be redeemed under this
paragraph 6(b). At any time thereafter when additional funds of this
Corporation are legally available and not so restricted for such purpose, such
funds will immediately be used to redeem the Shares this Corporation failed to
redeem on such Redemption Date until the balance of such Shares are redeemed.
Further, if the funds of this Corporation legally available for redemption of
Shares are sufficient to pay the Redemption Price of the Shares requested to be
redeemed in full, then any portion of such Redemption Price not paid when due
as provided in this paragraph 6(b) shall thereupon become immediately due and
payable by this Corporation in cash only, notwithstanding that payment thereof
is restricted pursuant to any Debt Instrument in accordance with the first
sentence of this paragraph 6(b), and shall constitute indebtedness of this
Corporation for borrowed money, the payment of which indebtedness the holders
requesting such redemption shall be entitled to enforce by the exercise of any
and all rights at law or in equity
(c) Notice of any redemption pursuant to
this paragraph 6 shall be mailed, first class, postage prepaid, not less than
30 days nor more than 60 days prior to the Redemption Date, to the holders of
record of the shares of Series C-TCI Group Preferred Stock to be redeemed, at
their respective addresses as the same appear upon the books of this
Corporation or are supplied by them in writing to this Corporation for the
purpose of such notice (with telephonic or facsimile confirmation of notice to
Bill Daniels so long as he is a holder of record); but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of the Series
C-TCI Group Preferred Stock. Such notice shall set forth the Redemption Price,
the Redemption Date, the number of Shares to be
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Series C-TCI Group
redeemed and the place at which the Shares called for redemption will, upon
presentation and surrender of the stock certificates evidencing such Shares, be
redeemed. In case fewer than the total number of shares of Series C-TCI Group
Preferred Stock represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares will be issued to the holder
thereof without cost to such holder.
(d) If notice of any redemption by this
Corporation pursuant to this paragraph 6 shall have been mailed as provided in
paragraph 6(c) and if on or before the Redemption Date specified in such notice
the consideration necessary for such redemption shall have been set apart so as
to be available therefor and only therefor, then on and after the close of
business on the Redemption Date, the Shares called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and all rights with
respect to such Shares shall forthwith cease and terminate, except the right of
the holders thereof to receive upon surrender of their certificates the
consideration payable upon redemption thereof.
(e) All shares of Series C-TCI Group
Preferred Stock redeemed, retired, purchased or otherwise acquired by this
Corporation shall be retired and shall be restored to the status of authorized
and unissued shares of preferred stock (and may be reissued as part of another
series of the preferred stock of this Corporation, but such shares shall not be
reissued as Series C-TCI Group Preferred Stock).
(f) If and so long as this Corporation
shall fail to redeem on a Redemption Date pursuant to this paragraph 6 all
shares of Series C-TCI Group Preferred Stock required to be redeemed on such
date, this Corporation shall not redeem, or discharge any sinking fund
obligation with respect to, any Junior Securities, unless all then outstanding
shares of Series C-TCI Group Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Series C-TCI Group Preferred Stock
or Junior Securities. Nothing contained in this paragraph 6(f) shall prevent
the purchase or acquisition of shares of Series C-TCI Group Preferred Stock
pursuant to a purchase or exchange offer or offers made to holders of all
outstanding shares of Series C-TCI Group Preferred Stock, provided that as to
holders of all outstanding shares of Series C-TCI Group Preferred Stock, the
terms of the purchase or exchange offer for all such shares are identical. The
provisions of this paragraph 6(f) are for the benefit of holders of Series
C-TCI Group Preferred Stock and accordingly the provisions of this paragraph
6(f) shall not restrict any redemption by this Corporation of Shares held by
any holder, provided that all other holders of Shares shall have waived in
writing the benefits of this provision with respect to such redemption.
(g) If this Corporation has elected to
issue shares of Series A TCI Group Common Stock in payment, in whole or in
part, of the Redemption Price of all or any of the Shares pursuant to paragraph
6(b) and if, as of the Redemption Date, Bill Daniels is deceased and
21
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Series C-TCI Group
the Shares redeemed are held by or for the benefit of an inter vivos or
testamentary trust or public or private foundation established by Bill Daniels,
then the provisions of this paragraph 6(g) shall apply. If the net proceeds to
the holder of sales in the open market of the shares of Series A TCI Group
Common Stock issued in payment of the Redemption Price during the 30-day period
following the later of the Redemption Date and, if this Corporation is required
to effect the registration of the sale of such shares pursuant to a
Registration Rights Agreement, the effective date of such registration (or if
the holder has provided written notice to this Corporation of its intention to
sell such shares prior to the expiration of such 30-day period, then during the
90-day period following the later of such dates), are in the aggregate (x) less
than the dollar amount of the portion of the Redemption Price paid by this
Corporation in the shares so sold, then this Corporation shall pay to the
holder the amount of the shortfall in cash or (y) greater than the dollar
amount of the portion of the Redemption Price paid by this Corporation in the
shares so sold, then the holder shall pay to this Corporation the amount of the
excess in cash. For purposes of the foregoing, "net proceeds" shall mean the
gross sale price for each sale, less the amount of all customary and reasonable
selling expenses incurred by the holder in making such sale (e.g., customary
broker discounts). The holder shall notify this Corporation promptly in
writing of each sale of shares of Series A TCI Group Common Stock made by the
holder during the 30-day or 90-day, as applicable, period referred to above,
the method of sale, the gross proceeds of such sale, and the kind and amount of
expenses deducted in determining the net proceeds of the applicable sale. If,
during such applicable period, the holder has sold a greater number of shares
of Series A TCI Group Common Stock than the number issued by this Corporation
in payment of the Redemption Price, then those sales that yielded the highest
net proceeds shall be deemed to be sales of the shares issued in payment of the
Redemption Price. Within five days after the expiration of the 30-day or
90-day, as applicable, period, this Corporation or the holder, as applicable,
shall make the payment to the other required by this paragraph 6(g).
7. Voting Rights. The holders of the Series
C-TCI Group Preferred Stock shall be entitled to vote on all matters submitted
to a vote of the holders of the Capital Stock of this Corporation which is
entitled to vote generally on the election of directors. Each Share shall
entitle the registered holder thereof to such number of votes as is equal to
the number of shares of Series A TCI Group Common Stock or other voting
securities of this Corporation into which such Share is then convertible.
Holders of Series C-TCI Group Preferred Stock shall vote together with holders
of Common Stock and shall not be entitled to vote as a class except as
otherwise required by law or this Corporation's Restated Certificate of
Incorporation.
8. Amendment. No amendment or modification of
the designation, rights, preferences, and limitations of the Shares set forth
herein shall be binding or effective without the prior consent of the holders
of record of Shares representing 66 2/3% of the Liquidation Value of all Shares
outstanding at the time such action is taken.
22
<PAGE> 332
Series C-TCI Group
9. Preemptive Rights. The holders of the Series
C-TCI Group Preferred Stock will not have any preemptive right to subscribe for
or purchase any shares of stock or any other securities which may be issued by
this Corporation.
10. Senior Securities. The Series C-TCI Group
Preferred Stock shall not rank junior to any other classes or series of stock
of this Corporation in respect of the right to receive dividends or the right
to participate in any distribution upon liquidation, dissolution or winding up
of this Corporation. Without the prior consent of the holders of record of
Shares representing 66 2/3% of the Liquidation Value of all Shares then
outstanding, this Corporation shall not issue any Senior Securities.
11. Exclusion of Other Rights. Except as may
otherwise be required by law and for the equitable rights and remedies that may
otherwise be available to holders of Series C-TCI Group Preferred Stock, the
shares of Series C-TCI Group Preferred Stock shall not have any designations,
preferences, limitations or relative rights, other than those specifically set
forth in these resolutions (as such resolutions may, subject to paragraph 8, be
amended from time to time) and in the Restated Certificate of Incorporation of
this Corporation.
12. Headings. The headings of the various
paragraphs and subparagraphs hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."
23
<PAGE> 333
Series C-TCI Group
The undersigned has signed this Certificate of Designations on
this 30th day of December, 1997.
/s/ STEPHEN M. BRETT
----------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
24
<PAGE> 334
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF DECEMBER, A.D. 1997, AT 9 O'CLOCK A.M.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8843677
DATE: 12-31-97
<PAGE> 335
Series C-Liberty Media Group
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PREFERRED STOCK, SERIES C-LIBERTY MEDIA GROUP"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------------
The undersigned, an Executive Vice President of
TELE-COMMUNICATIONS, INC., a Delaware corporation (this "Corporation"), HEREBY
CERTIFIES that the Board of Directors of this Corporation on December 16, 1997,
duly adopted the following resolutions creating a new series of this
Corporation's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted
by the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of this Corporation, the Board of Directors hereby creates and
authorizes the issuance of a new series of this Corporation's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of this Corporation's preferred
stock, par value $.01 per share ("Preferred Stock")), as follows:
1. Designation and Number. The designation of
the series of Series Preferred Stock, par value $.01 per share, of this
Corporation authorized hereby is "Convertible Preferred Stock, Series C-Liberty
Media Group" (the "Series C-Liberty Media Group Preferred Stock"). The number
of shares constituting the Series C-Liberty Media Group Preferred Stock shall
be 70,575.
<PAGE> 336
Series C-Liberty Media Group
2. Certain Definitions. Unless the context
otherwise requires, the terms defined in this paragraph 2 shall, for all
purposes of this Certificate of Designations, have the meanings herein
specified:
"Board of Directors": The Board of Directors of this
Corporation and, to the extent permitted by law, unless the context indicates
otherwise, any committee thereof authorized with respect to any particular
matter to exercise the power of the Board of Directors of this Corporation with
respect to such matter.
"Capital Stock": Any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
this Corporation.
"Class B Preferred Stock": The Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
this Corporation.
"Closing Price": Of any security for any day, the
last reported sale price of such security regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the composite tape, or if such
security is not quoted on the composite tape, on the principal United States
securities exchange registered under the Exchange Act on which such security is
listed or admitted to trading, or if such security is not listed or admitted to
trading on any such exchange, the last reported sale price (or the average of
the quoted closing bid and asked prices if there were no reported sales) on The
Nasdaq Stock Market or any comparable quotation system, or if such security is
not quoted on The Nasdaq Stock Market or any comparable system, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors shall from time to
time deem to be fair.
"Common Stock": The Common Stock, $1.00 par value per
share, of this Corporation, and all series thereof now existing or hereafter
created.
"Conversion Rate": The kind and amount of securities,
assets or other property that as of any date are issuable or deliverable upon
conversion of a share of Series C-Liberty Media Group Preferred Stock. The
Conversion Rate of Series C-Liberty Media Group Preferred Stock shall initially
be as set forth in paragraph 4(b), subject to adjustment as set forth in
paragraph 4 of this Certificate of Designations. In the event that pursuant to
paragraph 4 the Series C-Liberty Media Group Preferred Stock becomes
convertible into more than one class or series of capital stock of this
Corporation, the term Conversion Rate, when used with respect to any such class
or series, shall mean the number or fraction of shares or other units of such
capital stock that as of any date would be issued upon conversion of a share of
Series C-Liberty Media Group Preferred Stock.
2
<PAGE> 337
Series C-Liberty Media Group
"Convertible Securities": Securities, other than the
Series B Liberty Media Group Common Stock, that are convertible at the option
of the holder into Series A Liberty Media Group Common Stock.
"Debt Instrument": Any bond, debenture, note,
indenture, guarantee or other instrument or agreement evidencing any
Indebtedness, whether existing at the Issue Date or thereafter created,
incurred, assumed or guaranteed.
"Determination Date": For any issuance of rights or
warrants or any distribution to which paragraph 4(d) or 4(e) applies, the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights or warrants or the distribution to which such paragraph
applies and (ii) the Ex-Dividend Date for such rights, warrants or
distribution.
"Exchange Act": The Securities Exchange Act of 1934,
as amended.
"Exchange Offer": An issuer tender offer (within the
meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by the
Securities and Exchange Commission under the Exchange Act, as such Rule is in
effect on the date hereof), including, without limitation, one that is effected
through the distribution of rights or warrants, made to holders of Series A
Liberty Media Group Common Stock (or to holders of other stock of this
Corporation receivable by a holder of Series C-Liberty Media Group Preferred
Stock upon conversion thereof), to issue stock of this Corporation or of a
Subsidiary of this Corporation and/or other property to a tendering stockholder
in exchange for shares of Series A Liberty Media Group Common Stock (or such
other stock) validly tendered pursuant to such issuer tender offer.
"Exchange Preferred Stock": A series of convertible
preferred stock of this Corporation, having terms, conditions, designations,
dividend rights, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Board of Directors, to those of the Series
C-Liberty Media Group Preferred Stock for which such Exchange Preferred Stock
is exchanged, except that (i) the liquidation preference will be determined as
provided in paragraph 4(h) or 4(i), as applicable, (ii) the running of any time
periods pursuant to the terms of the Series C-Liberty Media Group Preferred
Stock shall be tacked to the corresponding time periods in the Exchange
Preferred Stock and (iii) the Exchange Preferred Stock will not be convertible
into, and the holders will have no conversion rights thereunder with respect
to, (x) in the case of a redemption of Series A Liberty Media Group Common
Stock
3
<PAGE> 338
Series C-Liberty Media Group
or Redeemable Capital Stock, the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock, as applicable, redeemed, or the Redemption Securities
issued, in the Redemption Event, and (y) in the case of a Spin Off, the Spin
Off Securities.
"Exchange Securities": Stock of this Corporation or
of a Subsidiary of this Corporation that is issued in exchange for shares of
Series A Liberty Media Group Common Stock (or other stock of this Corporation
receivable by a holder of Series C-Liberty Media Group Preferred Stock upon
conversion thereof) pursuant to an Exchange Offer.
"Ex-Dividend Date": The date on which "ex-dividend"
trading commences for a dividend, an issuance of rights or warrants or a
distribution to which paragraph 4(c), 4(d) or 4(e) applies in the
over-the-counter market or the principal exchange on which the Series A Liberty
Media Group Common Stock is then quoted or listed.
"Indebtedness": Any (i) liability, contingent or
otherwise, of this Corporation (x) for borrowed money whether or not the
recourse of the lender is to the whole of the assets of this Corporation or
only to a portion thereof), (y) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given other than in
connection with the acquisition of inventory or similar property in the
ordinary course of business, or (z) for the payment of money relating to an
obligation under a lease that is required to be capitalized for financial
accounting purposes in accordance with generally accepted accounting
principles; (ii) liability of others described in the preceding clause (i)
which this Corporation has guaranteed or which is otherwise its legal
liability; (iii) obligations secured by a mortgage, pledge, lien, charge or
other encumbrance to which the property or assets of this Corporation are
subject whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be this Corporation's legal liability; and (iv) any
amendment, renewal, extension or refunding of any liability of the types
referred to in clauses (i), (ii) and (iii) above.
"Issue Date": December 31, 1997, such date being the
first date on which any shares of the Series C-Liberty Media Group Preferred
Stock are first issued or deemed to have been issued.
"Junior Securities": All shares of Class B Preferred
Stock, 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, any other series of Common Stock and for purposes of paragraph 3 hereof,
any class or series of stock of this Corporation not entitled to receive any
assets upon liquidation, dissolution or winding up of the affairs of this
Corporation until the Series C-Liberty Media Group Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
4
<PAGE> 339
Series C-Liberty Media Group
"Liquidation Value": Measured per Share of the Series
C-Liberty Media Group Preferred Stock as of any particular date, $579.31.
"Mirror Preferred Stock": Convertible preferred stock
issued by (a) in the case of a redemption of Series A Liberty Media Group
Common Stock or Redeemable Capital Stock, the issuer of the applicable
Redemption Securities, (b) in the case of a Spin Off, the issuer of the
applicable Spin Off Securities, and (c) in the case of an Exchange Offer, the
issuer of the applicable Exchange Securities, and having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof that are identical, or as
nearly so as practicable in the judgment of the Board of Directors, to those of
the Series C-Liberty Media Group Preferred Stock for which such Mirror
Preferred Stock is exchanged, except that (i) the liquidation preference will
be determined as provided in paragraph 4(h), 4(i) or 5, as applicable, (ii) the
running of any time periods pursuant to the terms of the Series C-Liberty Media
Group Preferred Stock shall be tacked to the corresponding time periods in the
Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be
convertible into the kind and amount of Redemption Securities, Spin Off
Securities or Exchange Securities, as applicable, and other securities and
property that the holder of a share of Series C-Liberty Media Group Preferred
Stock in respect of which such Mirror Preferred Stock is issued pursuant to the
terms hereof would have received (x) in the case of the redemption of Series A
Liberty Media Group Common Stock or Redeemable Capital Stock, as the case may
be, upon such redemption had such share of Series C-Liberty Media Group
Preferred Stock been converted immediately prior to the effective date of the
Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such
share of Series C-Liberty Media Group Preferred Stock been converted
immediately prior to the record date for such Spin Off and (z) in the case of
an Exchange Offer, upon consummation thereof had such share of Series C-Liberty
Media Group Preferred Stock that such holder elects to tender pursuant to
Section 5 been converted and the shares of Series A Liberty Media Group Common
Stock received upon such conversion been tendered in full pursuant to such
Exchange Offer prior to the expiration thereof and the same percentage of such
tendered shares had been accepted for exchange as the percentage of validly
tendered shares of Series A Liberty Media Group Common Stock were accepted for
exchange pursuant to such Exchange Offer, as the case may be.
"Parity Securities": Any class or series of stock of
this Corporation entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Series C-
Liberty Media Preferred Group Preferred Stock. The Series C-TCI Group Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock rank on a parity with the
Series C-Liberty Media Group Preferred Stock as to rights to receive assets
upon liquidation, dissolution or winding up of the affairs of this Corporation
and accordingly, constitute "Parity Securities" for purposes of this
Certificate of Designations.
5
<PAGE> 340
Series C-Liberty Media Group
"person": A natural person, corporation, limited
liability company, partnership or other legal entity.
"Redeemable Capital Stock": A class or series of
Capital Stock of this Corporation that provides by its terms a right in favor
of this Corporation to call, redeem, exchange or otherwise acquire all of the
outstanding shares or units of such class or series.
"Redemption Date": As to any Share, the date fixed
for redemption of such Share as specified in the notice of redemption given in
accordance with paragraph 6(c), provided that no such date will be a Redemption
Date unless the applicable Redemption Price is actually paid on such date or
the consideration sufficient for the payment thereof, and for no other purpose,
has been set apart, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so set apart then the Redemption Date will be
the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart.
"Redemption Price": As to any Share that is to be
redeemed on any Redemption Date, the Liquidation Value as in effect on such
Redemption Date.
"Redemption Securities": With respect to the
redemption of the Series A Liberty Media Group Common Stock or any Redeemable
Capital Stock, stock of a Subsidiary of this Corporation that is distributed by
this Corporation in payment, in whole or in part, of the redemption price for
the Series A Liberty Media Group Common Stock or such Redeemable Capital Stock,
as the case may be.
"Senior Securities": Any class or series of stock of
this Corporation ranking senior to the Series C-Liberty Media Group Preferred
Stock in respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of this Corporation.
"Series A Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Liberty Media Group Common Stock may thereafter have been changed.
"Series A TCI Group Common Stock": The
Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series A TCI Group
Common Stock may thereafter have been changed.
"Series A TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the
6
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Series C-Liberty Media Group
date of this Certificate of Designations, and Capital Stock of any other class
or series into which such Series A TCI Ventures Group Common Stock may
thereafter have been changed.
"Series B Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B Liberty Media Group Common Stock may thereafter have been changed.
"Series B TCI Group Common Stock": The
Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series B TCI Group
Common Stock may thereafter have been changed.
"Series B TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B TCI Ventures Group Common Stock may thereafter have been changed.
"Series C-TCI Group Preferred Stock": The Convertible
Preferred Stock, Series C-TCI Group, par value $.01 per share, of this
Corporation.
"Series D Preferred Stock": The Convertible Preferred
Stock, Series D, par value $.01 per share, of this Corporation.
"Series F Preferred Stock": The Convertible
Redeemable Participating Preferred Stock, Series F, par value $.01 per share,
of this Corporation.
"Series G Preferred Stock": The Redeemable
Convertible TCI Group Preferred Stock, Series G, par value $.01 per share, of
this Corporation.
"Series H Preferred Stock": The Redeemable
Convertible Liberty Media Group Preferred Stock, Series H, par value $.01 per
share, of this Corporation.
"Share": A share of Series C-Liberty Media Group
Preferred Stock.
"Spin Off": The distribution of stock of a Subsidiary
of this Corporation as a dividend to all holders of Series A Liberty Media
Group Common Stock.
7
<PAGE> 342
Series C-Liberty Media Group
"Spin Off Securities": Stock of a Subsidiary of this
Corporation that is distributed to holders of Series A Liberty Media Group
Common Stock in a Spin Off.
"Subsidiary": With respect to any person, any
corporation, limited liability company, partnership or other legal entity more
than 50% of whose outstanding voting securities or membership, partnership or
other ownership interests, as the case may be, are directly or indirectly owned
by such person.
3. Liquidation. Upon any liquidation,
dissolution or winding up of this Corporation, whether voluntary or
involuntary, the holders of Series C-Liberty Media Group Preferred Stock shall
be entitled to be paid an amount in cash equal to the aggregate Liquidation
Value at the date fixed for liquidation of all Shares outstanding before any
distribution or payment is made upon any Junior Securities, which payment shall
be made pari passu with any such payment made to the holders of any Parity
Securities. The holders of Series C-Liberty Media Group Preferred Stock shall
be entitled to no other or further distribution of or participation in any
remaining assets of this Corporation after receiving the Liquidation Value per
Share. If upon such liquidation, dissolution or winding up, the assets of this
Corporation to be distributed among the holders of Series C-Liberty Media Group
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Series C-Liberty
Media Group Preferred Stock and such Parity Securities would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Series C-Liberty Media Group Preferred Stock and Parity
Securities have been paid in full the amounts to which they are entitled, the
remaining assets of this Corporation may be distributed to the holders of
Junior Securities. This Corporation shall mail written notice of such
liquidation, dissolution or winding up to each record holder of Series
C-Liberty Media Group Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this Corporation of all or any part of its assets,
shall be deemed to be a liquidation, dissolution or winding up of this
Corporation within the meaning of this paragraph 3.
4. Conversion.
(a) Unless previously called for
redemption as provided in paragraph 6 hereof, the Series C-Liberty Media Group
Preferred Stock may be converted at any time or from time to time, in such
manner and upon such terms and conditions as hereinafter provided in this
paragraph 4 into fully paid and non-assessable full shares of Series A Liberty
Media Group Common Stock. In the case of Shares called for redemption by this
Corporation pursuant to paragraph 6(a) hereof, the conversion right provided by
this paragraph 4 shall terminate at the close
8
<PAGE> 343
Series C-Liberty Media Group
of business on the fifteenth day preceding the date fixed for redemption. In
the case of Shares required to be redeemed pursuant to paragraph 6(b), the
conversion right provided by this paragraph 4 shall terminate immediately upon
receipt by this Corporation of a notice given pursuant to said paragraph. In
case cash, securities or property other than Series A Liberty Media Group
Common Stock shall be payable, deliverable or issuable upon conversion as
provided herein, then all references to Series A Liberty Media Group Common
Stock in this paragraph 4 shall be deemed to apply, so far as appropriate and
as nearly as may be, to such cash, property or other securities.
(b) Subject to the provisions for
adjustment hereinafter set forth in this paragraph 4, the Series C-Liberty
Media Group Preferred Stock may be converted into Series A Liberty Media Group
Common Stock at the initial conversion rate of 37.5 fully paid and
non-assessable shares of Series A Liberty Media Group Common Stock for one
share of the Series C-Liberty Media Group Preferred Stock.
(c) In case this Corporation shall, on
or after the Issue Date, (i) pay a dividend or make a distribution on its then
outstanding shares of Series A Liberty Media Group Common Stock in shares of
Series A Liberty Media Group Common Stock, (ii) subdivide the then outstanding
shares of Series A Liberty Media Group Common Stock into a greater number of
shares of Series A Liberty Media Group Common Stock, (iii) combine the then
outstanding shares of Series A Liberty Media Group Common Stock into a smaller
number of shares of Series A Liberty Media Group Common Stock, (iv) pay a
dividend or make a distribution on its then outstanding shares of Series A
Liberty Media Group Common Stock in shares of its Capital Stock (other than
Series A Liberty Media Group Common Stock or rights, warrants or options for
its Capital Stock), or (v) issue by reclassification of its then outstanding
shares of Series A Liberty Media Group Common Stock (other than a
reclassification by way of merger or binding share exchange that is subject to
paragraph 4(g)) any shares of any other class or series of Capital Stock of
this Corporation (other than rights, warrants or options for its Capital
Stock), then, subject to the following sentence and to paragraph 4(k), the
conversion privilege and the Conversion Rate in effect immediately prior to the
opening of business on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of each share of the Series C-Liberty Media Group
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number and kind of shares of Capital Stock of this Corporation that
such holder would have owned or been entitled to receive immediately following
such action had such shares of Series C-Liberty Media Group Preferred Stock
been converted immediately prior to such time.
An adjustment made pursuant to this paragraph 4(c) for a
dividend or distribution shall become effective immediately after the record
date for the dividend or distribution and an adjustment made pursuant to this
paragraph 4(c) for a subdivision, combination or reclassification shall become
effective immediately after the effective date of the subdivision, combination
or reclassification. Such adjustment shall be made successively whenever any
action listed above shall be taken.
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Series C-Liberty Media Group
Any shares of Series A Liberty Media Group Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the time of the record date for such dividend for purposes
of calculating the number of outstanding shares of Series A Liberty Media Group
Common Stock under paragraph 4(d) below.
(d) In case this Corporation shall, on
or after the Issue Date, distribute any rights or warrants to all holders of
shares of Series A Liberty Media Group Common Stock entitling them (for a
period expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Series A Liberty Media Group Common Stock (or Convertible
Securities) at a price per share of Series A Liberty Media Group Common Stock
(or having an initial exercise price or conversion price per share of Series A
Liberty Media Group Common Stock, after adding thereto an allocable portion of
the exercise price of the right or warrant to purchase such Convertible
Securities, computed on the basis of the maximum number of shares of Series A
Liberty Media Group Common Stock issuable upon conversion of such Convertible
Securities) less than the current market price per share of Series A Liberty
Media Group Common Stock (as determined in accordance with the provisions of
paragraph 4(f) below) on the Determination Date, the number of shares of Series
A Liberty Media Group Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Series A
Liberty Media Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on such record date by
a fraction of which the numerator shall be the number of shares of Series A
Liberty Media Group Common Stock outstanding on such record date plus the
number of additional shares of Series A Liberty Media Group Common Stock
offered for subscription or purchase (or into which the Convertible Securities
so offered are initially convertible) and of which the denominator shall be the
number of shares of Series A Liberty Media Group Common Stock outstanding on
such record date plus the number of shares of Series A Liberty Media Group
Common Stock which the aggregate offering price of the total number of shares
of Series A Liberty Media Group Common Stock so offered (or the aggregate
initial conversion or exercise price of the Convertible Securities so offered,
after adding thereto the aggregate exercise price of the rights or warrants to
purchase such Convertible Securities) would purchase at the current market
price per share of Series A Liberty Media Group Common Stock (as determined in
accordance with the provisions of paragraph 4(f) below) on the Determination
Date. Such adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants. In the event that all of the shares of Series A Liberty Media Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares
10
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Series C-Liberty Media Group
of Series A Liberty Media Group Common Stock issuable upon conversion of such
Convertible Securities have not been issued prior to the expiration of the
conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Series A Liberty Media Group Common Stock (or
Convertible Securities) issued upon the exercise of such rights or warrants (or
the conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Series A Liberty Media Group Common
Stock issued upon the conversion of any Share prior to the date such subsequent
adjustment is made.
(e) In case this Corporation, on or
after the Issue Date, shall distribute to all holders of shares of Series A
Liberty Media Group Common Stock any evidences of its indebtedness or assets or
rights or warrants to purchase shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock or securities convertible
into shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock (excluding (x) dividends or distributions referred to
in paragraph 4(c), distributions of rights or warrants referred to in paragraph
4(d), distributions of Spin Off Securities referred to in paragraph 4(i) and
distributions of rights or warrants exercisable for Exchange Securities (which
shall be governed by paragraph 5) and (y) cash dividends or distributions
unless such cash dividends or cash distributions are Extraordinary Cash
Dividends), then in each such case the number of shares of Series A Liberty
Media Group Common Stock into which each Share shall thereafter be convertible
shall be determined by multiplying the number of shares of Series A Liberty
Media Group Common Stock into which such Share was theretofore convertible
immediately prior to the opening of business on (A) the record date for the
determination of stockholders entitled to receive the distribution or (B) in
the case of a reclassification, the effective date of such reclassification, by
a fraction of which the numerator shall be the current market price per share
of the Series A Liberty Media Group Common Stock (as determined in accordance
with the provisions of paragraph 4(f) below) on the Determination Date and of
which the denominator shall be such current market price per share of Series A
Liberty Media Group Common Stock less the fair market value (as determined by
the Board of Directors of this Corporation, whose determination shall be
conclusive) on such record date or effective date of the portion of the assets
or evidences of indebtedness or rights or warrants so to be distributed
applicable to one share of Series A Liberty Media Common Stock; provided,
however, that in the event the denominator of the foregoing fraction is zero or
negative, in lieu of the foregoing adjustment, adequate provision shall be made
so that each holder of a Share shall have the right to receive upon conversion
of such Share, in addition to the shares of Series A Liberty Media Group Common
Stock to which the holder is entitled, the assets or evidences of indebtedness
or rights or warrants such holder would have received had such holder converted
such Share immediately prior to the record date for such distribution. Such
adjustment shall be made successively whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
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Series C-Liberty Media Group
For purposes of this paragraph 4(e), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A
Liberty Media Group Common Stock the amount of which, together with the
aggregate amount of cash dividends on the Series A Liberty Media Group Common
Stock to be aggregated with such cash dividend in accordance with the following
provisions of this paragraph, equals or exceeds the threshold percentage set
forth below in the following sentence. If, upon the date prior to the
Ex-Dividend Date with respect to a cash dividend on Series A Liberty Media
Group Common Stock, the aggregate of the amount of such cash dividend together
with the amounts of all cash dividends on the Series A Liberty Media Group
Common Stock with Ex-Dividend Dates occurring in the 365 consecutive day period
ending on the date prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied (other than any such other
cash dividends with Ex-Dividend Dates occurring in such period for which a
prior adjustment in the Conversion Rate was previously made under this
paragraph 4(e)) equals or exceeds on a per share basis 10% of the average of
the Closing Prices during the period beginning on the date after the first such
Ex-Dividend Date in such period and ending on the date prior to the Ex-Dividend
Date with respect to the cash dividend to which this provision is being applied
(except that if no other cash dividend has had an Ex-Dividend Date occurring in
such period, the period for calculating the average of the Closing Prices shall
be the period commencing 365 days prior to the date immediately prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied), such cash dividend together with each other cash dividend with
an Ex-Dividend Date occurring in such 365-day period that is aggregated with
such cash dividend in accordance with this paragraph shall be deemed to be an
Extraordinary Cash Dividend.
(f) For the purpose of any computation
under paragraph 4(d), 4(e) or 4(m), the current market price per share of
Series A Liberty Media Group Common Stock on any Determination Date or date of
issuance, as the case may be, shall be deemed to be the average of the daily
Closing Prices for a share of Series A Liberty Media Group Common Stock for the
ten (10) consecutive trading days before the Determination Date or date of
issuance, as applicable, in question.
(g) If this Corporation consolidates
with any other entity or merges into another entity, or in case of any sale or
transfer to another entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, or if the
Corporation is a party to a merger or binding share exchange which reclassifies
or changes its outstanding Series A Liberty Media Group Common Stock, this
Corporation (or its successor in such transaction) or the purchaser of such
properties and assets shall make appropriate provision so that the holder of a
Share shall have the right thereafter to convert such Share into the kind and
amount of shares of stock and other securities and property that such holder
would have owned immediately after such consolidation, merger, sale or transfer
if such holder had converted such Share into Series A Liberty Media Group
Common Stock immediately prior to the effective date of such
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Series C-Liberty Media Group
consolidation, merger, sale or transfer (taking into account for this purpose
(to the extent applicable) the valid exercise by such holder of any rights of
election made available to holders of Series A Liberty Media Group Common
Stock, which rights of election shall simultaneously be made available to
holders of Shares on the same basis as if such Shares had theretofore been
converted into shares of Series A Liberty Media Group Common Stock), and the
holders of the Series C-Liberty Media Group Preferred Stock shall have no other
conversion rights under these provisions; provided, that effective provision
shall be made, in the Articles or Certificate of Incorporation of the resulting
or surviving corporation or otherwise or in any contracts of sale or transfer,
so that the provisions set forth herein for the protection of the conversion
rights of the Series C-Liberty Media Group Preferred Stock shall thereafter be
made applicable, as nearly as reasonably may be, to any such other shares of
stock and other securities and property deliverable upon conversion of the
Series C-Liberty Media Group Preferred Stock remaining outstanding or other
convertible preferred stock or other Convertible Securities received by the
holders of Series C-Liberty Media Group Preferred Stock in place thereof; and
provided, further, that any such resulting or surviving corporation or
purchaser shall expressly assume the obligation to deliver, upon the exercise
of the conversion privilege, such shares, securities or property as the holders
of the Series C-Liberty Media Group Preferred Stock remaining outstanding, or
other convertible preferred stock or other convertible securities received by
the holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provision for the protection of the conversion
rights as above provided.
(h) Subject to paragraph 4(k) and to the
remaining provisions of this paragraph 4(h), in the event that (i) this
Corporation redeems all, and not less than all, of the outstanding shares of
Series A Liberty Media Group Common Stock in accordance with the terms thereof
or (ii) a holder of Series C-Liberty Media Group Preferred Stock would be
entitled to receive upon conversion thereof pursuant to this paragraph 4 any
Redeemable Capital Stock and this Corporation redeems, exchanges or otherwise
acquires all of the outstanding shares or other units of such Redeemable
Capital Stock (each event referred to in clause (i) and (ii) being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series C-Liberty Media Group Preferred Stock
then outstanding shall be entitled to receive upon conversion of such shares,
in lieu of shares or units of Series A Liberty Media Group Common Stock or of
such Redeemable Capital Stock, as the case may be, the kind and amount of
shares of stock and other securities and property receivable upon the
Redemption Event by a holder of the number of shares or units of Series A
Liberty Media Group Common Stock or such Redeemable Capital Stock, as the case
may be, into which such shares of Series C-Liberty Media Group Preferred Stock
could have been converted immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed
to exercise any rights of election with respect thereto and received per share
or unit of Series A Liberty Media Group Common Stock or such Redeemable Capital
Stock the kind and amount of stock and other securities and property received
per share or unit by a plurality of the non-electing shares or units of Series
A Liberty Media Group Common
13
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Series C-Liberty Media Group
Stock or such Redeemable Capital Stock, as the case may be), and (from and
after the effective date of such Redemption Event) the holders of the Series
C-Liberty Media Group Preferred Stock shall have no other conversion rights
under these provisions with respect to the Series A Liberty Media Group Common
Stock or such Redeemable Capital Stock, as the case may be.
Notwithstanding the foregoing, if the redemption price for the
shares of Series A Liberty Media Group Common Stock or such Redeemable Capital
Stock is paid in whole or in part in Redemption Securities, and the Mirror
Preferred Stock Condition is met, the Series C-Liberty Media Group Preferred
Stock shall not be convertible into such Redemption Securities and, from and
after the applicable redemption date, the holders of any shares of Series
C-Liberty Media Group Preferred Stock that have not been exchanged for Mirror
Preferred Stock shall have no conversion rights under these provisions except
for any conversion right that may have existed immediately prior to the
effective date of the Redemption Event with respect to any shares of stock or
other securities or property other than the Series A Liberty Media Group Common
Stock or Redeemable Capital Stock so redeemed. This Corporation shall use all
commercially reasonable efforts to ensure that the Mirror Preferred Stock
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of the Series A Liberty Media Group Common
Stock or the Redeemable Capital Stock into which the Series C-Liberty Media
Group Preferred Stock is then convertible, assuming that the Series C-Liberty
Media Group Preferred Stock is not then convertible into any other shares of
stock or other securities or property, if appropriate provision is made so that
the holders of the Series C-Liberty Media Group Preferred Stock have the right
to exchange their shares of Series C-Liberty Media Group Preferred Stock on the
effective date of the Redemption Event for shares of Mirror Preferred Stock of
the issuer of the Redemption Securities, which Mirror Preferred Stock shall
have an aggregate liquidation preference equal to the aggregate Liquidation
Value of the shares of Series C-Liberty Media Group Preferred Stock to be
exchanged therefor.
If, before giving effect to a Redemption Event, a holder of
Series C-Liberty Media Group Preferred Stock would be entitled to receive upon
conversion of such Series C-Liberty Media Group Preferred Stock any shares of
stock or other securities or property (other than cash in lieu of fractional
securities) in addition to the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock being redeemed, and the redemption price payable upon
such Redemption Event will include Redemption Securities, then the Mirror
Preferred Stock Condition will be satisfied if appropriate provision is made so
that the holders of the Series C-Liberty Media Group Preferred Stock have the
right to exchange their shares of Series C-Liberty Media Group Preferred Stock
on the effective date of the Redemption Event for Exchange Preferred Stock of
this Corporation and Mirror Preferred Stock of the issuer of the Redemption
Securities. The sum of the initial liquidation preferences of the shares of
Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a
share of Series C-Liberty Media Group Preferred Stock will equal the
Liquidation Value of a share of Series C-Liberty Media Group Preferred Stock on
the effective date of the
14
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Series C-Liberty Media Group
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation Value
of the shares of Series C-Liberty Media Group Preferred Stock exchanged
therefor and the quotient of (x) the product of the Conversion Rate for the
Series A Liberty Media Group Common Stock or Redeemable Capital Stock to be
redeemed (determined immediately prior to the effective date of the Redemption
Event) and the average of the daily Closing Prices of the Series A Liberty
Media Group Common Stock or Redeemable Capital Stock, as the case may be, for
the period of ten consecutive trading days ending on the third trading day
prior to the effective date of the Redemption Event, divided by (y) the sum of
the amount determined pursuant to clause (x), plus the fair value of the shares
of stock or other securities or property (other than those being redeemed) that
would have been receivable by a holder of Series C-Liberty Media Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Redemption Event (such fair value to be determined in the case of stock
or other securities with a Closing Price in the same manner as provided in
clause (x) and otherwise by the Board of Directors in the exercise of its
judgment). The shares of Exchange Preferred Stock will have an aggregate
initial liquidation preference equal to the difference between the aggregate
Liquidation Value of the shares of Series C-Liberty Media Group Preferred Stock
exchanged therefor and the aggregate initial liquidation preference of the
Mirror Preferred Stock.
(i) If this Corporation effects a Spin
Off, this Corporation shall make appropriate provision so that the holders of
the Series C-Liberty Media Group Preferred Stock have the right to exchange
their shares of Series C-Liberty Media Group Preferred Stock on the effective
date of the Spin Off for Exchange Preferred Stock of this Corporation and
Mirror Preferred Stock of the issuer of the Spin Off Securities. The sum of the
initial liquidation preferences of the shares of Exchange Preferred Stock and
Mirror Preferred Stock delivered in exchange for a share of Series C-Liberty
Media Group Preferred Stock will equal the Liquidation Value of a share of
Series C-Liberty Media Group Preferred Stock on the effective date of the Spin
Off. The Mirror Preferred Stock will have an aggregate liquidation preference
equal to the product of the aggregate Liquidation Value of the shares of Series
C-Liberty Media Group Preferred Stock exchanged therefor and the quotient of
(x) the product of the number (or fraction) of Spin Off Securities that would
have been receivable upon such Spin Off by a holder of the number of shares of
Series A Liberty Media Group Common Stock issuable upon conversion of a share
of Series C-Liberty Media Group Preferred Stock immediately prior to the
effective date of the Spin Off and the average of the daily Closing Prices of
the Spin Off Securities for the period of ten consecutive trading days
commencing on the tenth trading day following the effective date of the Spin
Off, divided by (y) the sum of the amount determined pursuant to clause (x),
plus the fair value of the shares of Series A Liberty Media Group Common Stock
and other securities or property (other than Spin Off Securities) that would
have been receivable by a holder of a share of Series C-Liberty Media Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Spin Off (such fair value to be determined in the case of Series A
Liberty Media Group Common Stock or other securities with a Closing Price in
the same manner as provided in clause (x) and otherwise by the
15
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Series C-Liberty Media Group
Board of Directors in the exercise of its judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Value of the shares of Series
C-Liberty Media Group Preferred Stock exchanged therefor and the aggregate
initial liquidation preference of the Mirror Preferred Stock. From and after
the effective date of such Spin Off, the holders of any shares of Series
C-Liberty Media Group Preferred Stock that have not been exchanged for Mirror
Preferred Stock and Exchange Preferred Stock as provided above shall have no
conversion rights under these provisions with respect to such Spin Off
Securities.
(j) Whenever the Conversion Rate or the
conversion privilege shall be adjusted as provided in this paragraph 4, this
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series C-Liberty Media Group Preferred Stock describing the nature of
the event requiring such adjustment, the Conversion Rate in effect immediately
thereafter and the kind and amount of stock or other securities or property
into which the Series C-Liberty Media Group Preferred Stock shall be
convertible after such event. Where appropriate, such notice may be given in
advance and included as a part of a notice required to be mailed under the
provisions of paragraph 4(l).
(k) This Corporation may, but shall not
be required to, make any adjustment of the Conversion Rate if such adjustment
would require an increase or decrease of less than 1% in such Conversion Rate;
provided, however, that any adjustments which by reason of this paragraph 4(k)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
In any case in which this paragraph 4(k) shall require that an adjustment shall
become effective immediately after a record date for such event, the
Corporation may defer until the occurrence of such event (x) issuing to the
holder of any shares of Series C-Liberty Media Group Preferred Stock converted
after such record date and before the occurrence of such event the additional
shares of Series A Liberty Media Group Common Stock or other Capital Stock
issuable upon such conversion by reason of the adjustment required by such
event over and above the shares of Series A Liberty Media Group Common Stock,
or other Capital Stock issuable upon such conversion before giving effect to
such adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to paragraph 4(p); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A Liberty Media Group Common
Stock or other Capital Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
To the extent the shares of Series C-Liberty Media Group
Preferred Stock become convertible into cash, no adjustment need be made
thereafter as to the cash. Interest will not accrue on the cash.
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Series C-Liberty Media Group
(l) In case at any time:
(i) this Corporation shall take any
action which would require an adjustment in the Conversion
Rate pursuant to this paragraph;
(ii) there shall be any capital
reorganization or reclassification of the Series A Liberty
Media Group Common Stock (other than a change in par value),
or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of this
Corporation is required, or any sale, transfer or lease of all
or substantially all of the properties and assets of the
Corporation, or a tender offer for shares of Series A Liberty
Media Group Common Stock representing at least a majority of
the total voting power represented by the outstanding shares
of Series A Liberty Media Group Common Stock which has been
recommended by the Board of Directors as being in the best
interests of the holders of Series A Liberty Media Group
Common Stock; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of this
Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in the first sentence of paragraph 6(c) hereof, to the holders
of the Series C-Liberty Media Group Preferred Stock at their respective
addresses as the same appear on the books of the Corporation, at least twenty
days (or ten days in the case of a recommended tender offer as specified in
clause (ii) above) prior to any record date for such action, dividend or
distribution or the date as of which it is expected that holders of Series A
Liberty Media Group Common Stock of record shall be entitled to exchange their
shares of Series A Liberty Media Group Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, lease, tender offer, dissolution,
liquidation or winding up; provided, however, that any notice required by any
event described in clause (ii) of this paragraph 4(l) shall be given in the
manner and at the time that such notice is given to the holders of Series A
Liberty Media Group Common Stock. Without limiting the obligations of this
Corporation to provide notice of corporate actions hereunder, the failure to
give the notice required by this paragraph 4(l) or any defect therein shall not
affect the legality or validity of any such corporate action of the Corporation
or the vote upon such action.
(m) Before any holder of Series
C-Liberty Media Group Preferred Stock shall be entitled to convert the same
into Series A Liberty Media Group Common Stock, such holder shall surrender the
certificate or certificates for such Series C-Liberty Media Group Preferred
Stock at the office of this Corporation or at the office of the transfer agent
for the Series C-Liberty Media Group Preferred Stock, which certificate or
certificates, if this Corporation shall so request, shall be duly endorsed to
this Corporation or in blank or accompanied by proper instruments of
17
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Series C-Liberty Media Group
transfer to this Corporation or in blank (such endorsements or instruments of
transfer to be in form satisfactory to this Corporation), and shall given
written notice to this Corporation at said office that it elects to convert all
or a part of the Shares represented by said certificate or certificates in
accordance with the terms of this paragraph 4, and shall state in writing
therein the name or names in which such holder wishes the certificates for
Series A Liberty Media Group Common Stock to be issued. Every such notice of
election to convert shall constitute a contract between the holder of such
Series C-Liberty Media Group Preferred Stock and the Corporation, whereby the
holder of such Series C-Liberty Media Group Preferred Stock shall be deemed to
subscribe for the amount of Series A Liberty Media Group Common Stock which
such holder shall be entitled to receive upon conversion of the number of
shares of Series C-Liberty Media Group Preferred Stock to be converted, and, in
satisfaction of such subscription, to deposit the shares of Series C-Liberty
Media Group Preferred Stock to be converted, and thereby this Corporation shall
be deemed to agree that the surrender of the shares of Series C-Liberty Media
Group Preferred Stock to be converted shall constitute full payment of such
subscription for Series A Liberty Media Group Common Stock to be issued upon
such conversion. This Corporation will as soon as practicable after such
deposit of a certificate or certificates for Series C-Liberty Media Group
Preferred Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of this Corporation or of said
transfer agent to the person for whose account such Series C-Liberty Media
Group Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates
for the number of full shares of Series A Liberty Media Group Common Stock to
which such holder shall be entitled, together with cash in lieu of any fraction
of a share as hereinafter provided. If surrendered certificates for Series
C-Liberty Media Group Preferred Stock are converted only in part, this
Corporation will issue and deliver to the holder, or to his nominee(s), without
charge therefor, a new certificate or certificates representing the aggregate
of the unconverted Shares. Such conversion shall be deemed to have been made as
of the date of such surrender of the Series C-Liberty Media Group Preferred
Stock to be converted; and the person or persons entitled to receive the Series
A Liberty Media Group Common Stock issuable upon conversion of such Series
C-Liberty Media Group Preferred Stock shall be treated for all purposes as the
record holder or holders of such Series A Liberty Media Group Common Stock on
such date.
The issuance of certificates for shares of Series A Liberty
Media Group Common Stock upon conversion of shares of Series C-Liberty Media
Group Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance, provided, however, if any such
certificate is to be issued in a name other than that of the registered holder
of the share or shares of Series C-Liberty Media Group Preferred Stock
converted, the person or persons requesting the issuance thereof shall pay to
this Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish to the satisfaction of
this Corporation that such tax has been paid.
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Series C-Liberty Media Group
This Corporation shall not be required to convert any shares
of Series C-Liberty Media Group Preferred Stock, and no surrender of Series
C-Liberty Media Group Preferred Stock shall be effective for that purpose,
while the stock transfer books of this Corporation are closed for any purpose;
but the surrender of Series C-Liberty Media Group Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series C-Liberty Media Group
Preferred Stock was surrendered.
(n) This Corporation shall at all times
reserve and keep available, solely for the purpose of issuance upon conversion
of the outstanding shares of Series C-Liberty Media Group Preferred Stock, such
number of shares of Series A Liberty Media Group Common Stock (or other Capital
Stock) as shall be issuable upon the conversion of all outstanding Shares,
provided that nothing contained herein shall be construed to preclude this
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Series C-Liberty Media Group Preferred Stock by delivery
of shares of Series A Liberty Media Group Common Stock (or such other Capital
Stock) which are held in the treasury of this Corporation. This Corporation
shall take all such corporate and other actions as from time to time may be
necessary to insure that all shares of Series A Liberty Media Group Common
Stock (or other Capital Stock) issuable upon conversion of shares of Series
C-Liberty Media Group Preferred Stock at the Conversion Rate in effect from
time to time will, upon issue, be duly and validly authorized and issued, fully
paid and nonassessable and free of any preemptive or similar rights.
(o) All shares of Series C-Liberty Media
Group Preferred Stock received by this Corporation upon conversion thereof into
Series A Liberty Media Group Common Stock shall be retired and shall be
restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Series C-Liberty Media
Group Preferred Stock).
(p) This Corporation shall not be
required to issue fractional shares of Series A Liberty Media Group Common
Stock or scrip upon conversion of the Series C-Liberty Media Group Preferred
Stock. As to any final fraction of a share of Series A Liberty Media Group
Common Stock which a holder of one or more Shares would otherwise be entitled
to receive upon conversion of such Shares in the same transaction, this
Corporation shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the market value of a full share of Series
A Liberty Media Group Common Stock. For purposes of this paragraph 4(p), the
market value of a share of Series A Liberty Media Group Common Stock shall be
the Closing Price thereof on the trading day immediately preceding the date of
conversion.
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Series C-Liberty Media Group
5. Exchange Option.
(a) In the event an Exchange Offer is
made by this Corporation or a Subsidiary thereof (the applicable of the
foregoing being the "Offeror"), the Offeror shall concurrently therewith make
an equivalent offer to the holders of Series C-Liberty Media Group Preferred
Stock pursuant to which such holders may tender Shares, based upon the number
of shares of Series A Liberty Media Group Common Stock into which such tendered
Shares are then convertible (and in lieu of tendering outstanding shares of
Series A Liberty Media Group Common Stock), together with such other
consideration as may be required to be tendered pursuant to such Exchange
Offer, and receive in exchange therefor, in lieu of Exchange Securities (and
other property, if applicable), Mirror Preferred Stock with an aggregate
liquidation preference equal to the aggregate Liquidation Value of the shares
of Series C-Liberty Media Group Preferred Stock exchanged therefor. Whether or
not a holder of Shares elects to accept such offer and tender Shares, no
adjustment to the Conversion Rate of the Shares will be made pursuant to
paragraph 4 in connection with the Exchange Offer.
(b) If an Exchange Offer is made as
discussed above, the Offeror shall, concurrently with the distribution of the
offering circular or prospectus and related documents to holders of Series A
Liberty Media Group Common Stock, provide each holder of Series C-Liberty Media
Group Preferred Stock with a notice setting forth the offer described in
paragraph 5(a) above and describing the Exchange Offer, the Exchange Securities
and the Mirror Preferred Stock. Such notice shall be accompanied by the
offering circular, prospectus or similar document provided to holders of Series
A Liberty Media Group Common Stock in respect of the Exchange Offer and a copy
of the certificate of designations (or similar document) proposed to be filed
by the Offeror in order to establish the Mirror Preferred Stock. No failure to
mail the notice contemplated by this paragraph 5(b) or any defect therein or in
the mailing thereof shall affect the validity of the applicable Exchange Offer.
6. Redemption.
(a) Subject to the provisions of
paragraph 6(f), the shares of Series C-Liberty Media Group Preferred Stock may
be redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, at any time after August 8, 2001 at the Redemption Price per Share as
of the applicable Redemption Date. If less than all outstanding Shares are to
be redeemed, Shares shall be redeemed ratably among the holders thereof.
(b) Subject to the rights of any Parity
Securities and the provisions of paragraph 6(f) and subject to any prohibitions
or restrictions contained in any Debt Instrument, at any time on or after
August 8, 2001, any holder shall have the right, at such holder's option, to
20
<PAGE> 355
Series C-Liberty Media Group
require redemption by this Corporation at the Redemption Price per Share as of
the applicable Redemption Date of all or any portion of his Shares having an
aggregate Liquidation Value in excess of $1,000,000, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in
accordance with the first sentence of this paragraph 6(b) or, at this
Corporation's election, through the issuance of fully paid and nonassessable
shares of Series A Liberty Media Group Common Stock (the value of which for
this purpose shall be deemed to be equal to, on a per share basis, the average
of the daily Closing Prices of the Series A Liberty Media Group Common Stock
for the 20 consecutive trading days ending on and including the fifth trading
day preceding the date fixed for redemption pursuant to this sentence), the
Shares so requested to be redeemed on such date within 60 days following this
Corporation's receipt of such notice as this Corporation shall state in its
notice given pursuant to paragraph 6(c). If the funds of this Corporation
legally available for redemption of Shares and not restricted in accordance
with the first sentence of this paragraph 6(b) are insufficient to redeem the
total number of Shares required to be redeemed pursuant to this paragraph 6(b)
and the Corporation has not elected to pay the Redemption Price or the
applicable portion thereof in shares of Series A Liberty Media Group Common
Stock, then, those funds which are legally available for redemption of such
Shares and not so restricted will be used to redeem the maximum possible number
of such Shares ratably among the holders who have required Shares to be
redeemed under this paragraph 6(b). At any time thereafter when additional
funds of this Corporation are legally available and not so restricted for such
purpose, such funds will immediately be used to redeem the Shares this
Corporation failed to redeem on such Redemption Date until the balance of such
Shares are redeemed. Further, if the funds of this Corporation legally
available for redemption of Shares are sufficient to pay the Redemption Price
of the Shares requested to be redeemed in full, then any portion of such
Redemption Price not paid when due as provided in this paragraph 6(b) shall
thereupon become immediately due and payable by this Corporation in cash only,
notwithstanding that payment thereof is restricted pursuant to any Debt
Instrument in accordance with the first sentence of this paragraph 6(b), and
shall constitute indebtedness of this Corporation for borrowed money, the
payment of which indebtedness the holders requesting such redemption shall be
entitled to enforce by the exercise of any and all rights at law or in equity.
(c) Notice of any redemption pursuant to
this paragraph 6 shall be mailed, first class, postage prepaid, not less than
30 days nor more than 60 days prior to the Redemption Date, to the holders of
record of the shares of Series C-Liberty Media Group Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the books of
this Corporation or are supplied by them in writing to this Corporation for the
purpose of such notice (with telephonic or facsimile confirmation of notice to
Bill Daniels so long as he is a holder of record); but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of the Series
C-Liberty Media Group Preferred Stock. Such notice shall set forth the
Redemption Price, the Redemption Date, the number of Shares to be redeemed and
the place at which the Shares called for redemption will, upon
21
<PAGE> 356
Series C-Liberty Media Group
presentation and surrender of the stock certificates evidencing such Shares, be
redeemed. In case fewer than the total number of shares of Series C-Liberty
Media Group Preferred Stock represented by any certificate are redeemed, a new
certificate representing the number of unredeemed Shares will be issued to the
holder thereof without cost to such holder.
(d) If notice of any redemption by this
Corporation pursuant to this paragraph 6 shall have been mailed as provided in
paragraph 6(c) and if on or before the Redemption Date specified in such notice
the consideration necessary for such redemption shall have been set apart so as
to be available therefor and only therefor, then on and after the close of
business on the Redemption Date, the Shares called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and all rights with
respect to such Shares shall forthwith cease and terminate, except the right of
the holders thereof to receive upon surrender of their certificates the
consideration payable upon redemption thereof.
(e) All shares of Series C-Liberty Media
Group Preferred Stock redeemed, retired, purchased or otherwise acquired by
this Corporation shall be retired and shall be restored to the status of
authorized and unissued shares of preferred stock (and may be reissued as part
of another series of the preferred stock of this Corporation, but such shares
shall not be reissued as Series C-Liberty Media Group Preferred Stock).
(f) If and so long as this Corporation
shall fail to redeem on a Redemption Date pursuant to this paragraph 6 all
shares of Series C-Liberty Media Group Preferred Stock required to be redeemed
on such date, this Corporation shall not redeem, or discharge any sinking fund
obligation with respect to, any Junior Securities, unless all then outstanding
shares of Series C-Liberty Media Group Preferred Stock are redeemed, and shall
not purchase or otherwise acquire any shares of Series C-Liberty Media Group
Preferred Stock or Junior Securities. Nothing contained in this paragraph 6(f)
shall prevent the purchase or acquisition of shares of Series C-Liberty Media
Group Preferred Stock pursuant to a purchase or exchange offer or offers made
to holders of all outstanding shares of Series C-Liberty Media Group Preferred
Stock, provided that as to holders of all outstanding shares of Series
C-Liberty Media Group Preferred Stock, the terms of the purchase or exchange
offer for all such shares are identical. The provisions of this paragraph 6(f)
are for the benefit of holders of Series C-Liberty Media Group Preferred Stock
and accordingly the provisions of this paragraph 6(f) shall not restrict any
redemption by this Corporation of Shares held by any holder, provided that all
other holders of Shares shall have waived in writing the benefits of this
provision with respect to such redemption.
(g) If this Corporation has elected to
issue shares of Series A Liberty Media Group Common Stock in payment, in whole
or in part, of the Redemption Price of all or any of the Shares pursuant to
paragraph 6(b) and if, as of the Redemption Date, Bill Daniels
22
<PAGE> 357
Series C-Liberty Media Group
is deceased and the Shares redeemed are held by or for the benefit of an inter
vivos or testamentary trust or public or private foundation established by Bill
Daniels, then the provisions of this paragraph 6(g) shall apply. If the net
proceeds to the holder of sales in the open market of the shares of Series A
Liberty Media Group Common Stock issued in payment of the Redemption Price
during the 30-day period following the later of the Redemption Date and, if
this Corporation is required to effect the registration of the sale of such
shares pursuant to a Registration Rights Agreement, the effective date of such
registration (or if the holder has provided written notice to this Corporation
of its intention to sell such shares prior to the expiration of such 30-day
period, then during the 90-day period following the later of such dates), are
in the aggregate (x) less than the dollar amount of the portion of the
Redemption Price paid by this Corporation in the shares so sold, then this
Corporation shall pay to the holder the amount of the shortfall in cash or (y)
greater than the dollar amount of the portion of the Redemption Price paid by
this Corporation in the shares so sold, then the holder shall pay to this
Corporation the amount of the excess in cash. For purposes of the foregoing,
"net proceeds" shall mean the gross sale price for each sale, less the amount
of all customary and reasonable selling expenses incurred by the holder in
making such sale (e.g., customary broker discounts). The holder shall notify
this Corporation promptly in writing of each sale of shares of Series A Liberty
Media Group Common Stock made by the holder during the 30-day or 90-day, as
applicable, period referred to above, the method of sale, the gross proceeds of
such sale, and the kind and amount of expenses deducted in determining the net
proceeds of the applicable sale. If, during such applicable period, the holder
has sold a greater number of shares of Series A Liberty Media Group Common
Stock than the number issued by this Corporation in payment of the Redemption
Price, then those sales that yielded the highest net proceeds shall be deemed
to be sales of the shares issued in payment of the Redemption Price. Within
five days after the expiration of the 30-day or 90-day, as applicable, period,
this Corporation or the holder, as applicable, shall make the payment to the
other required by this paragraph 6(g).
7. Voting Rights. The holders of the Series
C-Liberty Media Group Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Capital Stock of this Corporation
which is entitled to vote generally on the election of directors. Each Share
shall entitle the registered holder thereof to such number of votes as is equal
to the number of shares of Series A Liberty Media Group Common Stock or other
voting securities of this Corporation into which such Share is then
convertible. Holders of Series C-Liberty Media Group Preferred Stock shall vote
together with holders of Common Stock and shall not be entitled to vote as a
class except as otherwise required by law or this Corporation's Restated
Certificate of Incorporation.
8. Amendment. No amendment or modification of
the designation, rights, preferences, and limitations of the Shares set forth
herein shall be binding or effective without the prior consent of the holders
of record of Shares representing 66 2/3% of the Liquidation Value of all Shares
outstanding at the time such action is taken.
23
<PAGE> 358
Series C-Liberty Media Group
9. Preemptive Rights. The holders of the Series
C-Liberty Media Group Preferred Stock will not have any preemptive right to
subscribe for or purchase any shares of stock or any other securities which may
be issued by this Corporation.
10. Senior Securities. The Series C-Liberty Media
Group Preferred Stock shall not rank junior to any other classes or series of
stock of this Corporation in respect of the right to receive dividends or the
right to participate in any distribution upon liquidation, dissolution or
winding up of this Corporation. Without the prior consent of the holders of
record of Shares representing 66 2/3% of the Liquidation Value of all Shares
then outstanding, this Corporation shall not issue any Senior Securities.
11. Exclusion of Other Rights. Except as may
otherwise be required by law and for the equitable rights and remedies that may
otherwise be available to holders of Series C-Liberty Media Group Preferred
Stock, the shares of Series C-Liberty Media Group Preferred Stock shall not
have any designations, preferences, limitations or relative rights, other than
those specifically set forth in these resolutions (as such resolutions may,
subject to paragraph 8, be amended from time to time) and in the Restated
Certificate of Incorporation of this Corporation.
12. Headings. The headings of the various
paragraphs and subparagraphs hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on
this 30th day of December, 1997.
/s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
24
<PAGE> 1
EXHIBIT 10.11
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of January 1, 1998 (this
"Agreement"), between TELE-COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), and FRED A. VIERRA, now residing at 77 Glenmoor Drive, Englewood,
Colorado 80110 ("Consultant").
On the date hereof, Consultant resigned as an officer,
director and employee of the Company, its subsidiaries and its controlled
affiliates, except that he shall remain a director and Vice Chairman of the
Board of Directors of Tele-Communications International, Inc. ("TINTA") for so
long as he is elected to such Board and such other Boards as requested by the
Chief Executive Officer of TCI for so long as so requested.
This Consulting Agreement replaces the Employment Agreement,
dated as of November 1, 1992 ("Employment Agreement"), between the Company and
Consultant (and all other employment agreements between the Company, any of its
subsidiaries or affiliates and Consultant), and sets forth the terms and
conditions of the consultancy arrangement between the Company and Consultant.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination.
(a) Term. The term of Consultant's consultant arrangement under
this Agreement (the "Term") shall commence on the date hereof and end on
December 31, 2002. During the Term, Consultant agrees to serve the Company as
a consultant as provided herein upon and subject to the terms and conditions
set forth in this Agreement.
(b) Termination by the Company. Consultant's consultancy by the
Company may be terminated by the Company only as provided in clauses (i) and
(ii) below.
(i) Upon the death of Consultant. The Company shall, as
promptly as practicable following Consultant's death, pay to
Consultant's designated beneficiary or beneficiaries in a lump sum an
amount equal to one year's compensation under Section 4(a) of this
Agreement. The phrase "designated beneficiary or beneficiaries" shall
mean the person or persons named by Consultant from time to time in a
signed designation filed with the Company from time to time.
(ii) Upon giving written notice of such termination to
Consultant six (6) months prior to the effective date thereof and by
paying to Consultant in a lump sum upon such termination all remaining
compensation that would have been payable under
<PAGE> 2
Section 4(a) hereof if this Agreement remained in full force and
effect for the full balance of the Term.
2. Services to Be Rendered by Consultant.
Consultant agrees to serve the Company as a consultant (when
and for what purpose as then requested by the Company's Chief Executive
Officer) to advise the Company's Chief Executive Officer regarding the
allocation of the Company's resources and other matters generally and with
respect to the international operations of the Company in particular. If
Consultant continues to serve as, or is elected, a director of the Company's
subsidiaries or affiliates, Consultant will serve in any such capacities
without further compensation except as may be decided by the Company at the
Company's sole election. Consultant shall discharge his responsibilities and
shall in all other respects serve the Company faithfully and to the best of his
ability.
3. Time to Be Devoted by Consultant.
(a) If Consultant is requested to provided consultancy services to
the Company, Consultant will, where practical, be given seven days' notice. In
no event will Consultant be required to provide more than 700 hours per year in
consultancy services to the Company.
(b) Company shall provide to Consultant an office at the Company's
headquarters and secretarial service if such is required by Consultant to
reasonably provide any Company-requested consultancy services.
4. Compensation Payable to Consultant.
(a) The Company shall pay to Consultant a sum equal to the rate of
$700,000 per annum.
(b) Consultant's annual payments shall be paid in accordance with
the Company's regular policy but not less frequently than once a month.
(c) Of each regular payment, approximately 35.714% shall be
deferred (the "monthly deferred amount"), so as to result in the deferral of
payment of Consultant's salary at the annual rate of approximately $250,000 per
annum. Each such monthly deferred amount shall bear interest, compounded
annually, at the rate of 8% per annum, from the first day of the month of
deferral to, but not including, the Determination Date. A statement will be
furnished to Consultant annually, on or about February 1st of each year,
stating the sum of the monthly deferred amounts and the amount of interest
accrued thereon as of the preceding December 31st. As used herein,
"Determination Date" shall mean the first business day of the first full
calendar month following the later of (i) December 31, 2002, and (ii) the date
Consultant ceases to be a consultant pursuant to this Agreement.
2
<PAGE> 3
(d) The sum of the monthly deferred amounts pursuant to Section
4(c) above plus all interest accrued thereon to the Determination Date (the
"total deferred amount") shall be calculated as of the Determination Date and
shall be paid to Consultant in substantially equal monthly payments over a
240-month period commencing on the Determination Date and continuing on the
first day of each calendar month thereafter until paid in full. Each monthly
payment of the total deferred amount shall be accompanied by a payment of
interest thereon computed at the rate of 8% per annum, compounded annually,
from and including the Determination Date to the date of such payment.
(e) If Consultant dies prior to the Determination Date, the amount
payable pursuant to Section 4(d) above shall be calculated as promptly as
practicable but in no event later than the first business day of the first full
calendar month following the date of his death (which date of calculation shall
for this purpose be the Determination Date) and shall be paid forthwith in a
lump sum to his designated beneficiary or beneficiaries. If Consultant dies
after the Determination Date and before the expiration of the period during
which the deferred payments provided for in Section 4(d) above are to be paid
to him, the remaining deferred payments shall be paid forthwith in a lump sum
to Consultant's designated beneficiary or beneficiaries. The phrase
"designated beneficiary or beneficiaries" shall mean the person or persons
named from time to time by Consultant in a signed instrument filed with the
Company. If the designation made in any such signed instrument shall for any
reason be ineffective, the phrase "designated beneficiary or beneficiaries"
shall mean Consultant's estate.
(f) The amount of deferred compensation payable hereunder
(together with the interest applicable thereto) shall not in any way be
reserved or held in trust by the Company. Neither Consultant nor any
designated beneficiary or personal representative shall have any rights against
the Company in respect of such deferred payments other than the rights of an
unsecured creditor of the Company. Deferred payments provided for herein shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and shall not in any manner be
liable or subject to the debts, contracts, liabilities, engagements or torts of
Consultant, nor of any designated beneficiary or personal representative. The
payment to Consultant of such deferred payments shall be subject to the further
condition that Consultant shall comply with the provisions of Section 9 of this
Agreement during the entire payment period and Consultant shall comply with the
provisions of Sections 8 and 11 of this Agreement, if said provisions are
applicable by their terms, for the first two (2) years of the payment period.
5. Expenses.
The Company shall reimburse Consultant for the reasonable amount of
dining, hotel, traveling, entertainment and other expenses necessarily incurred
by Consultant in the discharge of his consulting obligations hereunder.
3
<PAGE> 4
6. Executive Benefit Plans
During the Term, Consultant shall be entitled to participate
in and to be accorded all rights and benefits under all group insurance
policies maintained or established by the Company for the benefit of its
employees, and for this purpose Consultant shall be deemed to be a full-time
employee of the Company during such period. Further, during the period that
continues after the Term ("Deferred Compensation Period") that any deferred
compensation is payable to Consultant pursuant to Section 4 of this Agreement,
Consultant shall continue to be entitled to participate in, and to be accorded
all rights and benefits under, all group insurance policies maintained or
established by the Company for the benefit of its employees, and for this
purpose Consultant shall be deemed to be a full-time employee of the Company
during such period. In addition, during the Term and Deferred Compensation
Period, Consultant shall be entitled to free cable television service if
Consultant has residences located within areas serviced by the Company's cable
television services.
7. Indemnification.
The Company will indemnify and hold harmless Consultant, to
the fullest extent permitted by applicable law, in respect of any liability,
damage, cost or expense (including reasonable counsel fees) incurred in
connection with the defense of any claim, action, suit or proceeding to which
he is a party, or threat thereof, by reason of his being or having been an
officer or director of, or a consultant to, the Company or any subsidiary of
the Company, or his serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, business organization, enterprise or other
entity, including service with respect to employee benefit plans. Without
limiting the generality of the foregoing, the Company will pay the expenses
(including reasonable counsel fees) of defending any such claim, action, suit
or proceeding in advance of its final disposition, upon receipt of an
undertaking by Consultant to repay all amounts advanced if it should ultimately
be determined that Consultant is not entitled to be indemnified under this
Section.
8. Noncompetition.
Consultant agrees that during the Term he will not, directly
or indirectly, as principal or agent, or in any other capacity, own, manage,
operate, participate in or be employed by or otherwise be interested in, or
connected in any manner with, any person, firm, corporation or other enterprise
which directly competes in a material respect with the business of the Company
or any of its majority-owned subsidiaries as it is then conducted. Nothing
herein contained shall be construed as denying Consultant (i) the right to own
securities of any such corporation which is listed on a national securities
exchange or quoted in the NASDAQ System to the extent of an aggregate of 5% of
the amount of such securities outstanding or (ii) provide consultancy services
to others which may violate the provisions of the first sentence of this
Section if the Company's Chief Executive Officer approves in writing of such
provision of consultancy services.
4
<PAGE> 5
9. Confidentiality.
Consultant agrees that during the Term (otherwise than in the
performance of his duties hereunder) and thereafter, not to, directly or
indirectly, make use of, or divulge to any person, firm, corporation, entity or
business organization, and he shall use his best efforts to prevent the
publication or disclosure of, any confidential or proprietary information
concerning the business, accounts or finances of, or any of the methods of
doing business used by the Company or of the dealings, transactions or affairs
of the Company or any of its customers which have or which may have come to his
knowledge; but this Section 9 shall not prevent Consultant from responding to
any subpoena, court order or threat of other legal duress, provided Consultant
notifies the Company thereof with reasonable promptness to that the Company may
seek a protective order or other appropriate relief.
10. Delivery of Materials.
Consultant agrees that upon the expiration of the Term he will
deliver to the Company all documents, papers, materials and other property of
the Company relating to its affairs which may then be in his possession or
under his control.
11. Noninterference.
Consultant agrees that he will not during the Term solicit the
employment of any employee of the Company on behalf of any other person, firm,
corporation, entity or business organization or otherwise interfere with the
employment relationship between any employee or officer of the Company and the
Company.
12. Remedies of the Company.
Consultant agrees that, in the event of a material breach by
Consultant of this Agreement, in addition to any other rights that the Company
may have pursuant to this Agreement, the Company shall be entitled, if it so
elects, to institute and prosecute proceedings at law or in equity to obtain
damages with respect to such breach or to enforce the specific performance of
this Agreement by Consultant or to enjoin Consultant from engaging in any
activity in violation hereof. Consultant agrees that because Consultant's
services to the Company are of such a unique and extraordinary character, a
suit at law may be an inadequate remedy with respect to a breach by Consultant
of Sections 8, 9, 10, and 11 hereof, and that upon any such breach or
threatened breach by him of such Sections the Company shall be entitled, in
addition to any other lawful remedies that may be available to it, to
injunctive relief.
13. Notices.
All notices to be given hereunder shall be deemed duly given
when delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid and addressed as follows:
5
<PAGE> 6
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dr. John C. Malone
with a copy similarly addressed
and marked to the attention of
the Legal Department
(b) If to be given to Consultant:
Mr. Fred A. Vierra
77 Glenmoor Drive
Englewood, CO 80110
or to such other address as a party may request by notice given in accordance
with this Section 13.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and replaces and supersedes
as of the date hereof any and all prior agreements and understandings with
respect to Consultant's employment by the Company, whether oral or written,
between the parties hereto, including, without limitation, the Employment
Agreement. This Agreement may not be changed nor may any provision hereof by
waived except by an instrument in writing duly signed by the party to be
charged. This Agreement shall be interpreted, governed and controlled by the
law of the State of Colorado without reference to principles of conflict of
laws.
(b) All options to acquire the Company's TCI Group, Liberty Media
Group or Ventures Group, or TINTA's, Series A Common Stock currently held by
Consultant which by their terms are not currently exercisable are now currently
exercisable. Consultant, as long as Consultant is a consultant hereunder,
shall be deemed to be an employee of the Company for purposes of the option
agreements under which said options were granted.
(c) The TINTA restricted stock granted to Consultant shall vest
upon the expiration of the terms provided by agreements evidencing their
respective grants; and, as long as
6
<PAGE> 7
Consultant is a consultant hereunder, Consultant shall be deemed to be an
employee of TINTA for purposes of the agreements under which such restricted
stock awards were granted.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
TELE-COMMUNICATIONS, INC.
By:
------------------------
----------------------------
Fred A. Vierra
7
<PAGE> 1
EXHIBIT 10.29
TCI 401(k) STOCK PLAN
RESTATED EFFECTIVE 1/1/98
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I NAME AND PURPOSE OF PLAN AND TRUST...........................1
ARTICLE II DEFINITIONS..................................................2
ARTICLE III PARTICIPATION................................................9
ARTICLE IV CONTRIBUTIONS...............................................11
ARTICLE V DETERMINATION AND VESTING OF PARTICIPANTS' ACCOUNTS.........19
ARTICLE VI RETIREMENT DATE--DESIGNATION OF BENEFICIARY.................24
ARTICLE VII DISTRIBUTION FROM TRUST FUND................................26
ARTICLE VIII ANNUAL ADDITIONS LIMITATIONS AND TOP HEAVY RULES............36
ARTICLE IX FIDUCIARY OBLIGATIONS.......................................44
ARTICLE X PLAN ADMINISTRATOR AND PLAN COMMITTEE.......................48
ARTICLE XI POWERS AND DUTIES OF THE TRUSTEE............................54
ARTICLE XII CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN
AND TRUST...................................................59
ARTICLE XIII MISCELLANEOUS...............................................61
</TABLE>
<PAGE> 3
ARTICLE I
NAME AND PURPOSE OF PLAN AND TRUST
The Company, by execution of this document, amends, restates, and
renames the qualified plan known as the Tele-Communications, Inc., Qualified
Employee Stock Purchase Plan. The amended and restated plan will be known as the
TCI 401(k) Stock Plan. The Plan and Trust Fund are created for the exclusive
benefit of Employee-Participants and their Beneficiaries. The Plan is intended
to qualify under Sections 401(a) and 401(k) of the Code, and the Trust created
under the Plan is intended to be exempt under Section 501(a) of the Code. The
portion of the Plan which is invested in Qualifying Employer Securities will be
treated as a stock bonus plan, and the portion of the Plan which is not invested
in Qualifying Employer Securities will be treated as a profit-sharing plan.
<PAGE> 4
ARTICLE II
DEFINITIONS
When used herein, the following words shall have the following
meanings, unless the context clearly indicates otherwise:
2.1 "Account," unless otherwise indicated, means a Participant's entire
interest in the Trust Fund created by any Employer contributions and
Participant contributions, and the income, expenses, gains, and losses
attributable to contributions.
2.2 "Associated Company" means any corporation or entity which is deemed
to be a member of the group of corporations or trades or businesses under
common control of the Company, as determined under Code Sections 414(b) and
414(c) and the regulations thereunder, and which adopts this Plan and Trust
with the consent of the Company; provided, however, that no such corporation or
entity shall be an Associated Company if such corporation or entity is less
than a "majority-owned subsidiary" of the Company (as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act"))
and the adoption by such corporation or entity of the Plan and Trust would
cause the same to be ineligible to rely upon the exemption provided by the
first clause of Section 3(c)(11) of the Investment Company Act. Any such
company which subsequently is no longer a member of the controlled group shall
be deemed to have terminated its participation in this Plan and Trust
immediately upon such failure to be a member of the controlled group.
2.3 "Beneficiary" means the person who, under this Plan, becomes entitled
to receive a Participant's Account upon the Participant's death.
2.4 "Board of Directors" means the Board of Directors of the Company.
2.5 "Break in Service" means a Period of Severance of at least twelve
consecutive months. For purposes of determining whether an Employee has
experienced a Break in Service, the twelve- consecutive-month period beginning
on the first anniversary of the first date of a maternity or paternity absence
shall not constitute a Break in Service. Maternity or paternity absences shall
include absence:
[a] by reason of the pregnancy of the Employee;
[b] by reason of the birth of a child of the Employee;
[c] by reason of the placement of a child with the Employee in connection
with the adoption of such child by such Employee; or
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[d] for purposes of caring for such child for a period beginning
immediately following such birth or placement.
2.6 "Code" means the Internal Revenue Code of 1986, as amended, as it
presently is constituted, as it may be amended, or any successor statute of
similar purposes.
2.7 "Company" means Tele-Communications, Inc., a corporation with its
principal place of business at Denver, Colorado, or any successor in interest
to it resulting from merger, consolidation, or transfer of substantially all of
its assets, which expressly may agree in writing to continue this Plan.
2.8 "Compensation" means a Participant's wages, salaries, fees for
professional services, and other amounts received for personal services
actually rendered in the course of employment with the Employer including, but
not limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips, and
bonuses. Compensation also shall include [a] amounts paid or reimbursed by the
Employer for moving expenses incurred by the Employee, but only to the extent
that these amounts are not deductible by the Employee under Code Section 217,
[b] amounts described in Code Sections 104(a)(3), 105(a) and 105(h), but only
to the extent that these amounts are includable in the Employee's gross income
and only to the extent such amounts are not covered by the application of Code
Section 125, [c] amounts described in Code Section 105(d), whether or not
includable in the Employee's gross income, [d] amounts contributed to a
cafeteria plan that are not includable in gross income because of the
application of Code Section 125, [e] amounts includable in the gross income of
the Employee as a result of the grant of a non-qualified stock option to the
Employee or as a result of the Employee making an election described in Code
Section 83(b), and [f] amounts deferred upon the Employee's election pursuant
to a plan or arrangement qualified under Code Section 401(k) and maintained by
the Employer. Compensation shall not include [i] Employer contributions to a
deferred compensation plan that are not includable in the Employee's gross
income in the year in which contributed, [ii] Employer contributions to a
simplified employee pension plan described under Code Section 408(k) to the
extent such contributions are deductible by the Employee, [iii] any
distributions from a deferred compensation plan, other than amounts received
from an unfunded non-qualified plan, [iv] amounts realized from the exercise of
a non-qualified stock option or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer subject to
substantial risk of forfeiture, [v] amounts realized from the sale, exchange,
or other disposition of stock acquired under a qualified stock option, or [vi]
other amounts which receive special tax benefits, or Employer contributions to
purchase an annuity contract described in Code Section 403(b), whether or not
under a salary reduction agreement and whether or not the amounts actually are
excludable from the gross income of the Employee.
Pursuant to Code Section 401(a)(17), Compensation taken into account for all
purposes under this Plan shall not exceed $160,000 (as adjusted by the Secretary
of the Treasury for cost of living increases each year) for any Plan Year.
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Compensation will not include any severance payments made to an Employee after
the Employee's Termination of Employment with the Employer.
2.9 "Effective Date" of this restated Plan means January 1, 1998, except as
otherwise expressly provided in the Plan or under the requirements of law. For
any Associated Company which is not participating on the restated Effective
Date, Effective Date means that date designated by the Associated Company.
2.10 "Employee" means any person, whether male or female, now or hereafter
in the employ of the Employer, including officers of the Employer, but
excluding:
[a] directors who are not in the Employer's employ in any other capacity;
[b] independent contractors, and persons classified as independent
contractors on the books and records of the Employer, even if such
person later is classified as an employee of the Employer by the
Internal Revenue Service (or other administrative agency) or pursuant
to a settlement agreement between the Employer and such person or
between the Employer and the Internal Revenue Service (or other
administrative agency);
[c] any individual whose services were obtained through a temporary
employment agency and who has not become an Employee of the Employer,
as indicated on the payroll records of the Employer, regardless of the
period for which such services are performed by the Employee, and
[d] any Employee who is included in a unit of Employees covered by a
collective bargaining agreement between Employee representatives and
the Company, any Associated Company, or any predecessor company (and a
predecessor company will include any company acquired by or merged with
the Employer or any member of the Employer's controlled group, as
defined in Code Section 414, whether such company is acquired by a
stock or asset acquisition or in a merger), which agreement does not
provide for participation in the Plan and provided further that
retirement benefits were the subject of good faith bargaining between
such Employee representatives and the company, any Associated Company,
or any such predecessor company.
For purposes of the exclusion under paragraph [d], Employees included in a unit
of Employees covered under such a collective bargaining agreement will remain
excluded from the definition of "Employee" under this Section following the
expiration of such collective bargaining agreement and during the period between
the expiration of such collective bargaining agreement and the Effective Date of
any successor collective bargaining agreement covering such Employees.
2.11 "Employer" means the Company and any Associated Company which has
adopted the Plan and Trust.
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2.12 "Employer Contribution Account" means the Account established for the
benefit of the Participant under Article V which consists of any Employer
contributions made on behalf of the Participant to the Plan, and the earnings on
such amounts.
2.13 "Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
2.14 "Fiduciary" means a person who [a] exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, [b] renders investment advice for a fee or other Compensation, direct
or indirect, with respect to any moneys or other property of the Plan, or has
any authority or responsibility to do so, or [c] has any discretionary
authority or discretionary responsibility in the administration of the Plan.
Such term includes any person designated under Section 9.2. If any money or
other property of the Plan is invested in securities issued by an investment
company registered under the Investment Company Act of 1940, such investment by
itself shall not cause such investment company or such investment company's
investment adviser or principal underwriter to be deemed to be a Fiduciary or a
party in interest.
2.15 "Highly Compensated Employee" means, for the Plan Year beginning in
1997, and subsequent Plan Years, any Employee who:
[a] was a five percent owner at any time during the year or the preceding
year; or
[b] for the preceding year, had Compensation in excess of $80,000 (as
adjusted by the Secretary of the Treasury for cost of living increases)
and was in the top-paid group of Employees for such preceding year. An
Employee is in the top-paid group of Employees for any Plan Year if
such Employee is in the group consisting of the top twenty percent
(20%) of the Employees when ranked on the basis of Compensation paid
during the Plan Year.
In determining an individual's Compensation under this Section, Compensation
from each Company required to be aggregated under Code Sections 414(b), (c),
(m), and (o) will be taken into account.
2.16 "Hour of Service" means each hour for which an Employee is paid or is
entitled to payment for the performance of duties for the Employer, as
determined in accordance with 29 C.F.R.
ss. 2530.200b-2(b) and (c).
2.17 "Named Fiduciary" means any Fiduciary who is named in this Plan, or
who, pursuant to a procedure specified in the Plan, is identified as a
Fiduciary to the Plan by the Company. Such Named Fiduciaries include, but are
not limited to, the Trustee, the Plan Committee, the Plan Administrator, and
any Investment Consultant appointed by the Committee.
2.18 "Normal Retirement Age" means the date a Participant attains age 65.
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2.19 "Participant" means any Employee (as defined in Section 2.10) who has
become a Participant under Article III of this Plan. Participation shall cease
upon the later of [a] distribution of a Participant's entire vested Account and
forfeiture of a Participant's entire nonvested Account, or [b] Termination of
Employment.
2.20 "Participant Contribution Account" means the Account established for
the benefit of the Participant under Article V which consists of any
Participant contributions to the Plan, including salary reduction
contributions, voluntary after-tax contributions, rollover contributions, and
the earnings on such amounts.
2.21 "Period of Service" means the period beginning on the Employee's
Employment Commencement Date or Reemployment Commencement Date and ending on
the date a Break in Service begins. The Employee will receive credit for any
Period of Severance of less than twelve consecutive months. In addition, the
Employee's Period of Service will be determined in accordance with Treas. Reg.
ss. 1.410(a)-7(c).
2.22 "Period of Severance" means a continuous period of time during which
the Employee is not employed by the Company. A Period of Severance begins on
the date the Employee retires, quits, is discharged, or dies, or, if earlier,
the twelve-month anniversary of the date on which the Employee was first absent
from service with the Company for any other reason; provided, however, that if
an Employee is absent from work for any other reason and retires, quits, is
discharged, or dies within twelve months, the Period of Severance begins on the
day the Employee quits, retires, is discharged, or dies.
2.23 "Plan" and "Plan and Trust" mean the TCI 401(k) Stock Plan set forth
in and by this document and all subsequent amendments to it.
2.24 "Plan Administrator" means the person appointed by the Board of
Directors whose duties are provided in this Plan and Trust. If the Board of
Directors does not appoint a Plan Administrator, the Company shall serve as
Plan Administrator.
2.25 "Plan Committee" means the Plan Administrative Committee appointed by
the Board of Directors whose duties are provided in this Plan and Trust.
2.26 "Plan Year" means the Company's fiscal (taxable) year, as presently
established (which ends on December 31 of each year), and such year shall be the
fiscal (taxable) year of the trust established under this Plan.
2.27 "Profit Sharing Plan Account" means the portion of the Participant's
Account which is not invested in Qualifying Employer Securities.
2.28 "Qualifying Employer Security" means the common stock of
Tele-Communications, Inc. or any affiliated entity, as described in ERISA
Section 407(d)(5).
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2.29 "Reemployment Commencement Date" means the first date after a Break in
Service on which an Employee performs an Hour of Service for the Employer.
2.30 "Stock Bonus Plan Account" means the portion of the Participant's
Account which is invested in Qualifying Employer Securities, pursuant to Code
Section 401(a)(23).
2.31 "Termination of Employment" means the termination of a person's
status as an employee of the Company and any Associated Company.
2.32 "Total Disability" means a disability that permanently renders a
Participant unable to perform satisfactorily the usual duties of his or her
employment with his Employer, as determined by a physician selected by the Plan
Committee or its delegatee, and which results in the Participant's termination
of active employment with the Employer.
2.33 "Trustee" means the person or persons appointed as Trustee of the Trust
Fund established by this Plan and Trust and any duly appointed and qualified
successor Trustee.
2.34 "Trustee Responsibility" means any responsibility provided in the
Plan to manage or control the assets of this Plan.
2.35 "Trust Fund" means the assets of the trust established by this Plan and
Trust from which the benefits under this Plan shall be paid and shall include
all income and losses of any nature earned or incurred by the fund and all
changes in fair market value.
2.36 "Valuation Date" means the dates on which Accounts are valued each Plan
Year, which will be every business day on which Qualifying Employer Securities
are traded on NASDAQ.
2.37 "Year of Service" has the following meanings:
[a] For purposes of eligibility to participate, vesting, and all other
purposes of this Plan, "Year of Service" will mean a one-year Period of
Service.
[b] For purposes of this definition, Years of Service shall include service
as an Employee in any capacity (including commissioned salesman) and
shall include service as an Employee of an employer under common
control with the Company, as determined under Code Section 1563(a) and
the regulations thereunder, or any other Company designated by the Plan
Committee from time to time.
[c] Years of Service shall include all service with any company that is
acquired directly or indirectly by any Employer participating in this
Plan whether by acquisition of stock or assets if such company becomes
part of the controlled group of corporations or trades or businesses,
as defined in Code Section 1563(a) and the regulations thereunder, of
which TeleCommunications, Inc., is a part.
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[d] An Employee will be credited with Years of Service under this
provision, for purposes of determining such Employee's eligibility to
participate in the Plan and for determining such Employee's vested
percentage under the Plan, for all Years of Service performed for
Affiliated Regional Communications, Ltd. (also known as ARC); provided
that such former employee of ARC becomes an Employee of
Tele-Communications, Inc. as a result of the transfer of the employment
of certain employees from ARC to Tele-Communications, Inc.
during 1995.
[e] Years of Service will be credited for purposes of eligibility and
vesting to the extent required under the Family and Medical Leave Act
of 1993.
[f] Years of Service will be credited for accrual, eligibility, and vesting
credit for qualified military service to the extent required under the
Uniformed Services Employment and Reemployment Rights Act of 1994, in
accordance with Code Section 414(u).
2.38 The masculine gender shall include the feminine, and the singular shall
include the plural.
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ARTICLE III
PARTICIPATION
3.1 WHO MAY BECOME A PARTICIPANT:
[a] Generally: Any Employee who is a Participant on the Effective Date of
this amended and restated Plan will continue to participate in this
Plan. Effective January 1, 1998, any Employee who has completed three
consecutive months of employment with an Employer, and who has attained
age 18, may participate in this Plan; provided, however, that any
Employee who has attained age 18 and who has completed one Year of
Service may become a Participant even if such Employee has not
completed three consecutive months of employment with an Employer.
[b] Commencement of Participation: Upon completing the eligibility
requirements under Section 3.1[a], such eligible Employee will become a
Participant as of the first day of the first payroll period commencing
within a reasonable period of time (as determined by the Committee)
after such completion of the eligibility requirements for participation
in the Plan, if the Employee still is employed by an Employer on that
date.
[c] Determination of Months of Participation: For purposes of this Section
3.1, an Employee will be considered to have completed three consecutive
months of employment if the Employee remains employed for three
calendar months after his Employment Commencement Date or his
Reemployment Commencement Date (for example, an Employee with an
Employment Commencement Date of March 15 will have completed three
consecutive months of employment on June 15).
[d] Commencement of Participation After Acquisition of Employer: With
respect to employees of any entity which becomes an Employer under this
Plan by reason of the acquisition of such entity by another Employer
under this Plan (whether such acquisition is a stock or asset
acquisition), Employees of such new Employer who are eligible to
participate in this Plan will become Participants as of the first day
of the first payroll period commencing within an administratively
reasonable period of time after such acquisition, as determined by the
Committee, if the Employee still is employed by an Employer on that
date.
3.2 AGREEMENT TO PARTICIPATE: An Employee who has become eligible to
participate in the Plan will commence participation in the Plan under
procedures promulgated by the Plan Committee from time to time. By electing to
participate in the Plan, an Employee agrees to the following:
[a] The Employee's acceptance of participation in the Plan;
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[b] The Employee's consent to make contributions to the Trust Fund under
Section 4.1;
[c] The Employee's consent that Participant contributions be withheld from
the Participant's Compensation;
[d] The Employee's consent to be bound by the terms and conditions of the
Plan and all its amendments; and
[e] The Employee's consent to allow his or her personal identification
number (PIN), as assigned to the Employee pursuant to confidential
procedures promulgated by the Committee, to serve as the Employee's
signature for purposes of Plan forms, elections, and other Plan items
for which a signature may be required or recommended.
The failure to enroll as a Participant in the Plan under the enrollment
procedures promulgated by the Plan Committee will be deemed to be an election
not to become a Participant. An Employee may revoke this election and become a
Participant by enrolling as a Participant in the Plan under the enrollment
procedures promulgated by the Plan Committee before the first day of any
subsequent payroll period, if the Employee otherwise is eligible.
3.3 PARTICIPATION UPON REEMPLOYMENT: Any Employee who may participate in
the Plan in accordance with the provisions of Section 3.1 at the time the
Employee incurs a Break in Service shall be eligible to participate in the Plan
immediately on his Reemployment Commencement Date if he or she then is an
Employee under Section 2.10.
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ARTICLE IV
CONTRIBUTIONS
4.1 CONTRIBUTIONS BY PARTICIPANTS:
[a] Generally: A Participant who is an active Employee shall make
contributions to the Trust Fund only by means of regular payroll
deductions or by salary reductions. Participant after-tax contributions
by payroll deduction shall be referred to as voluntary contributions or
after-tax contributions and Participant pre-tax contributions shall be
known as salary reductions or pre-tax contributions. Subject to the
limitations of Section 4.8, each Participant shall designate as a
voluntary contribution or salary reduction an amount in percentages or
even dollars up to 10% of the Participant's Compensation in each
payroll period, until changed by the Participant. Upon Termination of
Employment, Participants shall not be permitted to make contributions
to this Plan and any severance payments shall not be considered
"Compensation" which may be contributed to this Plan.
[b] Changes in Participant Contributions: A Participant may change,
suspend, or resume his or her contribution designation prospectively,
but not retroactively, effective for any payroll period by providing
notice to the Plan Committee; provided that such notice is received by
the Plan Committee at such time so as to provide the Plan Committee
with an administratively practical period of time prior to the start of
the payroll period for which such change, suspension, or resumption is
to be effective in order to process such request. Any such notice shall
remain effective until the Participant makes another contribution
designation as provided above. No Employer contributions shall be made
on behalf of the Participant with respect to any period in which the
Participant's contributions are suspended.
[c] Contribution Procedures and Forms: The Plan Committee will promulgate
procedures, and prepare election forms, from time to time for the
designation, change, suspension, or resumption of Participant
contributions.
4.2 DETERMINATION OF CONTRIBUTION BY THE EMPLOYER:
[a] Generally: The Plan Committee, on behalf of each Employer, shall pay
into the Trust Fund at least annually an amount equal to up to 100% of
each Participant's contributions to the Plan for each payroll period,
as the Board of Directors of the Company shall determine by resolution.
In such case, the Employer's contribution on behalf of each Participant
shall be equal to a stated and nondiscriminatory percentage of each
Participant's contributions (both voluntary contributions and salary
reductions) under Section 4.1 for each payroll period.
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[b] Forfeitures: Any amounts forfeited under Section 7.3 shall be used
first to pay Plan expenses under Section 9.6 and any remaining
forfeitures after the payment of Plan expenses will be used to reduce
the Employer's contribution under this Section.
4.3 TIME AND METHOD OF PAYMENT OF CONTRIBUTION BY THE EMPLOYER: The
Employer may make payment of its contribution for any Plan Year in installments
on any date or dates it elects, provided that the amount of its contribution for
any year shall be paid in full within the time prescribed in order to qualify
such payment as an income tax deduction for such year under the Code or any
other provisions of law. Such contribution may be made in cash, in Qualifying
Employer Securities (as determined by the Company), or in property of the
character in which the Trustee is authorized to invest the Trust Fund.
Contributions of property other than cash or Qualifying Employer Securities
shall be subject to the approval of the Trustee and the Plan Committee.
4.4 TO WHOM CONTRIBUTIONS ARE TO BE PAID: The Employer's contributions
for any Plan Year shall be paid to the Trustee and shall become a part of the
Trust Fund. The Employer shall pay the salary reductions and voluntary
contributions elected by the Participants to the Trustee at the earliest
reasonable time but no later than the fifteenth (15th) business day of the
month following month in which the Participants would have received the funds
but for the Participants' salary reduction or payroll deduction election.
4.5 RETURN OF EMPLOYER CONTRIBUTIONS: A contribution by the Employer to
the Plan shall be returned to the Company, at the Employer's discretion, under
any of the following circumstances:
[a] if a contribution is made by the Employer by a mistake of fact,
including a mistaken excess contribution, within one year of its
payment to the Plan; or
[b] if all or any part of the deduction of the contribution is disallowed,
to the extent of the disallowance, within one year after the
disallowance of the deduction.
The Employer shall state by written request to the Trustee the amount of the
contribution to be returned and the reason for such return. Such amount shall
not include any earnings attributable to the contribution and shall be reduced
by any losses attributable to the contribution. Upon sending such request to the
Trustee, the Employer simultaneously shall send to the Plan Committee a copy of
the request. The Trustee shall return such contribution to the Employer
immediately upon receipt of the written request by the Employer. All
contributions by the Employer to the Plan are declared to be conditioned upon
both the qualification of the Plan under Code Section 401 and the deductibility
of such contributions under Code Section 404.
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4.6 EMPLOYER'S OBLIGATIONS: The adoption and continuance of the Plan
shall not be deemed to constitute a contract between the Employer and any
Employee or Participant, nor to be consideration for, or an inducement or
condition of, the employment of any person. Nothing in this Plan shall be
deemed to give any Employee or Participant the right to be retained in the
employ of the Employer, or to interfere with the right of the Employer to
discharge any Employee or Participant at any time, nor shall it be deemed to
give the Employer the right to require the Employee or Participant to remain in
its employ, nor shall it interfere with the right of any Employee or
Participant to terminate his employment at any time.
4.7 ROLLOVER CONTRIBUTIONS AND TRANSFERS:
[a] General Rollover Rules: Notwithstanding the limits imposed upon
Participant contributions, an Employee may contribute any amount of
funds (in the form of cash, check or, if approved by the Plan
Committee, Qualifying Employer Securities) to the Plan in any year if
such contribution satisfies the requirements under law for rollover
contributions and if the Plan Committee agrees in writing to accept
such contribution on behalf of the Plan and the Employer. The Employer
shall not be required to make any matching contributions under Section
4.2 for such rollover contributions. Rollover contributions shall be
added to a separate Account for such Participant, shall be
nonforfeitable, and shall be distributable under Article VII.
[b] General Trustee-to-Trustee Transfer Rules: Subject to the direction of
the Plan Committee, the Trustee is authorized to receive and add to the
Trust Fund as a direct transfer assets attributable to the vested
interest of any Participant in a retirement plan qualified under Code
Section 401(a) if such individual is a Participant in this Plan;
provided, however, that a direct transfer from a qualified plan subject
to Code Section 417 shall not be permitted. The Employer shall not be
required to make any matching contributions under Section 4.2 for such
transfers. Transfers shall be added to a separate Account for such
Participant, and shall be distributable under Article VII.
4.8 SALARY REDUCTION RULES:
[a] Election To Reduce Salary: Subject to the rules of Section 4.1, an
Employee eligible to participate in this Plan may elect to reduce his
Compensation by an amount determined at his discretion but which amount
may not exceed $9,500 (as adjusted for increases in the cost of living)
in each calendar year. A Participant must make this election according
to the procedures prescribed by the Plan Committee. Amounts contributed
by an Employee in excess of this limitation are referred to as "Excess
Elective Deferrals."
[b] Nonforfeitability Of Elective Contributions: All salary reduction
contributions made on behalf of Participants to this Plan shall be
vested immediately.
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[c] Distributions Restriction: Salary reduction contributions shall be
subject to the restrictions on withdrawals under Sections 7.3 and 7.4.
[d] Limit On Actual Deferral Percentage: The actual deferral percentage for
Highly Compensated Employees for each Plan Year must be no greater than
either [1] 1.25 times the actual deferral percentage for all other
Employees for the immediately preceding Plan Year, or [2] 2.0 times the
actual deferral percentage for all other Employees for the immediately
preceding Plan Year if the actual deferral percentage for Highly
Compensated Employees is not more than two percentage points higher
than the actual deferral percentage for all other Employees for the
immediately preceding Plan Year. Amount contributed by or on behalf of
an Employee in excess of these limitations are referred to as "Excess
Employer Contributions."
[e] Adjustments to Comply with Contribution Limits: In the event that the
limitations set forth in paragraphs [a] or [d] are not met, the Plan
Committee shall adjust either the salary reductions or the Employer
contributions pursuant to one or more of the options set forth in
subparagraphs [1], [2], or [3] below, as determined by the Company:
[1] Distribution of Excess Elective Deferrals and Excess Employer
Contributions: On or before the 15th day of the third month
following the end of each Plan Year, but in no event later
than the close of the following Plan Year, each Highly
Compensated Employee, beginning with the Employee having the
highest salary reduction contribution amount, shall have his
or her portion of the Excess Elective Deferral or the Excess
Employer Contribution (and any income allocable to such
portion as determined below) distributed to him or her until
the limitations set forth in paragraphs [a] and [d] are
satisfied. Income or losses attributable to Excess Elective
Deferrals or Excess Employer Contributions will be determined
under any reasonable method used by the Plan to allocate
income and losses on Plan assets. Distribution of Excess
Elective Deferrals or Excess Employer Contributions will be
made in cash.
[2] Recharacterization of Excess Elective Deferrals or Excess
Employer Contributions: A Participant may elect to treat his
or her Excess Elective Deferrals or Excess Employer
Contributions as an amount distributed to the Participant and
then contributed by the Participant to the Plan as a voluntary
after-tax contribution, to the extent such recharacterized
excess contributions in combination with other Participant
contributions made under the Plan do not exceed the
limitations on Participant contributions provided in the Plan.
Recharacterized contributions will be nonforfeitable and will
be subject to the distribution and withdrawal provisions
applicable to salary reduction contributions.
Recharacterization must occur within two and one-half months
after the close of the Plan Year in which the excess
contributions arose and recharacterization is deemed to occur
no earlier than the date the last Highly Compensated Employee
is provided with notification of the amount
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recharacterized and the consequences of such
recharacterization. Recharacterized amounts will be taxable to
the Participant in the Participant's taxable year in which the
Participant would have received such amounts in cash but for
the salary reduction election.
[3] Contribution of Qualified Non-Elective Employer Contributions:
Within 30 days after the end of the Plan Year, the Employer
may make a qualified non-elective employer contribution on
behalf of non-Highly Compensated Employees in an amount
sufficient to satisfy the limitations set forth in paragraph
[d]. Such con tribution shall be allocated to the Account of
each non-Highly Compensated Employee in the same proportion
that each Non-Highly Compensated Employee's salary reduction
contributions for the year bears to the total salary reduction
contributions of all Non-Highly Compensated Employees.
[4] Any matching Employer contribution that is attributable to
Excess Elective Deferrals distributed to a Participant under
subparagraph [1] will be forfeited as of the distribution date
of the Excess Elective Deferrals and such forfeited amount
will be used to reduce the Employer contribution to this Plan
under Section 4.2 for the Plan Year in which such forfeiture
occurs.
[5] A Participant may assign to this Plan any Excess Elective
Deferrals by notifying the Plan Committee on or before the
March 15 of the year following the Participant's fiscal year
in which such excess was contributed. A Participant is deemed
to have notified the Plan Committee of any Excess Elective
Deferrals that arise taking into account only those elective
deferrals made to this Plan and any other Plan maintained by
the Company.
[6] If a Highly Compensated Employee participates in two or more
cash or deferred arrangements that have different Plan Years,
all cash or deferred arrangements ending with or within the
same calendar year will be treated as a single arrangement. In
the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code Sections only if aggregated with
this Plan, then this Section will be applied by determining
the actual deferral percentage of Participants as if all such
plans were a single plan. Plans may be aggregated in order to
satisfy Code Section 401(k) only if they have the same Plan
Year. The Company will maintain records sufficient to
demonstrate satisfaction of the actual deferral percentage
test and the amount of qualified non-elective contributions or
qualified matching contributions, or both, used in such test.
The determination of the actual deferral percentage test will
meet such other requirements as may be prescribed by the
Secretary of the Treasury from time to time.
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[f] Definitions:
[1] The "actual deferral percentage" for a specified group of
Employees for a Plan Year shall be the average of the ratios
(calculated separately for each Employee in such group) of the
amount of Compensation deferred under the Plan on behalf of
each such Employee for the Plan Year to the Employee's
Compensation for such Plan Year. For purposes of determining
the actual deferral percentage, salary reduction contributions
shall be considered, and the Plan Committee shall determine
whether vested Employer contributions shall be considered as
qualified non-elective employer contributions.
[2] "Salary Reductions" are those reductions in salary that each
Employee elects to defer.
4.9 NONDISCRIMINATION REQUIREMENTS FOR EMPLOYEE AND MATCHING
EMPLOYER CONTRIBUTIONS:
[a] Limit on Average Contribution Percentage: The average contribution
percentage for Highly Compensated Employees for each Plan Year must be
no greater than either [1] 1.25 times the average contribution
percentage for all other Employees for the immediately preceding Plan
Year, or [2] 2.0 times the average contribution percentage for all
other Employees for the immediately preceding Plan Year if the average
contribution percentage for Highly Compensated Employees is not more
than two percentage points higher than the average contribution
percentage for all other Employees for the immediately preceding Plan
Year. Amounts contributed in excess of this limitation are referred to
as "Excess Aggregate Contributions."
[b] Adjustments to Comply with Average Contribution Percentage Limits: On
or before the 15th day of the third month following the end of each
Plan Year, but in no event later than the close of the following Plan
Year, each Highly Compensated Employee, beginning with the Employee
having the highest amount of contributions made by or on behalf of such
Employee, shall have his or her portion of the Excess Aggregate
Contribution (and any income allocable to such portion as determined
below) distributed to him or her until the limitations set forth in
paragraph [a] are satisfied. Income or losses attributable to Excess
Aggregate Contributions will be determined under any reasonable method
used by the Plan to allocate income and losses on Plan assets.
Distribution of Excess Aggregate Contributions will be made in cash.
[c] Average Contribution Percentage: The "average contribution percentage"
for a specified group of Employees for a Plan Year shall be the average
of the ratios (calculated separately for each Employee in such group)
of the sum of the matching Employer contributions and the Participant
voluntary after-tax contributions made on behalf of each such Employee
for the Plan Year to the Employee's Compensation for such Plan Year.
For purposes of
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determining the contribution percentage, the Plan Committee may elect
to treat salary reduction contributions as Company matching
contributions.
[d] Multiple Use: If the sum of the average contribution percentage and the
actual deferral percentage for Highly Compensated Employees exceeds the
aggregate limit described below, such excess amount will be treated as
an Excess Employer Contribution or an Excess Aggregate Contribution, as
determined by the Plan Committee, and such excess contributions will be
distributed to Highly Compensated Employees, beginning with the Highly
Compensated Employee with the highest amount of contributions made by,
or on behalf of the Employee, in the same manner as Excess Employer
Contributions and Excess Aggregate Contributions are distributed as
provided in Section 4.8[e] or in Section 4.9[b]. The aggregate limit is
the greater of [1] the sum of [A] 1.25 times the greater of the actual
deferral percentage for Non-Highly Compensated Employees or the average
contribution percentage for Non-Highly Compensated Employees for the
Plan Year plus [B] the lesser of two times or two plus the lesser of
such actual deferral percentage or average contribution percentage; or
[2] the sum of [A] 1.25 times the lesser of the actual deferral
percentage for Non-Highly Compensated Employees or the average
contribution percentage for Non-Highly Compensated Employees for the
Plan Year plus [B] the lesser of two times or two plus the greater of
such actual deferral percentage or average contribution percentage.
[e] The average contribution percentage for the Plan Year for any Highly
Compensated Employee who is eligible to have contribution percentage
amounts allocated to his or her Account under two or more arrangements
described in Code Section 401(k) that are maintained by the Company
will be determined as if such contribution percentage amounts were made
under a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that have
different Plan Years, all cash or deferred arrangements ending with or
within the same calendar year will be treated as a single arrangement.
In the event that this Plan satisfies the requirements of Code Sections
401(m), 401(a)(4), or 410(b) only if aggregated with one or more other
Plans, or if one or more other Plans satisfy the requirements of such
Code Sections only if aggregated with this Plan, then this Section will
be applied by determining the contribution percentage of Participants
as if all such Plans were a single Plan. Plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the same Plan
Year. The Company will maintain records sufficient to demonstrate
satisfaction of the average contribution percentage test and the amount
of qualified non-elective contributions or qualified matching
contributions, or both, used in such test. The determination of the
average contribution percentage test will meet such other requirements
as may be prescribed by the Secretary of the Treasury from time to
time.
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ARTICLE V
DETERMINATION AND VESTING OF PARTICIPANTS' ACCOUNTS
5.1 DETERMINATION OF PARTICIPANTS' ACCOUNTS:
[a] Allocation of Contributions: As of the last day of each payroll period,
the Plan Committee shall allocate to the Account of each Participant
any amounts contributed by the Employer to the trust on behalf of such
Participant under Section 4.2 for the payroll period then ended.
Forfeitures remaining after the payment of Plan expenses under Section
9.6 may be used to reduce Employer contributions for any payroll period
following the date on which the forfeitures occur. Voluntary
contributions and salary reductions under Section 4.1 shall be
allocated to the Account of the Participant making such contribution.
[b] Valuation of Accounts:
[1] Investment Funds: Each separate investment vehicle available
for investments under the Plan shall be a separate Investment
Fund. A Participant's interest in each Investment Fund shall
be represented by units of participation. The value of a unit
in each Investment Fund shall be determined on each Valuation
Date by dividing the current market value of the assets in
that Investment Fund on that date, as determined by the
Trustee, after the payment out of that Investment Fund of all
brokerage fees and transfer taxes applicable to purchases and
sales for that Investment Fund since the previous Valuation
Date and excluding contributions made during the period sine
the previous Valuation Date, by the total number of units in
that Investment Fund.
[2] Qualifying Employer Securities: Any dividends, cash or stock,
paid on Qualifying Employer Securities shall be allocated to
the Investment Fund for the Qualifying Employer Securities on
which they are paid.
[3] Participant Accounts: Each Participant Account in each
Investment Fund shall be credited on each Valuation Date with
the number of units determined by dividing the contributions
made on behalf of the Participant to that Investment Fund
since the previous Valuation Date by the unit value for that
Investment Fund as determined on that Valuation Date.
[c] Participants' Accounts: The Plan Committee shall maintain a Participant
Contribution Account and an Employer Contribution Account for each
Participant, and such other Accounts for each Participant as the
Committee deems necessary or convenient. The Employer Contribution
Account and the Participant Contribution Account shall be considered
separate contracts for purposes of Code Section 72(e). The Plan
Committee shall distribute, or cause to be distributed, to each
Participant at least annually a written statement
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setting forth the value of such Participant's Accounts as of the most
recent Valuation Date, and such other information as the Plan Committee
shall determine.
[d] Valuation of Qualifying Employer Securities: Qualifying Employer
Securities shall be valued at the closing dealer "bid" price of the
securities in the over-the-counter market as reported by the National
Association of Securities Dealers, Inc., or National Quotation Bureau,
Inc.
[e] Valuation Dates: As of each Valuation Date, the Plan Committee shall
determine the value of the net assets of the Trust Fund (i.e., the
value of all the assets of the Trust Fund at their ---- then current
fair market value, less all liabilities) and the value of contributions
by each Employer and all Participants as of such Valuation Date. For
distribution or withdrawal purposes, the value of the Participant's
Accounts will equal the value of the units of participation in each
Investment Fund in which the Participant's Accounts are invested. For a
distribution or withdrawal of Qualifying Employer Securities in kind,
the number of shares of Qualifying Employer Securities to be
distributed or withdrawn shall equal the value of the Participant's
units of participation in the Investment Fund for such Qualifying
Employer Securities, divided by the fair market value of a share of
Qualifying Employer Securities as of the Valuation Date for which such
distribution or withdrawal is processed.
[f] Allocation Of Employer Contributions For Payroll Period Of Withdrawal
Or Termination of Employment: Any Participant who withdraws all or any
part of his own contributions under Section 7.6 shall receive an
allocation of Employer contributions for the bi-weekly payroll period
of such withdrawal, if such Participant otherwise is entitled to share
in the Employer contribution. Any Participant who terminates employment
for any reason shall receive an allocation of Employer contributions
for the bi-weekly payroll period of his termination if he otherwise is
entitled to share in the Employer contribution.
5.2 VESTING OF PARTICIPANTS' ACCOUNTS:
[a] General Rules: If any Participant reaches his or her Normal Retirement
Age, dies, or suffers Total Disability while employed with the
Employer, the Participant's entire Account shall become fully vested
without regard to the number of Years of Service such Participant has
had with the Employer. Any Account, whether vested or forfeitable,
shall become payable to a Participant or his or her Beneficiaries only
to the extent provided in this Plan. A Participant or former
Participant who has designated a Beneficiary and who dies shall cease
to have any interest in this Plan or in his or her Account, and his or
her Beneficiary shall become entitled to distribution of the
Participant's Account under this Plan and not as a result of any
transfer of the interest or Account. A Participant's Account
attributable to his or her own salary reduction contributions,
voluntary contributions, and rollover contributions shall be fully
vested at all times.
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<PAGE> 22
[b] Vesting Schedule: Effective for any Participant who completes at least
one Hour of Service on or after January 1, 1998, such a Participant
shall have a vested interest in the portion of his Account attributable
to Employer contributions, in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of Account
Years of Service Which Is Vested
---------------- ---------------------
<S> <C>
Fewer than 1 0%
1 or more but fewer than 2 33%
2 or more but fewer than 3 66%
3 or more 100%
</TABLE>
For Participants who do not complete at least one Hour of Service on or
after January 1, 1998, the Participant's vested interest will be
determined under the provisions of the Plan as in effect prior to
January 1, 1998.
[c] Special Vesting for Certain Transferred Employees: Any Participant who
was an active Employee of Halcyon Communications Partners, Halcyon
Communications Limited Partnership, or any other Employer which has
adopted this Plan, on January 15, 1998, and whose employment was
transferred directly from such participating employer to the employment
of Peak Cablevision, L.L.C. on January 15, 1998, without any break in
employment, will be 100% vested in his or her Account under this Plan
as of January 15, 1998, as determined by the Committee.
5.3 FULL VESTING UPON TERMINATION OR PARTIAL TERMINATION OF PLAN OR UPON
COMPLETE DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS: Upon the termination or
partial termination of this Plan or upon complete discontinuance of Employer
contributions, the Accounts of all Participants affected, as of the date such
termination, partial termination, or complete discontinuance of Employer
contributions occurred, shall be fully vested.
5.4 SERVICE INCLUDED IN DETERMINATION OF VESTED ACCOUNTS: All Years of
Service with the Company and any Associated Company shall be included for the
purpose of determining a Participant's vested Account under Section 5.2, except
Years of Service excluded by reason of a Break in Service under Section 5.5.
5.5 EFFECT OF BREAK IN SERVICE ON VESTING: With respect to a Participant
who has five or more consecutive one-year Breaks in Service, Years of Service
after such Break in Service shall not be taken into account for purposes of
computing the Participant's vested Account balance attributable to Employer
contributions made before such five or more year period.
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<PAGE> 23
5.6 EFFECT OF CERTAIN DISTRIBUTIONS: The provisions of this Section shall
not apply to any Participant contributions (including salary reductions) or
rollover contributions.
[a] Repayment Of Distribution: A Participant who terminates participation
for any reason prior to attainment of Normal Retirement Age,
disability, or death while any portion of his Account in the Trust Fund
is forfeitable and who receives a distribution of his vested Account
attributable to Employer contributions not later than the close of the
second Plan Year following the Plan Year in which such termination of
participation occurs, shall have the right to pay back such
distribution to the Plan. Such repayment may be made [1] only if the
Participant has returned to the employ of the Company or any Associated
Company at the time of such repayment, and [2] in the case of a
distribution upon Termination of Employment, before the earlier of the
date on which the Participant experiences five consecutive one-year
Breaks in Service or five years from the date of reemployment with the
Company or any Associated Company, or, in the case of any other
distribution, five years from the date of distribution. Repayment of a
Participant's Account attributable to his or her salary reduction
contributions or his or her voluntary contributions, if any, shall not
be permitted under this Section. A Participant who desires to make
repayment of a distribution under this paragraph [a] shall make
repayment directly to the Plan Committee. If a Participant repays a
distribution under this Section, the value of his or her Employer
Contribution Account shall be the amount of his or her Employer
Contribution Account prior to distribution, unadjusted for any
subsequent gains or losses. The amount of the Participant's Employer
Contribution Account that was forfeited previously shall be restored
from one or more of the following sources, at the discretion of the
Plan Committee: income or gain to the Plan, forfeitures or Employer
contributions.
[b] Nonrestoration Of Forfeited Account When Repayment Of Distribution Is
Not Made: If distribution is made to a Participant and the Participant
does not repay such distribution under the terms of paragraph [a], when
the time limit for repayment expires under paragraph [a] above, the
Participant's nonvested Account which was not distributed will not be
restored. The Account will be unadjusted for any increased vesting for
service during the repayment period.
5.7 DETERMINATION OF SERVICE FOR YEARS PRIOR TO 1998: For each
Participant who does not complete at least one Hour of Service with the Company
or any Associated Company on or after January 1, 1998, the provisions of the
Plan which was in effect prior to the Effective Date of this restated Plan will
apply in determining the Years of Service credited to such Participant and the
vested percentage of such Participant's Accounts. If a Participant has at least
one Hour of Service on or after January 1, 1998, the following provisions of
this Section 5.7 will apply. In such event, all of a Participant's service with
the Company or any Associated Company will be determined under the provisions
of this Plan, including service prior to the Effective Date of this Plan;
provided, however, that in no event will any Participant's vested percentage
under this Plan as
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of January 1, 1998, be less than the Participant's vested percentage determined
as of December 31, 1997, determined under the provisions of the Plan in effect
prior to January 1, 1998.
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ARTICLE VI
RETIREMENT DATE--DESIGNATION OF BENEFICIARY
6.1 NORMAL RETIREMENT DATE: A Participant shall be entitled to retire
voluntarily, for purposes of this Plan, at any time on or after that date on
which the Participant attains Normal Retirement Age. Until retirement, a
Participant shall continue to participate in the Plan unless the Participant
elects otherwise.
6.2 DESIGNATION OF BENEFICIARY: A Participant's entire vested Account
balance shall be payable, on the death of the Participant, to the Participant's
surviving spouse or to the Participant's designated Beneficiary if there is no
surviving spouse or if the spouse consents to such Beneficiary designation in
writing. This spousal consent shall acknowledge the effect of such consent and
shall be witnessed by a Plan representative or a notary public. If there is no
surviving spouse or, in the case of a spousal election not to receive the
Account, a Participant shall designate a Beneficiary to receive his or her
Account in the Trust Fund upon the Participant's death on the form prescribed
by and delivered to the Plan Committee. The Participant shall have the right to
change or revoke a designation at any time by filing a new designation or
notice of revocation with the Plan Administrator. No notice to any Beneficiary
other than the spouse nor consent by any Beneficiary other than the spouse
shall be required to effect any change of designation or revocation. If a
Participant fails to designate a Beneficiary before his or her death, or if no
designated Beneficiary survives the Participant, the Plan Committee shall
direct the Trustee to pay the Participant's Account in the Trust Fund to the
Participant's surviving spouse, or if none, to the Participant's personal
representative. If no personal representative has been appointed, and if the
benefit payable does not exceed the minimum amount for which an estate or
inheritance tax release is required under applicable state law, or for which a
personal representative must be appointed under applicable state law, the Plan
Committee may direct the Trustee to pay the benefit to the person or persons
entitled to it under the laws of the state where such Participant was domiciled
at the date of his or her death. In such case, the Plan Committee may require
such proof of right or identity from such person as the Plan Committee may deem
necessary. If the benefit exceeds the minimum amount for which an estate or
inheritance tax release or the appointment of a personal representative is
required under applicable state law, the Plan Committee may direct the Trustee
to hold the benefit in a segregated account until a personal representative has
been appointed.
6.3 PARTICIPANT OR BENEFICIARY WHOSE WHEREABOUTS ARE UNKNOWN: In
the case of any Participant or Beneficiary whose whereabouts are unknown, the
Plan Committee shall notify such Participant or Beneficiary at his last known
address by certified mail with return receipt requested advising such
Participant of his or her right to a pending distribution. If the Participant or
Beneficiary cannot be located in this manner, the Plan Committee may direct the
Trustee to establish a custodial account for such Participant or Beneficiary for
the purpose of holding
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<PAGE> 26
the Participant's Account until it is claimed by the Participant or Beneficiary
or until proof of death satisfactory to the Plan Committee is received by the
Plan Committee. If such proof of death is received, the Plan Committee shall
direct the Trustee to distribute the Participant's Account in accordance with
the provisions of Section 6.2. Any Trustee fees or other administrative expenses
attributable to a custodial account established and maintained under this
Section shall be charged against such account. Alternatively, after reasonable
search efforts have been expended, as determined by the Plan Committee, the Plan
Committee may direct the Plan Administrator to forfeit the Account of the
missing Participant or the missing Beneficiary, in which event such forfeited
Account shall be treated as provided under Article V. If the missing Participant
or Beneficiary subsequently is located, such forfeited Account, unadjusted for
earnings or losses from the date of such forfeiture, will be restored for the
benefit of such Participant or Beneficiary from Plan earnings, other
forfeitures, or additional Employer contributions.
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ARTICLE VII
DISTRIBUTIONS AND WITHDRAWALS FROM TRUST FUND
7.1 WHEN ACCOUNTS BECOME DISTRIBUTABLE AND EFFECT OF DISTRIBUTION:
To the extent permitted under Section 7.9, if a Participant dies, suffers Total
Disability, retires, or separates from service with the Employer for any other
reason, the portion of the Participant's vested Account attributable to Employer
contributions, to Participant contributions, and to any rollover contributions
shall be distributable under Section 7.2. When his or her Account becomes
distributable, such Participant shall cease to have any further interest or
participation in the Trust Fund or any subsequent accruals or contributions to
the Trust Fund except as provided below:
[a] a Participant shall retain the right to receive allocations of earnings
and losses on his or her Account an to receive a distribution of his or
her Account as determined under Article V; and
[b] as provided in Article V, a Participant who makes contributions during
any payroll period shall retain the right to receive his or her share
in the Employer's contribution allocated to the Participant's Account
for such payroll period.
7.2 DISTRIBUTION OF ACCOUNTS:
[a] Notification of Trustee and Form of Distribution: When a Participant's
vested Account becomes distributable under Section 7.1, the Plan
Committee will notify the Trustee of the Participant's name and
address, the amount of the vested Account which is distributable, and
the reason for its being distributable. A Participant's Account will be
distributed in cash; provided that the Participant may demand to
receive his or her Stock Bonus Plan Account in shares of Qualifying
Employer Securities. Cash always will be distributed in lieu of
fractional shares of Qualifying Employer Securities.
[b] Distribution Upon Retirement or Total Disability: If a Participant's
Account becomes distributable upon his or her Termination of Employment
with the Employer because such Participant has attained Normal
Retirement Age or because of his or her Total Disability, the Trustee
will distribute to the Participant his or her vested Account balance in
a lump sum within a reasonable time after the close of the month (or
earlier, if administratively feasible) in which occurs the latest of:
[1] the date the Participant provides his or her consent to the
distribution, if necessary; or [2] in the case of a distribution for
which Participant consent is not required, when the time period set by
the Committee for making an eligible rollover distribution election
expires. If the Participant dies before receiving his or her vested
Account, the remaining Account balance will be paid to his or her
Beneficiary under this Section.
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<PAGE> 28
[c] Distribution Upon Death: If a Participant's Account becomes
distributable because of his or her death, the Trustee shall distribute
to the Participant's Beneficiary the Participant's total vested Account
balance in a lump sum within a reasonable time after the close of the
month (or earlier, if administratively feasible) in which occurs the
latest of: [1] the date the Beneficiary provides his or her consent to
the distribution, if necessary; [2] in the case of a distribution for
which consent is not required and which is an eligible rollover
distribution, when the time period set by the Committee for making an
eligible rollover distribution election expires, or [3] in the case of
a distribution for which consent is not required and which is not an
eligible rollover distribution, the date all documentation relating to
the Participant's death is received and processed by the Committee. If
the Beneficiary dies before receiving the Participant's vested Account,
the Account balance shall be paid to the contingent Beneficiary, if
any. If the Participant has not designated a Beneficiary, or if the
Participant has designated a Beneficiary who dies and the Participant
has not designated a contingent Beneficiary, the Participant's vested
Account will be paid in a lump sum under Section 6.2.
[d] Distribution Upon Other Termination of Employment: If a Participant's
Account becomes distributable upon his or her Termination of Employment
for any reason other than retirement, disability, or death, the Trustee
will distribute to the Participant his or her vested Account balance in
a lump sum within a reasonable time after the close of the month (or
earlier, if administratively feasible) in which occurs the latest of:
[1] the date the Participant provides his or her consent to the
distribution, if necessary; or [2] in the case of a distribution for
which Participant consent is not required, when the time period set by
the Committee for making an eligible rollover distribution election
expires. If the Participant dies before receiving his or her vested
Account, the remaining Account balance will be paid to his or her
Beneficiary under this Section.
[e] Cash-Out Distributions of Small Accounts: No amount (taking into
consideration both Employer and Employee contributions) may be
distributed to a Participant prior to Normal Retirement Age (or age 62,
if later) unless the amount is distributed in a lump sum of $5,000 or
less, or the Participant consents to the distribution. If, upon
Termination of Employment for any reason, the Participant's vested
Account is $5,000 or less, the Committee may direct the Trustee to
distribute such amount in a lump sum in cash; provided that the
Participant may demand to receive his or her Stock Bonus Plan Account
in shares of Qualifying Employer Securities. Cash always will be
distributed in lieu of fractional shares of Qualifying Employer
Securities.
7.3 DISPOSITION OF FORFEITABLE ACCOUNT ON TERMINATION OF EMPLOYMENT:
If a Participant's employment is terminated for any reason prior to attainment
of Normal Retirement Age, death, or Total Disability, while any part of the
Participant's Account is forfeitable, then that portion of his or her Account
which is forfeitable shall be forfeited on the earlier of the date the
Participant receives a distribution of his or her Account or the date on which
the
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<PAGE> 29
Participant experiences five or more consecutive one-year Breaks in Service. Any
amount forfeited by a Participant shall be treated as provided in Section
4.2[b]. If any such Participant returns to the employment of the Employer and
has not incurred five or more consecutive one-year Breaks in Service, the
Employer shall restore to the Participant's Account out of its next contribution
the exact number of shares of Qualifying Employer Securities plus any other
amounts that the Participant forfeited, if the Participant repays the
distributed amount pursuant to Section 5.6.
7.4 ASSIGNMENT OF BENEFITS:
[a] General Rules: Except as provided below, all amounts payable by the
Trustee shall be paid only to the person entitled to them, and all such
payments shall be paid directly to such person and not to any other
person or corporation. Such payments shall not be subject to the claim
of any creditor of a Participant, nor shall such payments be taken in
execution by attachment or garnishment or by any other legal or
equitable proceedings. No person shall have any right to alienate,
anticipate, commute, pledge, encumber, or assign any payments or
benefits which he may expect to receive, contingently or otherwise,
under this Plan, except the right to designate a Beneficiary or
beneficiaries; provided, that this Section shall not affect, restrict,
or abridge any right of setoff or lien which the Trust may have by law.
[b] Qualified Domestic Relations Orders: Paragraph [a] shall not apply with
respect to payments in accordance with the requirements of a qualified
domestic relations order. A qualified domestic relations order creates
or recognizes the existence of an alternate payee's right to, or
assigns to an alternate payee the right to, receive all or a portion of
the benefits otherwise payable to a Participant under the Plan. A
domestic relations order means any judgment, decree, or order
(including approval of a property settlement agreement) that relates to
the provision of child support, alimony payments, or marital property
rights to a spouse, former spouse, child, or other dependent of a
Participant, and is made pursuant to a state domestic relations law
(including a community property law). To qualify, the domestic
relations order must:
[1] clearly state the name and last known mailing address of the
Participant and the name and mailing address of each alternate
payee covered by the order;
[2] clearly state the amount or percentage of the Participant's
benefits to be paid by the Plan to each alternate payee, or
the manner in which the amount or percentage is to be
determined;
[3] clearly state the number of payments or period to which the
order applies;
[4] identify each Plan to which the order applies;
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<PAGE> 30
[5] not require the Plan to provide any type or form of benefits,
or any option, not otherwise provided under the Plan;
[6] not require the Plan to provide increased benefits (determined
on the basis of actuarial value); and
[7] not require the payment of benefits to an alternate payee that
are required to be paid to another alternate payee under
another order previously determined to be a qualified domestic
relations order.
In the case of any distribution before a Participant has separated from
service, a qualified domestic relations order shall not fail to meet
the requirements of Section 7.4[b][5] solely because such order
requires that payment of benefits be made to an alternate payee [A] on
or after the date the Participant attains the earliest retirement age,
[B] as if the Participant had retired on the date on which such payment
is to begin under such order, and [C] in any form in which benefits may
be paid under the Plan to the Participant (other than in the form of a
qualified joint and survivor annuity with respect to the alternate
payee and his subsequent spouse). Payment of benefits before
Termination of Employment solely by reason of payments to an alternate
payee under a qualified domestic relations order shall not be deemed to
be a violation of Code Section 401(a) or (k). Notwithstanding any other
provision of this Plan, payments to an alternate payee pursuant to a
qualified domestic relations order may be made at any time prescribed
by such order without violating the terms of this Plan or the Code.
[c] Definitions:
[1] "Alternate payee" means any spouse, former spouse, child, or
other dependent of a Participant who is recognized by a
qualified domestic relations order as having a right to
receive all, or a portion of, the benefits payable under a
Plan with respect to such Participant.
[2] "Earliest retirement age" means the earliest of the date on
which the Participant's Account becomes distributable or the
date the Participant attains age 50.
7.5 MINIMUM REQUIRED DISTRIBUTIONS: Notwithstanding any other provisions
of this Plan, the following distribution rules shall apply (unless a different
method of distribution applies under Section 242(b) of the Tax Equity and
Fiscal Responsibility Act of 1982):
[a] Before Death: The entire Account of each Participant will be
distributed to him not later than the required beginning date.
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[b] After Death: If a Participant dies before distribution of the
Participant's Account has been made, the total vested Account balance
of the Participant shall be distributed within five years after the
death of the Participant. If the designated Beneficiary is the
surviving spouse of the Participant, the date on which the
distributions are required shall not be earlier than the date on which
the Participant would have attained age 70 1/2, and if the surviving
spouse dies before the distribution to such spouse, distributions shall
be made as if the surviving spouse were the Participant.
[c] Required Beginning Date: Required beginning date means April 1 of the
calendar year following the calendar year in which occurs the later of
[1] the date the Participant attains age 70 1/2, or [2] the date the
Participant retires from employment with the Employer. Notwithstanding
the above, in the case of a 5% owner of the Employer, required
beginning date means April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
[d] Designated Beneficiary: Designated Beneficiary means any individual
designated as a Beneficiary by the Participant.
[e] Treatment Of Payments To Children: Under regulations prescribed by the
Secretary of Treasury, any amount paid to a child shall be treated as
if it had been paid to the surviving spouse if such amount will become
payable to the surviving spouse upon such child reaching majority (or
such other designated event permitted under regulations).
[f] Spouse, Trust For Benefit Of Spouse, Or Estate As Beneficiary: If
distribution prior to a Participant's death has not commenced and if
the Participant designates his or her spouse, a trust for the benefit
of his or her spouse, or the Participant's estate as his or her
Beneficiary, the provisions of this paragraph shall apply (subject to
the limitations in this Section):
[1] Spouse As Beneficiary: If a Participant designates his or her
spouse as his or her Beneficiary, upon the death of the
Participant the spouse shall receive the entire Account of the
Participant in a lump sum distribution.
[2] QTIP Trust As Beneficiary: If a Participant designates as his
or her Beneficiary a qualified terminable interest property
(QTIP) trust for the benefit of his or her spouse, upon the
death of the Participant the Trustee of the QTIP trust shall
receive the entire Account of the Participant in a lump sum
distribution.
[3] General Power Of Appointment Trust As Beneficiary: If the
Participant designates as his or her Beneficiary a trust over
which the Participants' spouse has a general power of
appointment, upon the death of the Participant the spouse
shall receive the entire Account of the Participant in a lump
sum distribution.
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[4] Estate As Beneficiary: If the Participant designates his or
her estate as his or her Beneficiary with a specific bequest
of his income in respect of decedent to his or her spouse,
upon the death of the Participant the personal representative
of the Participant (or the successor of the personal
representative) shall receive the entire Account of the
Participant in a lump sum distribution.
7.6 WITHDRAWALS:
[a] Employer Contributions: A Participant may withdraw all or any part of
his or her Account attributable to Employer contributions, including
any earnings, losses, and changes in fair market value of such
contributions, upon attaining age 59 1/2, but only if the Participant
is 100% vested in his or her total Account balance. Such withdrawal
upon attaining age 59 1/2 may be made only once in each Plan Year and
such withdrawal upon age 59 1/2 may be made without any suspension of
Plan participation as a result of such withdrawal.
[b] Voluntary After-Tax Contributions: A Participant may request withdrawal
of all or any part of his or her Account attributable to voluntary
after-tax contributions. Such withdrawal requests will be processed
monthly and the requested amount will be distributed within a
reasonable period of time after the end of the month in which the
Participant requests the withdrawal. In the event the withdrawal is a
result of a serious financial hardship, as defined in Section 7.6[c][1]
below, the Plan Committee, in its discretion, may process such
withdrawal request bi-weekly, in which event the requested amount will
be distributed within a reasonable period of time after the request is
processed. A Participant who has not attained age 59 1/2and who makes
withdrawal of any portion of his or her voluntary after-tax
contributions under this paragraph [b], including any hardship
withdrawal, may not again contribute to the Trust Fund under Section
4.1 until the first payroll period commencing six months after the
withdrawal is made, but such Participant shall receive an allocation of
Employer contributions for the payroll period in which occurs the
withdrawal date. Effective May 1, 1998, the six-month suspension period
in the preceding sentence will be reduced to three months. Any expenses
attributable to any withdrawal under this Section 7.6[b] may be charged
to the Account of the Participant requesting the withdrawal. Vested
benefits under the Plan may not be forfeited because a Participant
withdraws his or her voluntary after-tax contributions.
[c] Salary Reductions: Salary reduction contributions may be withdrawn
in the following circumstances:
[1] A Participant may withdraw his or her salary reduction
contributions to this Plan, excluding any earnings on such
contributions, upon serious financial hardship. Serious
financial hardship means an immediate and heavy financial need
of the Participant on account of medical expenses of the
Participant or the Participant's dependents, the purchase of
the Participant's principal residence, the prevention of the
eviction of the Participant from his or her principal
residence, the prevention of
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the foreclosure on the mortgage on the Participant's principal
residence (excluding normal mortgage payments), the payment of
the next twelve months of post-secondary tuition and related
educational expenses (including room and board) for the
Participant or the Participant's dependents, or the occurrence
of any other event deemed by the Secretary of the Treasury to
create an immediate and heavy financial need under Income Tax
Regulation Section 1.401(k)-1(d)(2)(iv)(C). No other event
shall be considered a serious financial hardship under the
terms of the Plan. A hardship distribution cannot exceed the
amount required to meet the immediate financial need and
cannot be reasonably available to the Participant from other
resources, including insurance reimbursement, reasonable asset
liquidation, cessation of Participant contributions to this
Plan, or borrowing from commercial sources on reasonable
terms. The Company adopts the deemed hardship standards of
Income Tax Regulation Sections 1.401(k)-1(d)(2)(iv), as
described above, as the sole means of hardship withdrawal of
salary reduction contributions. If the Plan Committee
determines in accordance with a uniform and nondiscriminatory
policy that serious financial hardship exists, it may direct
the Trustee to distribute the amount requested to the
Participant. A Participant who makes a hardship withdrawal
under this Section may not contribute to the Trust Fund under
Section 4.1 until the first calendar quarter commencing twelve
months after such hardship withdrawal, but shall receive an
allocation of Employer contributions for the payroll period in
which occurs the withdrawal date. A Participant who makes a
hardship withdrawal in a Plan Year under this Section may not
make salary reduction contributions in the next succeeding
year in excess of the maximum deferral amounts provided in
Section 4.11[a] less the salary reductions made in the year of
the hardship withdrawal. Any expenses attributable to the
hardship withdrawal may be charged to the Account of the
Participant requesting the withdrawal.
[2] A Participant may withdraw all or any part of his or her
salary reduction contributions, including any earnings,
losses, and changes in fair market value of such
contributions, upon attaining age 59 1/2, but only if the
Participant is 100% vested in his or her total Account
balance. Such withdrawal requests upon attaining age 59
1/2will be processed monthly and the requested amount will be
distributed within a reasonable period of time after the end
of the month in which the Participant requests the withdrawal.
A withdrawal upon attaining age 59 1/2may be made only once in
each Plan Year and such withdrawal upon age 59 1/2may be made
without any suspension of Plan participation as a result of
such withdrawal.
[d] Withdrawals From Other Plans: To the extent required by law, any
withdrawal from any Plan maintained by any Company which is a member of
a group of corporations or trades or businesses under common control
with the Company will be deemed to be a withdrawal from this Plan for
purposes of applying the withdrawal limitations and suspension of Plan
participation provisions of this Section 7.6. Common control will be
determined pursuant to Code Section 414(b) and the regulations
thereunder.
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[e] Rollovers: A Participant may request a lump-sum withdrawal of all
amounts rolled over to this Plan from another qualified plan, including
any earnings thereon. Such withdrawal request will be processed monthly
and the requested amount will be distributed within a reasonable period
of time after the end of the month in which the Participant requests
the withdrawal. A withdrawal of rollover contributions under this
Section will not result in any suspension of participation in this
Plan.
[f] Form of Withdrawal: Withdrawals under this Section 7.6 will be made in
cash, and such cash will be obtained by liquidating, on a pro rata
basis and to the extent necessary to cover the requested withdrawal
amount, each investment fund in which the Participant's Account is
invested on the date the withdrawal request is processed. However, the
Participant may demand that the requested withdrawal amount be made in
the form of Qualifying Employer Securities to the extent such requested
withdrawal amount is attributable to the Participant's Stock Bonus Plan
Account.
[g] Participants Ineligible for Total Distribution May Request Withdrawal:
In the event a Participant has terminated employment with the Company
(including but not limited to Participants who are not eligible to receive a
distribution from the Plan because the Participant has not "separated from
service" or because of the restrictions on distributions under Code Section
401(k)(10)), such Participant will be eligible to request any distribution
under this Section 7.6 as if such Participant still were employed by the
Company.
7.7 OPTIONAL FORMS OF BENEFITS FOR TRANSFERRED PENSION ASSETS:
Notwithstanding any provision of this Plan to the contrary, to the extent that
any optional form of benefit under this Plan permits a distribution prior to the
employee's retirement, death, disability, or severance from employment, or prior
to Plan termination, the optional form of benefit is not available with respect
to benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of Code
Section 414(1), to this Plan from a money purchase pension plan qualified under
Code Section 401(a) (other than any portion of those assets and liabilities
attributable to voluntary employee contributions).
7.8 ELIGIBLE ROLLOVER DISTRIBUTIONS:
[a] General Rule: Notwithstanding any provision of the Plan to the contrary
that otherwise would limit a Participant's distribution election under
this Article, a Participant may elect, at the time and in the manner
prescribed by the Plan Committee, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement Plan
specified by the Participant in a direct rollover.
[b] Limitations on Direct Rollover Distributions: This Plan will not be
required to make, but the Committee in its discretion may permit, any
direct rollover distribution if the total amount
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to be distributed to the Participant during the Plan Year is less than
$200. If the amount of the distribution is $500 or less, any direct
rollover distribution must consist of the entire distribution amount.
The Participant may elect only one eligible retirement Plan to which a
direct rollover distribution will be made.
[c] Definitions:
[1] An "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the
Participant, except that an eligible rollover distribution
does not include [A] any distribution that is one of a series
of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated Beneficiary,
or for a specified period of ten years or more; [B] any
distribution to the extent such distribution is required under
Code Section 401(a)(9); and [C] the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
[2] An "eligible retirement plan" is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a qualified
trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to a surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
[3] A "distributee" includes a Participant or former Participant.
In addition, the Participant's or former Participant's
surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the
spouse or former spouse.
[4] A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
7.9 RESTRICTIONS ON DISTRIBUTIONS OR WITHDRAWALS OF ELECTIVE DEFERRAL
CONTRIBUTIONS: Notwithstanding any other provision of this Plan, elective
deferrals, qualified non-elective contributions, qualified matching
contributions, and income allocable to each are not distributable to a
Participant or Beneficiary, in accordance with such Participant's or Beneficiary
or beneficiaries' election, earlier than upon separation from service, death, or
disability. Such amounts may also be distributed upon:
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[a] Termination of the Plan without the establishment or maintenance of
another defined contribution plan;
[b] The disposition by a company that is a corporation to an unrelated
corporation of substantially all of the assets (within the meaning of
Code Section 409(d)(2)) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after the
disposition, but only with respect to Employees who continue employment
with the corporation acquiring such assets;
[c] The disposition by a company that is a corporation to an unrelated
entity of such corporation's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) if such corporation continues to
maintain this Plan, but only with respect to Employees who continue
employment with such subsidiary;
[d] The attainment of age 59-1/2; or
[e] The hardship of the Participant as provided in Section 7.6[c][1].
An Employee who does not experience a separation from service from an Employer
because of the application of the "same desk rule," as such rule is promulgated
by the IRS in rulings and releases, will be treated as having separated from
service upon any later job promotion, demotion, reclassification, transfer, or
reassignment if such promotion, demotion, reclassification, transfer, or
reassignment would have been treated as a separation from service when the
Employee first was subject to the same desk rule.
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ARTICLE VIII
ANNUAL ADDITIONS LIMITATIONS AND TOP HEAVY RULES
8.1 DEFINITIONS FOR ANNUAL ADDITIONS RULES: For purposes of Sections 8.1
through 8.4, the following terms will be defined as follows:
[a] "Annual Addition" means the sum of the Company contributions,
forfeitures, and Participant contributions allocated to a Participant's
Account during any Limitation Year. Amounts allocated to an individual
medical account, as defined in Code Section 415(l)(2), that is part of
a pension or annuity plan maintained by the Company will be treated as
an annual addition to a defined contribution plan. Amounts attributable
to post-retirement medical benefits that are allocated to the separate
account of a Key Employee, as defined in Code Section 419A(d)(3), under
a welfare benefit fund, as defined in Code Section 419(e), maintained
by the Company will be treated as an annual addition to a defined
contribution plan. Annual additions will not include a direct transfer
or any contribution made by a Participant that qualifies under law as a
rollover contribution.
[b] "Company," for purposes of this Article, means the Company that adopts
this Plan, and all members of a controlled group of corporations (as
defined in Code Section 414(b) as modified by Code Section 415(h)), all
commonly controlled trades or businesses (as defined in Code Section
414(c) as modified by Code Section 415(h)), and all affiliated service
groups (as defined in Code Section 414(m)), in which the adopting
Company is a member, and any other entity required to be aggregated
with the Company pursuant to Code Section 414(o) and the final
regulations thereunder.
[c] "Compensation," for purposes of limiting annual additions and combined
benefits and contributions under this Article, means compensation, as
defined in subparagraphs [1], [2], [3], or [4] below, as determined by
the Company in its discretion.
[1] Compensation means a Participant's wages, salaries, fees for
professional services, and other amounts received (without
regard to whether an amount is paid in cash) for personal
services actually rendered in the course of employment with
the Company to the extent that the amounts are includible in
gross income including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits, reimbursements, expense
allowances, and cash received upon the exercise of a stock
appreciation right. Compensation also will include [A] amounts
paid or reimbursed by the Company for moving expenses incurred
by the Employee, but only to the extent that these amounts are
not deductible by the Employee under Code Section 217; [B]
amounts described in Code Sections 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are
includible in the Employee's gross
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income; and [C] amounts includible in the income of the
Employee as a result of the grant of a non-qualified stock
option to the Employee or as a result of the Employee making
an election described in Code Section 83(b). Compensation will
not include [i] Company contributions to a deferred
compensation plan that are not includible in the Employee's
gross income in the year in which contributed; [ii] Company
contributions to a simplified employee pension plan described
under Code Section 408(k) to the extent such contributions are
deductible by the Employee; [iii] any distributions from a
deferred compensation plan other than amounts received from an
unfunded nonqualified plan; [iv] amounts realized from the
exercise of a nonqualified stock option or when restricted
stock (or property) held by the Employee either becomes freely
transferable or is no longer subject to substantial risk of
forfeiture; [v] amounts realized from the sale, exchange, or
other disposition of stock acquired under a qualified stock
option; or [vi] other amounts that receive special tax
benefits, or Company contributions to purchase an annuity
contract described in Code Section 403(b), whether or not
under a salary reduction agreement and whether or not the
amounts actually are excludible from the gross income of the
Employee. For purposes of this Article, compensation for a
Limitation Year includes only the compensation that actually
is paid to the Participant during the Limitation Year and
compensation that is includible in the Participant's gross
income during the Limitation Year.
[2] Compensation means wages, as defined in Code Section 3121(a)
for purposes of calculating social security taxes but
determined without regard to [A] the wage base limitation in
Code Section 3121(a)(1); [B] the special rules in Code Section
3121(v) applicable to certain elective contributions and
nonqualified deferred compensation; [C] any rules that limit
covered employment based on the type or location of an
employee's employer; and [D] any rules that limit the
remuneration included in wages based on familial relationship
or based on the nature or location of the employment or the
services performed (such as the exceptions to the definition
of employment in Code Sections 3121(b)(1) through (20)).
[3] Compensation means wages, as defined in Code Section 3401(a)
for purposes of income tax withholding at the source but
determined without regard to any rules that limit the
remuneration included in wages based on the nature or location
of the employment or the services performed (such as the
exception for agricultural labor in Code Section 3401(a)(2)).
[4] Any other definition of compensation determined to satisfy
Code Section 415(c)(3) by the Secretary of the Treasury.
[d] "Limitation Year" means the Plan Year.
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8.2 LIMITATION ON ANNUAL ADDITION: If the annual addition to the account
of any Participant attributable to all defined contribution plans (including
money purchase pension plans, profit-sharing plans, and welfare benefit funds
of the Company), would exceed the lesser of [a] $30,000 (as adjusted for cost
of living increases by the Secretary of the Treasury as of each January 1 for
any Limitation Year ending during such calendar year), or [b] 25% of such
Participant's compensation, the excess amount will be disposed of as follows:
[1] Any nondeductible voluntary employee contributions under any
plan maintained by the Company, to the extent that the return
would reduce the excess amount, will be returned to the
Participant.
[2] Any employee elective deferral contributions under Code
Section 401(k) under any plan maintained by the Company, to
the extent that the return would reduce the excess amount,
will be returned to the Participant.
[3] If an excess amount still exists after the application of
paragraph [1] and the Participant is still a Plan Participant
at the end of the Limitation Year, the amount of any such
excess will be used to reduce the Company contributions
(including any allocation of forfeitures) for such Participant
in the next Limitation Year and in each succeeding Limitation
Year, if necessary.
[4] If an excess amount still exists after the application of
paragraph [1] and the Participant is not a Plan Participant at
the end of the Limitation Year, any excess amount will be
allocated to a suspense account and the suspense account will
be used to reduce Company contributions for all remaining Plan
Participants in the next Limitation Year and for each
succeeding Limitation Year, as necessary. If a suspense
account exists for any Limitation Year, all amounts in such
suspense account must be allocated and reallocated to the
Participants' Accounts before any Company or Participant
contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants or
former Participants. If a suspense account is in existence at
any time during the Limitation Year pursuant to this paragraph
[3], such suspense account will not share in the allocation of
the gains and losses of the Trust Fund. In the event of a Plan
termination, the balance of such suspense account will be
returned to the Company.
8.3 LIMITATION ON COMBINED BENEFITS AND CONTRIBUTIONS OF ALL DEFINED
CONTRIBUTION PLANS: This Section applies if, in addition to this Plan, the
Participant is covered under another defined contribution plan maintained by the
Company, a welfare benefit fund, as defined in Code Section 419(e), maintained
by the Company, or an individual medical account, as defined in Code Section
415(1)(2), maintained by the Company, that provides an annual addition during
any Limitation Year. The annual additions that may be credited to a
Participant's Account under this Plan for any such Limitation Year will not
exceed the limitation described in Section 8.2 reduced by the annual additions
credited to a Participant's account under the other defined
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contribution plans and welfare benefit funds for the same Limitation Year. If
the annual additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the Company are less
than the limitation described in Section 8.2 and the Company contribution that
would otherwise be contributed or allocated to the Participant's Account under
this Plan would cause the annual additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be reduced so that the
annual additions under all such plans and funds for the Limitation Year will
equal the limitation described in Section 8.2. If the annual additions with
respect to the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater than the
limitation described in Section 8.2, the Company will specify the plan or plans
to which the contribution will be reduced. If a Participant's annual additions
under this Plan and such other plans would result in an excess amount for a
Limitation Year, the excess amount will be deemed to consist of the annual
additions last allocated, except that annual additions attributable to a welfare
benefit fund or an individual medical account will be deemed to have been
allocated first regardless of the actual Allocation Date. If an excess amount is
allocated to a Participant on an Allocation Date of this Plan that coincides
with an Allocation Date of another plan, the excess amount attributed to this
Plan will be the product of the total excess amount allocated as of such date
multiplied by a fraction, the numerator of which is the annual additions
allocated to the Participant for the Limitation Year as of such date under this
Plan and the denominator of which is the total annual additions allocated on the
Participant's behalf for the Limitation Year as of such date under this and all
the other defined contribution plans. Any excess amount attributed to this Plan
will be disposed of in the manner described in Section 8.2.
8.4 LIMITATION ON COMBINED BENEFITS AND CONTRIBUTIONS OF ALL DEFINED
BENEFIT AND DEFINED CONTRIBUTION PLANS OF THE COMPANY: If the Company maintains
or has ever maintained a defined benefit plan covering any Employee who also is
a Participant in this Plan, then the sum of the defined benefit plan fraction
and the defined contribution plan fraction (both as prescribed by law and as
defined below) for such Employee for such year will not exceed 1.0 in any
Limitation Year. In any Limitation Year, if the sum of the defined benefit plan
fraction and the defined contribution plan fraction on behalf of a Participant
does exceed 1.0, the Company's contribution on behalf of such Participant to
this Employees' Stock Ownership Plan and Trust will be reduced to the extent
necessary to prevent the sum of the defined contribution plan fraction and the
defined benefit plan fraction from exceeding 1.0.
[a] Defined Benefit Plan Fraction: The defined benefit plan fraction is a
fraction, the numerator of which is the projected annual benefit of the
Participant under all defined benefit plans of the Company (whether or
not terminated) and the denominator of which is the lesser of [1] the
product of 1.25 times the maximum benefit dollar limitation determined
for the Limitation Year under Code Sections 415(b) and (d); or [2] the
product of 1.4 times 100% of the Participant's average Compensation for
his or her high three consecutive calendar years, including any
adjustments under Code Section 415(b).
The projected annual benefit is the annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life
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annuity) to which the Participant would be entitled under the terms of
the plan at Normal Retirement Age assuming that the Participant will
continue employment until Normal Retirement Age under the plan (or, if
later, using the Participant's current age) and further assuming that
the Participant's Compensation for the current Limitation Year and all
other relevant factors used to determine benefits under the plan will
remain constant for all future Limitation Years.
[b] Defined Contribution Plan Fraction: The defined contribution plan
fraction is a fraction, the numerator of which is the sum of the annual
additions to the Participant's Account under all defined contribution
plans (whether or not terminated) maintained by the Company for the
current and all prior Limitation Years (including the annual additions
attributable to the Participant's nondeductible employee contributions
to all defined benefit plans, whether or not terminated, maintained by
the Company, and the annual additions attributable to all welfare
benefit funds, as defined in Code Section 419(e), and individual
medical accounts, as defined in Code Section 415(l)(2), maintained by
the Company), and the denominator of which is the sum of the lesser of
the following amounts determined for such year and for each prior
Limitation Year of Service with the Company: [1] the product of 1.25
times the dollar limitation determined under Code Sections 415(b) and
(d) in effect under Code Section 415(c)(1)(A) for the Limitation Year;
or [2] 35% of the Participant's Compensation for the Limitation Year.
8.5 TOP HEAVY RULES: For any year in which the Plan is top heavy, as
determined under Code Section 416, the provisions of Sections 8.5 through 8.7
shall apply
[a] If the Company maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Company has
not maintained any defined benefit plan that, during the five-year
period ending on the Determination Date, has or has had accrued
benefits, the top heavy ratio for this Plan alone (or for the required
or permissive aggregation group, as appropriate) is a fraction, the
numerator of which is the sum of the Account balances of all Key
Employees as of the Determination Date (including any part of any
Account balance distributed in the five-year period ending on the
Determination Date), and the denominator of which is the sum of all
Account balances (including any part of any Account balance distributed
in the five-year period ending on the Determination Date), both
computed in accordance with Code Section 416 and the regulations
thereunder. Both the numerator and the denominator of the top heavy
ratio will be increased to reflect any contribution not actually made
as of the Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the regulations
thereunder.
[b] If the Company maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Company
maintains or has maintained one or more defined benefit plans that
during the five-year period ending on the Determination Date has or has
had any accrued benefits, the top heavy ratio for any required or
permissive aggregation group, as appropriate, is a fraction, the
numerator of which is the sum of Account balances
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under the aggregated defined contribution plan or plans for all Key
Employees, determined in accordance with [a] above, plus the present
value of accrued benefits under the aggregated defined benefit plan or
plans for all Key Employees as of the Determination Date, and the
denominator of which is the sum of the Account balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with [a] above, plus the present value of
accrued benefits under the defined benefit plan or plans for all
Participants as of the Determination Date, all determined in accordance
with Code Section 416 and the regulations thereunder. The accrued
benefits under a defined benefit plan in both the numerator and the
denominator of the top heavy ratio will be increased for any distribu
tion of an accrued benefit made in the five-year period ending on the
Determination Date.
[c] For purposes of paragraphs [a] and [b] above, the value of Account
balances and the present value of accrued benefits will be determined
as of the most recent Valuation Date that falls within or ends with the
12-month period ending on the Determination Date for the first and
second Plan Years of a defined benefit plan, except as provided in Code
Section 416. The account balances and accrued benefits of a Participant
[1] who is not a Key Employee but who was a Key Employee in a prior
year, or [2] who has not been credited with at least one Hour of
Service with any Company maintaining the Plan at any time during the
five-year period ending on the Determination Date, will be disregarded.
The calculation of the top heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account, will be
made in accordance with Code Section 416. Deductible employee contri
butions will not be taken into account for purposes of computing the
top heavy ratio. When aggregating plans, the value of account balances
and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee will be
determined under [A] the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Company, or [B] if there is no such method, as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under the
fractional rule of Code Section 411(b)(1)(C).
8.6 TOP HEAVY DEFINITIONS:
[a] "Permissive Aggregation Group" means the required aggregation group of
plans plus any other plan or plans of the Company that, when considered
as a group with the required aggregation group, would continue to
satisfy the requirements of Code Sections 401(a)(4) and 410.
[b] "Required Aggregation Group" means [1] each qualified plan of the
Company in which at least one Key Employee participates or participated
at any time during the Plan Year or any of the four preceding Plan
Years (regardless of whether the plan has terminated), and [2] any
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other qualified plan of the Company that enables a plan described in
[1] to meet the requirements of Code Sections 401(a)(4) or 410.
[c] Determination Date" for any Plan Year subsequent to the first Plan Year
means the last day of the preceding Plan Year. For the first Plan Year
of the Plan, "Determination Date" means the last day of that year.
[d] "Valuation Date," for purposes of computing the top heavy ratio, means
the date or dates designated in Article V.
[e] "Present Value" means the present value of a Participant's interest
determined in accordance with the interest and mortality assumptions
specified in the defined benefit plan of the Company, if any.
[f] "Compensation," for purposes of this Article, means compensation as
defined in Section 8.1[c], up to the limit under Code Section
401(a)(17).
[g] "Key Employee" means any Employee or former Employee (or Beneficiary of
either) who, at any time during the Plan Year or any of the four
preceding Plan Years, is or was:
[1] An officer of the Company if the officer's compensation
exceeds 50% of the dollar limitation in effect under Code
Section 415(b)(1)(A);
[2] One of the ten Employees owning, or considered to own under
Code Section 318, the largest interests in the Company if the
individual's compensation exceeds 100% of the dollar
limitation in effect under Code Section 415(c)(1)(A);
[3] A five percent owner of the Company; or
[4] A one percent owner of the Company having annual compensation
from the Company of more than $150,000.
For purposes of this paragraph, annual compensation means compensation as
defined in Code Section 415(c)(3), including amounts contributed by the Company
pursuant to a salary reduction agreement that are excluded from the Employee's
gross income under Code Section 125, 402(a)(8), 402(h), or 403(b).
For purposes of paragraph [1], no more than 50 Employees (or, if fewer, the
greater of three Employees or ten percent of the Employees) will be treated as
officers. For purposes of paragraph [2], if two Employees have the same interest
in the Company, the Employee having the greater annual compensation from the
Company will be treated as having the larger interest in the Company. The
determination of who is a Key Employee will be made in accordance with Code
Section 416(i)(1). Non-Key Employee means any Employee who is not a Key
Employee.
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8.7 TOP HEAVY MINIMUM CONTRIBUTIONS: Notwithstanding any other provision
in the Company's Plan, for any Plan Year in which the Plan is top heavy and in
which the Company maintains no defined benefit plan which designates this Plan
to satisfy Code Section 416, the aggregate Company contributions and
forfeitures allocated on behalf of any Participant (without regard to any
integration feature) under this Plan and any other defined contribution plan of
the Company will be the lesser of:
[a] Three percent of such Participant's compensation; or
[b] The largest percentage of Company contributions and forfeitures, as a
percentage of Compensation (as limited by Code Section 401(a)(17)),
allocated on behalf of any Key Employee for such year.
Elective deferrals and Company matching contributions used in the
actual contribution percentage test may not be used to satisfy the
minimum contribution required under Code Section 416. If, in any
top-heavy year, the highest percentage of Company contributions and
forfeitures allocated to any Key Employee is less than three percent,
amounts allocated as a result of any Key Employee's elective deferrals
must be included in determining the Company contribution made on behalf
of such Key Employees. Each Participant who is employed by the Company
on the last day of the Plan Year will be entitled to receive an
allocation of the Company's minimum contribution for such Plan Year.
The minimum allocation applies even though under other Plan provisions
the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the year
because the Participant fails to make mandatory contributions to the
Plan, the Participant's compensation is less than a stated amount, or
the Participant fails to complete 1,000 Hours of Service during the
Plan Year. If the Company maintains this Plan and any other qualified
defined contribution plan, the contribution described above will be
provided under the other defined contribution plan maintained by the
Company. If the Company maintains a qualified defined benefit plan in
which any Participant in this Plan participates and if the Code Section
416 minimum contribution requirements are to be provided under this
Plan, for any Plan Year in which the Plan is Top Heavy the aggregate
Company contributions and forfeitures allocated on behalf of any
Participant who is not a Key Employee will be at least five percent of
such Participant's compensation.
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ARTICLE IX
FIDUCIARY OBLIGATIONS
9.1 GENERAL FIDUCIARY DUTIES: A Fiduciary shall discharge his or her duties
under the Plan solely in the interest of the Participants and the beneficiaries
and for the exclusive purpose of providing benefits to Participants and to their
beneficiaries and defraying reasonable expenses of administering the Plan. All
fiduciaries shall act with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. Except as authorized by regulations of the
Secretary of Labor, no Fiduciary may maintain the indicia of ownership of any
assets of the Plan outside the jurisdiction of the district courts of the United
States. A Fiduciary shall act in accordance with the documents and instruments
governing the Plan to the extent such documents and instruments are consistent
with the requirements of law.
9.2 ALLOCATION OF FIDUCIARY RESPONSIBILITY: A Named Fiduciary may designate
persons other than named fiduciaries to carry out Fiduciary responsibilities
(other than Trustee responsibilities) under the Plan.
9.3 LIABILITY OF FIDUCIARIES:
[a] Extent Of Liability: A Fiduciary who breaches any of the
responsibilities, obligations, or duties imposed upon him or her by
this Plan or by the requirements of law shall be personally liable only
[1] to make good to the Plan any losses resulting from his or her
breach [2] to restore to the Plan any profits the Fiduciary has made
through the use of Plan assets for his or her personal Account, and [3]
to pay those penalties prescribed by law arising from his or her
breach. A Fiduciary shall be subject to such other equitable or
remedial relief as a court of law may deem appropriate, including
removal of the Fiduciary. A Fiduciary also may be removed for a
violation of Section 9.8 (prohibition against certain persons holding
certain positions). No Fiduciary shall be liable with respect to the
breach of a Fiduciary duty if such breach was committed before he
became a Fiduciary or after he ceased to be a Fiduciary.
[b] Liability Of Fiduciary For Breach By Co-Fiduciary: A Fiduciary shall be
liable for a breach of Fiduciary responsibility of another Fiduciary of
this Plan, only if he [1] participates knowingly in, or knowingly
undertakes to conceal, an act or omission of the other Fiduciary, and
knows such act or omission by the other Fiduciary is a breach of the
other Fiduciary's duties, [2] enables another Fiduciary to commit a
breach, by his failure to comply with Section 9.1 in the administration
of the specific responsibilities which give rise to his status
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as a Fiduciary, or [3] has knowledge of a breach of another Fiduciary
and does not make reasonable efforts under the circumstances to remedy
the breach.
[c] Liability For Improper Delegation Of Fiduciary Responsibility: A Named
Fiduciary who allocates any of his Fiduciary responsibilities to any
person or designates any person to carry out any of his Fiduciary
responsibilities shall be liable for the act or omission of such person
in carrying out the responsibility only to the extent that the Named
Fiduciary fails to satisfy his or her general Fiduciary duties of
Section 9.1 with respect to the allocation or designation, with respect
to the establishment or implementation of the procedure by which he
allocates the responsibilities, or in continuing the allocation or
designation. Nothing in this paragraph shall prevent a Named Fiduciary
from being liable if he or she otherwise would be liable for an act or
omission under paragraph [b].
[d] Fiduciary To Whom Responsibilities Are Allocated: Any person who has
been designated to carry out Fiduciary responsibilities under Section
9.2 shall be liable for such responsibilities under this section to the
same extent as any Named Fiduciary.
[e] Liability Insurance And Indemnification: Nothing in this Plan shall
preclude a Fiduciary from purchasing insurance to cover liability from
and for his own Account. The Company may purchase insurance to cover
potential liability of those persons who serve in a Fiduciary capacity
with regard to the Plan or may indemnify a Fiduciary against liability
and expenses reasonably incurred by him in connection with any action
to which such Fiduciary may be made a party by reason of his being or
having been a Fiduciary.
9.4 PROHIBITED TRANSACTIONS: No Fiduciary shall cause the Plan to engage
in a transaction if the Fiduciary knows or should know that the transaction
constitutes a prohibited transaction under law. No disqualified person under
law (other than a Fiduciary acting only as such) shall engage in a prohibited
transaction as prescribed by law.
9.5 RECEIPTS OF BENEFITS BY FIDUCIARIES: Nothing shall prohibit any
Fiduciary from receiving any benefit to which he may be entitled as a
Participant or Beneficiary in the Plan, if such benefit is computed and paid on
a basis which is consistent with the terms of the Plan as applied to all other
Participants and beneficiaries. The determination of any matters affecting the
payment of benefits to any Fiduciary other than the Plan Committee shall be
determined by the Plan Committee. If the Plan Committee is an individual, the
determination of any matters affecting the payment of benefits to the Plan
Committee shall be made by a temporary Plan Committee who shall be appointed by
the Board of Directors for such purpose. If the Plan Committee is a group of
individuals, the determination of any matters affecting the payment of benefits
to any individual Plan Committee member shall be made by the remaining Plan
Committee members without the vote of such individual Plan Committee member. If
the remaining Plan Committee members are unable to
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agree on any matter affecting the payment of such benefits, the Board of
Directors shall appoint a temporary Plan Committee to decide the matter.
9.6 COMPENSATION AND EXPENSES OF FIDUCIARIES:
[a] General Rules: A Fiduciary shall be entitled to receive any reasonable
Compensation for services rendered or for the reimbursement of expenses
properly and actually incurred in the performance of his duties under
the Plan. However, no Fiduciary who already receives full- time pay
from an Employer shall receive Compensation from the Plan, except for
reimbursement of expenses properly and actually incurred. All
Compensation and expenses shall be paid by the Plan, unless the
Company, in its discretion, elects to pay all or any part of such
Compensation and expenses. In its discretion, the Plan Committee may
direct that all such Compensation and expenses be paid from forfeitures
under the Plan or from general Plan assets.
[b] Compensation of Plan Committee and Plan Administrator: A Plan
Administrator who is not a full-time Employee of an Employer shall be
entitled to such reasonable Compensation as the Plan Committee and the
Plan Administrator mutually shall determine. A Plan Committee member
who is not a full-time Employee of an Employer shall be entitled to
such reasonable Compensation as the Company and the Plan Committee
mutually shall determine. Any expenses properly and actually incurred
by the Plan Committee or the Plan Administrator due to a request by a
Participant shall be charged to the Account of the Participant on whose
behalf such expenses are incurred.
[c] Compensation Of Trustee: A Trustee who is not a full-time Employee of
an Employer shall be entitled to such reasonable Compensation for its
services as the Plan Committee and the Trustee mutually shall
determine.
[d] Compensation Of Persons Retained Or Employed By Named Fiduciary: The
Compensation of all agents, counsel, or other persons retained or
employed by a Named Fiduciary shall be determined by the Named
Fiduciary employing such person, with the Plan Committee's approval,
provided that a person who is a full-time Employee of an Employer shall
receive no Compensation from the Plan.
9.7 SERVICE BY FIDUCIARIES AND DISQUALIFIED PERSONS: Nothing in this Plan
shall prohibit anyone from serving as a Fiduciary in addition to being an
officer, Employee, agent, or other representative of a disqualified person as
defined in the Code.
9.8 PROHIBITION AGAINST CERTAIN PERSONS HOLDING CERTAIN POSITIONS: No
person who has been convicted of a felony shall be permitted to serve as an
administrator, Fiduciary,
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officer, Trustee, custodian, counsel, agent, or Employee of this Plan, or as a
consultant to this Plan, unless permitted under law. The Plan Committee shall
ascertain to the extent practical that no violation of this Section occurs. In
any event, no person knowingly shall permit any other person to serve in any
capacity which would violate this Section.
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ARTICLE X
PLAN ADMINISTRATOR AND PLAN COMMITTEE
10.1 APPOINTMENT OF PLAN ADMINISTRATOR AND PLAN COMMITTEE: The Board
of Directors by resolution shall appoint a Plan Administrator and a Plan
Committee, each of whom shall hold office until resignation, death, or removal
by the Board of Directors. If the Board of Directors fails to appoint the Plan
Committee or Plan Administrator, or both, the Board of Directors shall be the
Plan Committee, the Plan Administrator, or both. Any person may serve in more
than one Fiduciary capacity, including service as Plan Administrator and Plan
Committee member. Any group of persons appointed by the Board of Directors may
serve in the capacity of Plan Committee, Plan Administrator, or both.
10.2 ORGANIZATION AND OPERATION OF OFFICES OF PLAN ADMINISTRATOR AND PLAN
COMMITTEE: The Plan Administrator and Plan Committee may adopt such procedures
as each deems desirable for the conduct of its respective affairs and may
appoint or employ a secretary or other agents, any of whom may be, but need not
be, an officer or Employee of the Company or any Associated Company. Any agent
may be removed at any time by the person appointing or employing him.
10.3 INFORMATION TO BE MADE AVAILABLE TO PLAN COMMITTEE AND PLAN
ADMINISTRATOR: To enable the Plan Committee and the Plan Administrator to
perform all of their respective duties under the Plan, each Employer shall
provide the Plan Committee and the Plan Administrator with access to the
following information for each Employee: [a] name and address, [b] social
security number, [c] birthdate, [d] dates of commencement and Termination of
Employment, [e] reason for Termination of Employment, [f] hours worked during
each year,[g] annual Compensation, [h] Employer contributions, and such other
information as the Plan Committee or the Plan Administrator may require. To the
extent the information is available in Employer records, an Employer shall
provide the Plan Committee and Plan Administrator with access to information
relating to each Employee's Participant contributions, benefits received under
the Plan, and marital status. If such information is not available from the
Employer records, the Plan Committee shall obtain such information from the
Participants. The Plan Committee, the Plan Administrator and the Employer may
rely on and shall not be liable because of any information which an Employee
provides, either directly or indirectly. As soon as possible following any
Participant's death, Total Disability, retirement, or other Termination of
Employment, his Employer shall certify in writing to the Plan Committee and Plan
Administrator such Participant's name and the date and reason for his
Termination of Employment, if needed.
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10.4 RESIGNATION AND REMOVAL OF PLAN ADMINISTRATOR OR PLAN COMMITTEE MEMBER;
APPOINTMENT OF SUCCESSORS: Any Plan Administrator or Plan Committee member may
resign at any time by giving written notice to the Board of Directors, effective
as stated in such notice, otherwise upon receipt of such notice. At any time the
Plan Administrator or any Plan Committee member may be removed by the Board of
Directors without cause. As soon as practical, following the death, resignation,
or removal of any Plan Administrator or Plan Committee member, the Board of
Directors shall appoint a successor by resolution. Written notice of the
appointment of a successor Plan Administrator or successor Plan Committee member
shall be given by the Company to the Trustee. Until receipt by the Trustee of
such written notice, the Trustee shall not be charged with knowledge or notice
of such change.
10.5 DUTIES AND POWERS OF PLAN ADMINISTRATOR--REPORTING AND
DISCLOSURE:
[a] General Requirements: The Plan Administrator shall be responsible for
all applicable reporting and disclosure requirements of law. The Plan
Administrator shall prepare, file with the Secretary of Labor, the
Secretary of the Treasury, or the Pension Benefit Guaranty Corporation,
when applicable, and furnish to Plan Participants and beneficiaries,
when applicable, the following:
[1] summary plan description;
[2] description of modifications and changes;
[3] annual report;
[4] terminal and supplementary reports;
[5] registration statement; and
[6] any other return, report, or document required by law.
[b] Statement Of Benefits Accrued And Vested: The Plan Administrator is to
furnish, or cause to be furnished, to any Plan Participant or
Beneficiary who so requests in writing, a statement indicating, on the
basis of the latest available information, the total benefits accrued
and the vested benefits, if any, which have accrued, or the earliest
date on which benefits will become vested. The Plan Administrator shall
furnish, or cause to be furnished, a written statement to any
Participant who terminates employment during the Plan Year and is
entitled to a deferred vested benefit under the Plan as of the end of
the Plan Year, if no retirement benefits have been paid with respect to
such Participant during the Plan Year. The statement shall be an
individual statement and shall contain the information required in the
annual registration statement which the Plan Administrator is required
to file with the Secretary of
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the Treasury. The Plan Administrator shall furnish the individual
statement to the Participant before the expiration of the time
prescribed for filing the annual registration statement with the
Secretary of the Treasury.
[c] Inspection Of Documents: Upon written request by any Participant or
Beneficiary, the Plan Administrator is to furnish a copy of the latest
updated summary plan description, the latest annual report, any
terminal report, and any agreements under which the Plan is established
or operated, to the extent required by law. In addition, the Plan
Administrator is to comply with every other requirement imposed on him
by law.
[d] Employment Of Advisers And Persons To Carry Out Responsibilities: The
Plan Administrator may appoint one or more persons to render advice
with regard to any responsibility the Plan Administrator has under the
Plan and may employ one or more persons (other than a Named Fiduciary)
to carry out any of his responsibilities under the Plan.
10.6 DUTIES AND POWERS OF PLAN COMMITTEE--IN GENERAL: The Plan Committee
shall decide all questions arising in the administration, interpretation, and
application of the Plan and Trust, including all questions relating to
eligibility, vesting, and distribution, except as may be reserved under this
Plan to the Company, its Board of Directors or any Associated Company. The Plan
Committee may designate any person (other than the Plan Administrator or
Trustee) to carry out any of the Plan Committee's Fiduciary responsibilities
under the Plan (other than a Trustee Responsibility) and may appoint one or more
persons to render advice with regard to any responsibility the Plan Committee
has under the Plan. The Plan Committee from time to time shall direct the
Trustee concerning the payments to be made out of the Trust Fund pursuant to
this Plan. All notices, directions, information, and other communications from
the Plan Committee shall be in writing.
10.7 DUTIES AND POWERS OF PLAN COMMITTEE--KEEPING OF RECORDS: The Plan
Committee shall keep a record of all the Plan Committee's proceedings and shall
keep all such books of Account, records, and other data as may be necessary or
advisable in its judgment for the administration of this Plan and Trust,
including records to reflect the affairs of this Plan, to determine the amount
of vested and/or forfeitable interests of the respective Participants in the
Trust Fund, and to determine the amount of all benefits payable under this Plan.
The Plan Committee shall maintain separate accounts for each Participant as
provided under Article V. Subject to the requirements of law, any person dealing
with the Plan Committee may rely on, and shall incur no liability in relying on,
a certificate or memorandum in writing signed by the Plan Committee as evidence
of any action taken or resolution adopted by the Plan Committee.
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10.8 DUTIES AND POWERS OF PLAN COMMITTEE--CLAIMS PROCEDURE:
[a] Filing And Initial Determination Of Claim: Any Participant, Beneficiary
or his duly authorized representative may file a claim for a Plan
benefit to which the claimant believes that he is entitled. Such a
claim must be in writing and delivered to the Plan Committee in person
or by certified mail, postage prepaid. Within 90 days after receipt of
such claim, the Plan Committee shall send to the claimant by certified
mail, postage prepaid, notice of the granting or denying, in whole or
in part, of such claim unless special circumstances require an
extension of time for processing the claim. In no event may the
extension exceed 90 days from the end of the initial period. If such
extension is necessary the claimant will receive a written notice to
this effect prior to the expiration of the initial 90-day period. The
Plan Committee shall have full discretion pursuant to the Plan to deny
or grant a claim in whole or in part. If notice of the denial of a
claim is not furnished in accordance with this paragraph [a], the claim
shall be deemed denied and the claimant shall be permitted to exercise
his right of review pursuant to paragraphs [c] and [d] of this Section.
[b] Duty Of Plan Committee Upon Denial Of Claim: The Plan Committee shall
provide to every claimant who is denied a claim for benefits written
notice setting forth in a manner calculated to be understood by the
claimant:
[1] the specific reason or reasons for the denial;
[2] specific reference to pertinent Plan provisions on which the
denial is based;
[3] a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material is necessary; and
[4] an explanation of the Plan's claim review procedure.
[c] Request For Review Of Claim Denial: Within 60 days after receipt by the
claimant of written notification of the denial in whole or in part of
his claim, the claimant or his duly authorized representative, upon
written application to the Plan Committee in person or by certified
mail, postage prepaid, may request a review of such denial, may review
pertinent documents and may submit issues and comments in writing. Upon
its receipt of the request for review, the Plan Committee shall notify
the Board of Directors of the request.
[d] Claims Reviewer: Upon its receipt of notice of a request for review,
the Board of Directors shall appoint a person other than a Plan
Committee member to be the claims reviewer. The Plan Committee shall
deliver to the claims reviewer all documents submitted by the claimant
and all other documents pertinent to the review. The claims reviewer
shall make a prompt decision on the review. The decision on review
shall be written in a manner calculated to be understood by the
claimant, and shall include specific reasons for the decision and
specific references to the pertinent Plan provisions on which the
decision is based. The decision on
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review shall be made not later than 60 days after the Plan Committee's
receipt of a request for a review, unless special circumstances require
an extension of time for processing, in which case a decision shall be
rendered not later than 120 days after receipt of a request for review.
If such extension is necessary the claimant shall be given written
notice of the extension prior to the expiration of the initial 60-day
period. If notice of the decision on review is not furnished in
accordance with this paragraph [d], the claim shall be deemed denied
and the claimant shall be permitted to exercise his right to legal
remedy pursuant to paragraph [e] of this Section.
[e] Legal Remedy: After exhaustion of the claims procedure as provided
under this Plan, nothing shall prevent any person from pursuing any
other legal remedy.
10.9 DUTIES AND POWERS OF PLAN COMMITTEE--FUNDING AND INVESTMENT
POLICY: The policy of each Employer is that this Plan shall be funded with
Employer contributions and Participant contributions. The Plan Committee may
adopt an investment policy which shall provide the Trustee with guidance on the
investments appropriate for Plan assets.
10.10 DUTIES AND POWERS OF PLAN COMMITTEE--BONDING OF FIDUCIARIES AND PLAN
OFFICIALS: The Plan Committee shall procure bonds for every Fiduciary of the
Plan and every Plan Official, if he handles funds of the Plan, in an amount not
less than 10% of the amount of funds handled and in no event less than $1,000,
except the Plan Committee shall not be required to procure such bonds if [a] the
person is excepted from the bonding requirement by law, or [b] the Secretary of
Labor exempts the Plan from the bonding requirements. The bonds shall conform to
the requirements of law.
10.11 DUTIES AND POWERS OF PLAN COMMITTEE--QUALIFIED DOMESTIC RELATIONS
ORDERS: The Plan Committee shall establish reasonable procedures for
determining the qualification status of a domestic relations order. Such
procedures:
[a] shall be in writing;
[b] shall provide to each person specified in a domestic relations order as
entitled to payment of Plan benefits notification of such procedures
promptly upon receipt by the Plan of the order; and
[c] shall permit an alternate payee to designate a representative for
receipt of copies of notices that are sent to the alternate payee.
Such procedures shall provide such additional information as required by law, or
as deemed necessary or convenient for the proper administration of qualified
domestic relations orders, as
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determined by the Plan Committee. If a Plan Fiduciary acts in accordance with
the Fiduciary responsibility provisions of ERISA, then the Plan's obligation to
the Participant and each alternate payee shall be discharged to the extent of
any payment made.
10.12 ADVICE TO DESIGNATED FIDUCIARIES: Any Fiduciary designated by the Plan
Committee or Plan Administrator may appoint with the consent of the Plan
Committee or Plan Administrator, respectively, one or more persons to render
advice with regard to any responsibility such designated Fiduciary has under the
Plan.
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ARTICLE XI
POWERS AND DUTIES OF THE TRUSTEE
11.1 INVESTMENT OF TRUST FUND:
[a] Duties of Trustee: The duty of the Trustee is to hold in trust the
funds it receives. Except as expressly set forth in this Section 11.1,
the Trustee shall have exclusive authority and discretion to manage and
control the assets of the Plan and to manage, invest, and reinvest the
Trust Fund and the income from it under this article, without
distinction between principal and income, and shall be responsible only
for such sums that it actually receives as Trustee. The Trustee shall
have no duty to collect any sums from the Plan Committee.
[b] Trustee Investment of Employer Contributions: Any Employer
contributions, and any earnings thereon, now or in the future received
or held by the Trustee shall be applied primarily to the purchase of
shares of Qualifying Employer Securities, and the Trustee may invest in
Qualifying Employer Securities, up to 100% of the value of Plan assets,
without regard to the diversification requirement or the prudence
requirement to the extent it requires diversification. Purchases of
Qualifying Employer Securities may be made by the Trustee in the open
market or by private purchase, or, if available, from the Company, or
as the Trustee may determine in its sole discretion, provided only that
no private purchase or purchase from the Company may be made at a price
greater than the current market price for qualifying Employer
securities on the day of such purchase. The Trustee also may purchase
Qualifying Employer Securities from Participants who receive
distributions from this Trust, provided that all such purchases shall
be made at the current market price on the day of such purchase.
[c] Participant Directed Investment of Participant Contributions: Each
Participant may direct the Trustee's investment of his or her Account
attributable to Participant voluntary after-tax contributions,
Participant deductible contributions, Participant rollover
contributions, transfer contributions to this Plan to the extent
approved by the Plan Committee, and Participant elective deferral
contributions, and the earnings thereon, as provided in paragraph [c].
[1] Trustee to Follow Participant Investment Direction: The
Trustee shall comply with any Participant exercise of
investment control as provided in this Section. The Trustee is
under no duty to question any direction by a Participant or
his or her duly authorized agent with respect to investments,
or to make suggestions to the Participant or his or her duly
authorized agent with respect to investments.
[2] Investment Instructions Necessary: As a condition of
participation in this Plan, a Participant must direct the
Trustee as to the investment of the Participant's Participant
Contributions Account. The right to direct investments under
this Section will be the
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sole and exclusive investment power granted to Participants.
The exercise of investment direction by a Participant will not
cause the Participant to be a fiduciary solely by reason of
such exercise, and neither the Trustee, the Plan Committee,
nor any other fiduciary of this Plan will be liable for any
loss, or by reason of any breach, that results from exercise
of investment direction by a Participant. It is the intent of
the Plan, the Company, and the Trustee that this Plan and the
Participant direction of investment under this Section (except
for investments in Qualifying Employer Securities) comply with
and be administered in accordance with ERISA Section 404(c)
and the final regulations thereunder. To the extent
Participant Accounts are directed in Qualifying Employer
Securities, such Accounts will be administered in compliance
with ERISA Section 404(c) only to the extent determined by the
Plan Committee.
[3] Investment Categories: The Plan Committee will select
investment categories for Participant direction of investment
under this Plan, which may include fixed income obligations of
a secure nature, such as savings accounts, certificates of
deposit, and fixed income government and corporate
obligations. The investment categories also may include common
stock (including Qualifying Employer Securities), notes,
mortgages, commercial paper, preferred stocks, mutual funds,
or other securities, rights, obligations, or property, real or
personal, including shares or certificates of participation
issued by regulated investment trusts and shares or units of
participation in qualified common Trust Funds or pooled funds.
Participant Accounts in investment categories offered by the
Plan Committee may be commingled. Investment categories may
not include collectibles within the meaning of Code Section
408(m). The Plan Committee will, at all times, offer at least
three investment alternatives that will provide Participants
with a broad range of investment alternatives and that provide
materially different risk and return characteristics.
[4] Expenses: Any expense incurred by the Trust will be charged
directly against the value of the Account of the Participant
on whose behalf such expense is incurred. The Trustee may
allocate expenses to individual Accounts or commingled
Accounts on a nondiscriminatory basis.
[d] Diversification and Prudence Requirements: Except to the extent the
Trustee invests in the Qualifying Employer Securities, the Trustee
shall diversify the investments of the Plan to minimize the risk of
large losses, unless under the circumstances it is clearly prudent not
to do so. The Trustee shall act with the care skill, prudence, and
diligence under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like aims.
[e] Trustee Vote of Qualifying Employer Securities: The Trustee shall vote
all proxies, and make decisions with respect to all tender offers, with
respect to Qualifying Employer
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<PAGE> 57
Securities held in the Trust Fund, including Qualifying Employer
Securities purchased at the direction of the Participant.
11.2 ADMINISTRATIVE POWERS OF THE TRUSTEE: Subject to the requirements
imposed by law, the Trustee shall have all powers necessary or advisable to
carry out the provisions of this Plan and Trust and all inherent, implied, and
statutory powers now or subsequently provided by law, including specifically
the power to do any of the following:
[a] to cause any securities or other property to be registered and held in
its name as Trustee, or in the name of one or more of its nominees,
without disclosing the Fiduciary capacity, or to keep the same in
unregistered form payable to bearer;
[b] to sell, grant options to sell, exchange, pledge, encumber, mortgage,
deed in trust, or use any other form of hypothecation, or otherwise
dispose of the whole or any part of the Trust Fund on such terms and
for such property or cash, or part cash and credit, as it may deem
best; to retain, hold, maintain, or continue any securities or
investments which it may hold as part of the Trust Fund for such length
of time as it may deem advisable; and generally, in all respects, to do
all things and exercise each and every right, power, and privilege in
connection with and in relation to the Trust Fund as could be done,
exercised, or executed by an individual holding and owning such
property in absolute and unconditional ownership;
[c] to abandon, compromise, contest, and arbitrate claims and demands; to
institute, compromise, and defend actions at law (but without
obligation to do so); in connection with such powers, to employ counsel
as the Trustee shall deem advisable and as approved by the Plan
Committee; and to exercise such powers all at the risk and expense of
the Trust Fund;
[d] to borrow money for this trust upon such terms and conditions as the
Trustee shall deem advisable, and to secure the repayment of such by
the mortgage or pledge of any assets of the Trust Fund, provided that
the Trustee may not borrow money to purchase qualifying Employer
securities;
[e] to vote in person or by proxy any shares of stock or rights held in the
Trust Fund; to participate in and to exchange securities or other
property in reorganization, liquidation, or dissolution of any
corporation, the securities of which are held in the Trust Fund; and
[f] to pay any amount due on any loan or advance made to the Trust Fund, to
charge against and pay from the Trust Fund all taxes of any nature
levied, assessed, or imposed upon the Trust Fund, and to pay all
reasonable expenses and attorney fees necessarily incurred by the
Trustee and approved by the Plan Committee with respect to any of the
foregoing matters.
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<PAGE> 58
11.3 ADVICE OF COUNSEL: The Trustee may consult with legal counsel, who
may be counsel for the Company or any Associated Company, or Trustee's own
counsel, with respect to the meaning or construction of the Plan and Trust or
Trustee's obligations or duties. The Trustee shall be protected from any
responsibility with respect to any action taken or omitted by it in good faith
pursuant to the advice of such counsel, to the extent permitted by law.
11.4 RECORDS AND ACCOUNTS OF THE TRUSTEE: The Trustee shall keep all such
records and accounts which may be necessary in the administration and conduct of
this trust. The Trustee's records and accounts shall be open to inspection by
the Company, any Associated Company, the Plan Committee, and the Plan
Administrator, at all reasonable times during business hours. All income,
profits, recoveries, contributions, forfeitures, and any and all moneys,
securities, and properties of any kind at any time received or held by the
Trustee shall be held for investment purposes as a commingled Trust Fund.
Separate accounts or records may be maintained for operational and accounting
purposes, but no such account or record shall be considered as segregating any
funds or property from any other funds or property contained in the commingled
fund, except as otherwise provided. After the close of each year of the trust,
the Trustee shall render to the Company and the Plan Committee a statement of
assets and liabilities of the Trust Fund for such year.
11.5 APPOINTMENT, RESIGNATION, REMOVAL, AND SUBSTITUTION OF TRUSTEE:
The Board of Directors by resolution shall appoint a Trustee or Trustees, each
of which shall hold office until resignation or removal by the Board of
Directors. The Trustee may resign at any time upon 30 days' written notice to
the Company. The Trustee may be removed at any time by the Company upon written
notice to the Trustee with or without cause. Upon resignation or removal of the
Trustee, the Company, by action of its Board of Directors, shall appoint a
successor Trustee which shall have the same powers and duties as are conferred
upon the Trustee appointed under this Plan. The resigning or removed Trustee
shall deliver to its successor Trustee all property of the Trust Fund, less a
reasonable amount necessary to provide for its Compensation, expenses, and any
taxes or advances chargeable or payable out of the Trust Fund. If the Trustee is
an individual, death shall be treated as a resignation, effective immediately.
If any corporate Trustee at any time shall be merged, or consolidated with, or
shall sell or transfer substantially all of its assets and business to another
corporation, whether state or federal, or shall be reorganized or reincorporated
in any manner, then the resulting or acquiring corporation shall be substituted
for such corporate Trustee without the execution of any instrument and without
any action upon the part of the Company, any Participant or Beneficiary, or any
other person having or claiming to have an interest in the Trust Fund or under
the Plan.
11.6 APPOINTMENT OF TRUSTEE--ACCEPTANCE IN WRITING: The Trustee shall
accept its appointment as soon as practical by executing this Plan or by
delivering a signed document to the Company, a copy of which shall be sent to
the Plan Committee by the Trustee. The Board of Directors shall appoint a new
Trustee if the Trustee fails to accept its appointment in writing.
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<PAGE> 59
ARTICLE XII
CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST
12.1 TERMINATION OF PLAN: The expectation of each Employer is to continue
this Plan indefinitely, but the continuance of the Plan is not assumed as a
contractual obligation by the Employer and the right is reserved to each
Employer, by action of its Board of Directors, to terminate its participation
in this Plan at any time. The Company will have the right to terminate this
Plan at any time. The termination of this Plan by an Employer in no event shall
have the effect of revesting any part of the Trust Fund in the Employer. The
Plan created by execution of this agreement with respect to any Employer shall
be terminated automatically in the event of the dissolution, consolidation, or
merger of such Employer or the sale by such Employer of substantially all of
its assets, if the resulting successor corporation or business entity shall
fail to adopt the Plan and Trust under Section 12.3. If this Plan is
disqualified, the Board of Directors of the Company, in its discretion, may
terminate this Plan.
12.2 TERMINATION OF TRUST: The trust created by execution of this agreement
shall continue in full force and effect for such time as may be necessary to
accomplish the purposes for which it is created, unless sooner terminated and
discontinued by the Company's Board of Directors. Notice of such termination
shall be given to the Trustee by the Plan Committee in the form of an instrument
in writing executed by the Company pursuant to the action of its Board of
Directors, together with a certified copy of the resolution of the Board of
Directors to that effect. In its discretion, the Plan Committee may receive a
favorable determination letter from the Internal Revenue Service stating that
the prior qualified status of the Plan has not been affected by such
termination. Such termination shall take effect as of the date of the delivery
of the notice of termination and favorable determination letter, if obtained, to
the Trustee. The Plan Administrator shall file such terminal reports as are
required in Article X.
12.3 CONTINUANCE OF PLAN AND TRUST BY SUCCESSOR BUSINESS: With the
approval of the Company, a successor business may continue this Plan and Trust
by proper action of the proprietor or partners, if not a corporation, and, if a
corporation, by resolution of its Board of Directors, and by executing a proper
supplemental agreement to this Plan and Trust with the Trustee. Within 90 days
from the effective date of such dissolution, consolidation, merger, or sale of
assets of a Employer, if such successor business does not adopt and continue
this Plan and Trust, this Plan shall be terminated automatically as of the end
of such 90-day period.
12.4 MERGER, CONSOLIDATION, OR TRANSFER OF ASSETS OR LIABILITIES OF THE
PLAN: The Board of Directors of the Company may merge or consolidate this Plan
with any other plan or may transfer the assets or liabilities of the Plan to
any other plan if each Participant in the
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<PAGE> 60
Plan (if the Plan then terminated) would receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or greater than the benefit
he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated). If any merger,
consolidation, or transfer of assets or liabilities occurs, the Plan
Administrator shall file such reports as are required in Article X.
12.5 DISTRIBUTION OF TRUST FUND ON TERMINATION OF TRUST: If the trust is
terminated under this article, the Trustee shall determine the value of the
Trust Fund and the respective interests of the Participants and beneficiaries
under Article V. The value of the Account of each respective Participant or
Beneficiary in the Trust Fund shall be vested in its entirety as of the date of
the termination of the Plan. The Trustee then shall transfer to each Participant
or Beneficiary the net balance of the Participant's Account unless the Plan
Committee directs the Trustee to retain the assets and pay them under the terms
of this Plan as if no termination had occurred.
12.6 AMENDMENTS TO PLAN AND TRUST: At any time the Company, by action of its
Board of Directors, or the Plan Committee may amend this Plan and Trust,
provided that no amendment shall cause the Trust Fund to be diverted to purposes
other than for the exclusive benefit of the Participants and their beneficiaries
and provided further that the provisions of the Plan that satisfy the
requirements of subparagraph (C)(2)(ii)(A) under Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended, shall not be
amended more frequently than once every six months, unless otherwise necessary
to comply with changes in the Code, ERISA, or the rules and regulations
promulgated thereunder. No amendment shall decrease the vested interest of any
Participant. If an amended vesting schedule is adopted, any Participant who has
three or more years of service at the later of the date the amendment is adopted
or becomes effective and who is disadvantaged by the amendment, may elect to
remain under the Plan's prior vesting schedule. Such election must be made
within a period established by the Plan Committee, in accordance with applicable
regulations, and on a form provided by and delivered to the Plan Committee. No
amendment to the Plan (including a change in the actuarial basis for determining
optional benefits) shall be effective to the extent that it has the effect of
decreasing a Participant's accrued benefit. For purposes of this paragraph, a
Plan amendment that has the effect of [a] eliminating or reducing an early
retirement benefit or a retirement-type subsidy, or [b] eliminating an optional
form of benefit, with respect to benefits attributable to service before the
amendment will be treated as reducing accrued benefits. No amendment shall
discriminate in favor of Employees who are officers, shareholders, or Highly
Compensated Employees. Notwithstanding anything in this Plan and Trust to the
contrary, the Plan and Trust may be amended at any time to conform to the
provisions and requirements of federal and state law with respect to Employees'
trusts or any amendments to such laws or regulations or rulings issued pursuant
to them. No such amendment shall be considered prejudicial to the interest of
any Participant or Beneficiary under this Plan.
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<PAGE> 61
ARTICLE XIII
MISCELLANEOUS
13.1 BENEFITS TO BE PROVIDED SOLELY FROM THE TRUST FUND: All benefits
payable under this Plan shall be paid or provided solely from the Trust Fund,
and no Employer assumes liability or responsibility for payment of benefits.
13.2 NOTICES FROM PARTICIPANTS TO BE FILED WITH PLAN COMMITTEE: Whenever
provision is made in the Plan that a Participant may exercise any option or
election or designate any Beneficiary, the action of each Participant shall be
evidenced pursuant to procedures promulgated by the Plan Committee. If a form is
furnished by the Plan Committee for such purpose, a Participant shall give
written notice of his exercise of any option or election or of his designation
of any Beneficiary on the form provided for such purpose. Any required written
notice under this Plan shall not be effective until received by the Plan
Committee. The Plan Committee may promulgate procedures, consistent with the
requirements of ERISA and the Code, whereby paperless transactions and elections
may be initiated by the Participants, such as for enrollment in the Plan,
election changes, investment decisions, and other designations required under
the Plan.
13.3 TEXT TO CONTROL: The headings of Articles and Sections are included
solely for convenience of reference. If any conflict between any heading and
the text of this Plan and Trust exists, the text shall control.
13.4 SEVERABILITY: If any provision of this Plan and Trust is illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions. On the contrary, such remaining provisions shall be fully
severable, and this Plan and Trust shall be construed and enforced as if such
illegal or invalid provisions never had been inserted in the agreement.
13.5 JURISDICTION: This Plan shall be construed and administered under the
laws of the State of Colorado when the laws of that jurisdiction are not in
conflict with federal substantive law.
13.6 PLAN FOR EXCLUSIVE BENEFIT OF PARTICIPANTS; REVERSION PROHIBITED:
This Plan and Trust has been established for the exclusive benefit of the
Participants and their beneficiaries. Under no circumstances shall any funds
contributed to or held by the Trustee at any time revert to or be used by or
enjoyed by an Employer except to the extent permitted by Article IV.
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<PAGE> 62
This Plan and Trust has been approved by the Board of Directors of the Company
and is accepted by the Plan Administrator and the Trustees as of the dates
indicated below.
-----------------------------------
Gary K. Bracken, Plan Administrator
Date:
----------------------------
COLORADO NATIONAL BANK
By:
------------------------------
Date:
----------------------------
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<PAGE> 63
SUPPLEMENT A
TO THE TCI 401(k) STOCK PLAN
- -------------------------------------------------------------------------------
SPECIAL PROVISIONS APPLICABLE TO
RESIDENTS TO THE COMMONWEALTH OF PUERTO RICO
- -------------------------------------------------------------------------------
A-1. Purpose and Effect - The purpose of this Supplement is to amend the TCI
401(k) Stock Plan ("the Plan") to comply with the requirements of
Sections 1165(a) and (e) of the Puerto Rico Internal Revenue Code of
1994, as amended (the "PR Code"). In the event of an amendment to the
PR Code or enactment of a successor statute which replaces or renumbers
a section of the PR Code referenced in this supplement, all such
references shall automatically be renumbered or replaced, as
applicable. The provisions of this Supplement shall be effective as of
January 1, 1998, and shall only apply to individuals who perform
services for an Employer in Puerto Rico in an employer-employee
relationship and who are bona fide residents of the Commonwealth of
Puerto Rico ("Supplement A Employee"). This Supplement is intended to
modify those sections of the Plan specifically mentioned herein. All
other sections of the Plan not mentioned herein shall be applicable to
a Supplement A Employee who is a Participant (a "Supplement A
Participant") as fully as to all other Participants. Notwithstanding,
references to a section of the Code for which there is an equivalent
section in the PR Code shall be deemed made to the equivalent PR Code
section.
A-2. Type of Plan - It is the intent of the Company that the portion of the
Plan which is invested in Qualifying Employer Securities be treated as
a stock bonus plan and the portion of the Plan which is not invested in
Qualifying Employer Securities be treated as a profit sharing plan (as
defined in the Regulations under the PR Code) which includes a
qualified cash or deferred arrangement (as defined in PR Code Section
1165(e)).
A-3. Compensation - A Supplement A Participant's Compensation under Plan
Section 2.8 shall be determined by substituting all references to a
section of the Code with the applicable reference to the PR Code, but
only to the extent any items of income described in Plan Section 2.8
are includable in gross income under the PR Code.
A-4. Highly Compensated Employee - means any Supplement A Employee who is
eligible to participate in the Plan and is more highly compensated than
two-thirds of all other Supplement A Employees eligible to participate
in the Plan and employed by the same legal entity.
A-5. Controlled Group - For purposes of paragraph A-8 of this Supplement,
"Controlled Group" shall have the definition given it in PR Code
Section 1028. For all other purposes it shall have the meaning given it
elsewhere in the Plan.
<PAGE> 64
A-6. Employee - A Supplement A Participant will be considered an Employee
under Plan Section 2.10.
A-7. Salary Reduction Rules - Section 4.8[a] of the Plan is amended to read
as follows:
Subject to the rules of Section 4.1, an Employee eligible to
participate in this Plan may elect to reduce his Compensation
by an amount determined at his discretion but which may not
exceed, in any event, the lesser of 10% of the Supplement A
Participant's Compensation or $8,000, or such other amount as
may be specified under the PR Code. If the Supplement A
Participant participates in two or more plans, such plans
shall be treated as if they were one for purposes of
determining the amount of the limitations specified herein. In
addition, annual salary reduction contributions by a
Supplement A Participant who also contributes to an individual
retirement account described in PR Code Section 1169 will be
further limited to the extent required under the PR Code and
its regulations. Amounts contributed by an Employer in excess
of this limitation are referred to as "Puerto Rico Excess
Elective Deferrals."
A-8. Limit on Actual Deferral Percentage - The limit on actual deferral
percentage of Plan Section 4.8[d] shall be computed by substituting the
terms "Highly Compensated Employees" and "all other Employees" for the
terms "Highly Compensated Supplement A Participants" (as defined below)
and "all other Supplement A Participants," respectively. For purposes
of this paragraph, the term "Highly Compensated Supplement A
Participant" means any Supplement A Employee who is eligible to
participate in the Plan and is more highly compensated than two-thirds
of all other Supplement A Employees eligible to participate in the Plan
and employed by the same legal entity. All other Supplement A Employees
are participants which are not "Highly Compensated Supplement A
Participants."
For purposes of this paragraph, the term "actual deferral percentage"
shall have the same definition as under Plan Section 4.8[f] except that
the Supplement A Participant's Compensation shall be the Compensation
determined under Plan Section 2.8 as modified by paragraph A-3 of this
Supplement.
For purposes of this paragraph, if more than one plan providing a cash
or deferred arrangement (within the meaning of PR Code Section 1165(e))
is maintained by the Employer or an Associated Company, the "actual
deferral percentage" of any Highly Compensated Supplement A Participant
who participates in more than one such plan or arrangement shall be
determined as if all such arrangements were a single plan or
arrangement. If two or more plans are aggregated for purposes of PR
Code Sections 1165(a)(3) or 1165(a)(4), such plans shall be aggregated
for purposes of determining the "actual deferral percentage" of
Supplement A Participants as if all such plans were a single plan.
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<PAGE> 65
Notwithstanding any provision of this Supplement, the determination of
the "actual deferral percentage" of the Supplement A Participants shall
satisfy such other requirements as may be prescribed by the Secretary
of the Puerto Rico Department of the Treasury, including the provisions
of PR Code Section 1165(e)(3) and the applicable PR Code regulations
which are both incorporated herein by reference. In addition, to the
extent permitted by the PR Code and its regulations, the Plan
Administrator may elect to aggregate the members of the Controlled
Group for purposes of determining compliance by the Plan with the
actual deferral percentage test for PR Code Section 1165 and the
determining of the Highly Compensated Supplement A Participants.
A-9. Adjustments to Comply with Contribution Limits - In the event that the
limitations set forth in paragraphs A-7 and A-8 are not met, to the
extent permitted by applicable law, the Plan Committee shall adjust
either the salary reduction or the Employer Contributions pursuant to
one or more of the options set forth in Plan Section 4.8[e], as
determined by the Company. For purposes of Plan Section 4.8[e], the
terms "Excess Elective Deferrals" and "Excess Employer Contributions"
means the amounts contributed by Highly Compensated Supplement A
Participants in excess of the limitations of Plan Section 4.8[a], as
amended by paragraph A-7 of this Supplement, and in excess of the
limitations of Plan Section 4.8[d], respectively.
A-10. Rollover Contributions - Contributions by a Supplement A Participant
under Plan Section 4.7 are limited to amounts distributed from an
employee retirement plan that is also qualified under PR Code Section
1165(a).
A-11. Rollover Withdrawals. Plan Section 7.6[e] will not be applicable to
Supplement A Participants. Supplement A Participants may not make
in-service withdrawals from their Rollover Account.
A-12. Eligible Rollover Distributions - For purposes of Plan Section
7.8[c][2] an "eligible retirement plan" also incudes a qualified trust
described in PR Code Section 1165(a) and an individual retirement
account or annuity described in PR Code Sections 1169(a) and (b),
respectively, that accepts the Supplement A Participant's eligible
rollover distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement plan also
includes an individual retirement account or annuity described in PR
Code Sections 1169(a) and (b), respectively, that accepts the surviving
spouse's eligible rollover distribution.
A-13. Employer Contributions - To the extent permissible under the Employer
Retirement Income Security Act of 1974, as amended ("ERISA"), each
contribution made by an Employer under the Plan for the benefit of a
Supplement A Participant is expressly conditioned on the deductibility
of such contribution under PR Code Section 1023(n) for the taxable year
for which contributed, and on the initial qualification of the Plan
under PR Code Sections 1165(a) and (e). If the Puerto Rico Department
of the Treasury denies the Plan qualification
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<PAGE> 66
or disallows the deduction, to the extent permissible under ERISA, such
contributions shall be returned to the Employer within one (1) year
after the Plan is denied qualification, or, to the extent the deduction
is disallowed, such contributions shall be returned to the Employer
within one (1) year after the disallowance of the deductions,
respectively.
A.14 Time of Payment of Contributions - Notwithstanding the provisions of
Plan Section 4.3, to the extent not otherwise limited by ERISA,
contributions to the Plan by an Employer engaged in business in Puerto
Rico shall be paid to the Trustee not later than the due date for
filing its Puerto Rico income tax return for the taxable year in which
such payroll period falls, including any extension thereof.
A-15. Governing Law - With respect to Supplement A Participants, the Plan
will be also governed and construed according to the PR Code, where
such law is not in conflict with the applicable federal laws.
-4-
<PAGE> 1
EXHIBIT 10.38
1996 PLAN
TCOMA NQSO/SAR
7/23/97 GRANT
TELE-COMMUNICATIONS, INC.
1996 INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AND
STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of
July, 1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), and the person signing adjacent to the
caption "Grantee" on the signature page hereof (the "Grantee").
The Company has adopted the Tele-Communications, Inc. 1996
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees of the Company and its Subsidiaries. Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to grant the options and rights provided herein in order to
provide Grantee with additional remuneration for services rendered, to
encourage Grantee to remain in the employ of the Company or its Subsidiaries
and to increase Grantee's personal interest in the continued success and
progress of the Company.
The Company and Grantee therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions herein,
the Company grants to the Grantee during the period commencing on July 23, 1997
and expiring at 5:00 p.m., Denver, Colorado time ("Close of Business") on July
23, 2007 (the "Option Term"), subject to earlier termination as provided in
paragraphs 8 and 12(b) below, an option to purchase from the Company, at the
price per share set forth on Schedule 1 hereto (the "TCOMA Option Price"), the
number of shares of Series A TCI Group Common Stock ("TCOMA") set forth on said
Schedule 1 (the "TCOMA Option Shares"). The TCOMA Option Price and TCOMA
Option Shares are subject to adjustment pursuant to paragraph 12 below. This
option is as a "Nonqualified Stock Option" and is hereinafter referred to as
the "TCOMA Option."
-1-
<PAGE> 2
2. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions herein and in tandem with the TCOMA Option, the Grantee shall also
have, during the Option Term, subject to earlier termination as provided in
paragraphs 8 and 12(b) below, a stock appreciation right with respect to each
TCOMA Option Share (individually, a "TCOMA Tandem SAR" and collectively, the
"TCOMA Tandem SARs"). Upon exercise of a TCOMA Tandem SAR in accordance with
this Agreement, the Company shall, subject to paragraph 6 below, make payment
as follows:
(a) the amount of payment shall equal the amount, if any,
by which the Fair Market Value of the TCOMA Option Share on the date
of exercise exceeds the TCOMA Option Price; and
(b) payment of the amount determined in accordance with
clause (i) shall be made in shares of TCOMA (valued at their Fair
Market Value as of the date of exercise of such TCOMA Tandem SAR), or,
in the sole discretion of the Compensation Committee of the Board of
Directors of the Company (the "Committee"), in cash, or partly in cash
and partly in shares of TCOMA.
3. REDUCTION UPON EXERCISE. The exercise of any number of TCOMA
Tandem SARs shall cause a corresponding reduction in the number of TCOMA Option
Shares which shall apply against the TCOMA Option Shares then available for
purchase. The exercise of the TCOMA Option to purchase any number of TCOMA
Option Shares shall cause a corresponding reduction in the number of TCOMA
Tandem SARs.
4. CONDITIONS OF EXERCISE. Unless otherwise determined by the
Committee in its sole discretion, the TCOMA Option and TCOMA Tandem SARs are
exercisable only in accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in paragraph 12(b) below
or in the last sentence of this subparagraph (a), the TCOMA Option
shall not be exercisable until July 23, 1998 and the TCOMA Option may
only be exercised to the extent the TCOMA Option Shares have become
available for purchase in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of TCOMA Option
Date Shares Available for Purchase
---------- -------------------------------
<S> <C>
July 23, 1998 20%
July 23, 1999 40%
July 23, 2000 60%
July 23, 2001 80%
July 23, 2002 100%
</TABLE>
-2-
<PAGE> 3
Notwithstanding the foregoing, all TCOMA Option Shares shall become
available for purchase on the date of Grantee's termination of
employment if (i) Grantee's employment with the Company and its
Subsidiaries shall terminate by reason of Disability or good reason
(as defined herein) or (ii) Grantee dies while employed by the Company
or a Subsidiary.
(b) A TCOMA Tandem SAR with respect to an TCOMA Option
Share shall be exercisable only if the TCOMA Option Share is then
available for purchase in accordance with subparagraph (a).
(c) To the extent the TCOMA Option or TCOMA Tandem SARs
become exercisable, such TCOMA Option or TCOMA Tandem SARs may be
exercised in whole or in part (at any time or from time to time,
except as otherwise provided herein) until expiration of the Option
Term or earlier termination thereof.
(d) Grantee acknowledges and agrees that the Committee
may, in its discretion and as contemplated by Section 7.5 of the Plan,
adopt rules and regulations from time to time after the date hereof
with respect to the exercise of TCOMA Tandem SARs and that the
exercise by Grantee of the TCOMA Tandem SARs will be subject to the
further condition that such exercise is made in accordance with all
such rules and regulations as the Committee may determine are
applicable thereto.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without the Grantee's consent, to a location outside of the
Denver and Boulder-Longmont Primary Metropolitan Statistical Areas (as so
designated on the Grant Date), but only if Grantee's office location on the
date of grant is in either such area.
5. MANNER OF EXERCISE. The TCOMA Option or a TCOMA Tandem SAR
shall be considered exercised (as to the number of TCOMA Option Shares or TCOMA
Tandem SARs specified in the notice referred to in subparagraph (a) below) on
the latest of (i) the date of exercise designated in the written notice
referred to in subparagraph (a) below, (ii) if the date so designated is not a
business day, the first business day following such date or (iii) the earliest
business day by which the Company has received all of the following:
(a) Written notice, in such form as the Committee may
require, designating, among other things, the date of exercise, the
number of TCOMA Option Shares to be purchased and/or the number of
TCOMA Tandem SARs to be exercised;
(b) If the TCOMA Option is to be exercised, payment of
the TCOMA Option Price for each TCOMA Option Share to be purchased in
cash or in such other form, or combination of forms, of payment
contemplated by Section 6.6(a) of the Plan as the Committee may
permit; provided, however, that any shares of TCOMA (or, if
applicable, shares of Series B TCI Group Common Stock ("TCOMB"))
delivered in payment of the
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<PAGE> 4
TCOMA Option Price, if such form of payment is so permitted by the
Committee, shall be shares that the Grantee has owned for a period of
at least six months prior to the date of exercise, and provided,
further, that, notwithstanding clause (v) of Section 6.6(a) of the
Plan, TCOMA Option Shares may not be withheld in payment or partial
payment of the TCOMA Option Price; and
(c) Any other documentation that the Committee may
reasonably require.
6. MANDATORY WITHHOLDING FOR TAXES. Grantee acknowledges and
agrees that the Company shall deduct from the cash and/or shares of TCOMA
otherwise payable or deliverable upon exercise of the TCOMA Option or a TCOMA
Tandem SAR an amount of cash and/or number of shares of TCOMA (valued at their
Fair Market Value on the date of exercise) that is equal to the amount of all
federal, state and local taxes required to be withheld by the Company upon such
exercise, as determined by the Committee.
7. DELIVERY BY THE COMPANY. As soon as practicable after receipt
of all items referred to in paragraph 5, and subject to the withholding
referred to in paragraph 6, the Company shall deliver to the Grantee
certificates issued in Grantee's name for the number of shares of TCOMA
purchased by exercise of the TCOMA Option and for the number of shares of TCOMA
to which the Grantee is entitled by the exercise of TCOMA Tandem SARs and any
cash payment to which the Grantee is entitled by the exercise of TCOMA Tandem
SARs. If delivery is by mail, delivery of shares of TCOMA shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment shall be deemed effected when a Company check, payable to
Grantee and in an amount equal to the amount of the cash payment, shall have
been deposited in the United States mail, addressed to the Grantee.
8. EARLY TERMINATION OF OPTION AND TANDEM SARS. Unless otherwise
determined by the Committee in its sole discretion, the TCOMA Option and TCOMA
Tandem SARs shall terminate, prior to the expiration of the Option Term, at the
time specified below:
(a) Subject to paragraph 8(b), if Grantee's employment
with the Company and its Subsidiaries terminates other than (i) by the
Company for "cause" (as defined in Section 11.2(b) of the Plan) or
(ii) by reason of death or Disability, then the TCOMA Option and all
TCOMA Tandem SARs shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period which
began on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or a
Subsidiary, or prior to the expiration of a period of time following
termination of Grantee's employment during which the TCOMA Option and
TCOMA Tandem SARs remain exercisable as provided in paragraph (a), the
TCOMA Option and all TCOMA Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period which began on the date of death;
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<PAGE> 5
(c) Subject to paragraph 8(b), if Grantee's employment
with the Company and its Subsidiaries terminates by reason of
Disability, then the TCOMA Option and all TCOMA Tandem SARs shall
terminate at the Close of Business on the first business day following
the expiration of the one-year period which began on the date of
termination of Grantee's employment;
(d) If Grantee's employment with the Company and its
Subsidiaries is terminated by the Company for "cause" (as defined in
Section 11.2(b) of the Plan), then the TCOMA Option and all TCOMA
Tandem SARs shall terminate immediately upon such termination of
Grantee's employment.
In any event in which the TCOMA Option and TCOMA Tandem SARs
remain exercisable for a period of time following the date of termination of
Grantee's employment as provided above, the TCOMA Option and TCOMA Tandem SARs
may be exercised during such period of time only to the extent the same were
exercisable as provided in paragraph 4 above on such date of termination of
Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 8 provided that, after giving
effect to such change, the Grantee continues to be an employee of the Company
or any Subsidiary. Notwithstanding any period of time referenced in this
paragraph 8 or any other provision of this paragraph that may be construed to
the contrary, the TCOMA Option and all TCOMA Tandem SARs shall in any event
terminate upon the expiration of the Option Term.
9. AUTOMATIC EXERCISE OF TCOMA TANDEM SARS. Immediately prior to
the termination of the TCOMA Option, as provided in paragraph 8 above, or the
expiration of the Option Term, all remaining TCOMA Tandem SARs shall be deemed
to have been exercised by the Grantee.
10. NONTRANSFERABILITY OF TCOMA OPTION AND TCOMA TANDEM SARS.
During Grantee's lifetime, the TCOMA Option and TCOMA Tandem SARs are not
transferable (voluntarily or involuntarily) other than pursuant to a domestic
relations order and, except as otherwise required pursuant to a domestic
relations order, are exercisable only by the Grantee or Grantee's court
appointed legal representative. The Grantee may designate a beneficiary or
beneficiaries to whom the TCOMA Option and TCOMA Tandem SARs shall pass upon
Grantee's death and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Committee on the
form annexed hereto as Exhibit B or such other form as may be prescribed by the
Committee, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive the Grantee's death, the TCOMA Option
and TCOMA Tandem SARs shall pass by will or the laws of descent and
distribution. Following Grantee's death, the TCOMA Option and any TCOMA Tandem
SARs, if otherwise exercisable, may be exercised by the person to whom such
option or right passes accordingly to the foregoing and such person shall be
deemed the Grantee for purposes of any applicable provisions of this Agreement.
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<PAGE> 6
11. NO SHAREHOLDER RIGHTS. The Grantee shall not be deemed for
any purpose to be, or to have any of the rights of, a stockholder of the
Company with respect to any shares of TCOMA as to which this Agreement relates
until such shares shall have been issued to Grantee by the Company.
Furthermore, the existence of this Agreement shall not affect in any way the
right or power of the Company or its stockholders to accomplish any corporate
act, including, without limitation, the acts referred to in Section 11.18 of
the Plan.
12. ADJUSTMENTS.
(a) The TCOMA Option and TCOMA Tandem SARs shall be
subject to adjustment (including, without limitation, as to the number
of TCOMA Option Shares and the TCOMA Option Price per share) in the
sole discretion of the Committee and in such manner as the Committee
may deem equitable and appropriate in connection with the occurrence
of any of the events described in Section 4.2 of the Plan following
the Grant Date.
(b) In the event of any Approved Transaction, Board
Change or Control Purchase, the TCOMA Option and all TCOMA Tandem SARs
shall become exercisable in full without regard to paragraph 4(a);
provided, however, that to the extent not theretofore exercised the
TCOMA Option and all TCOMA Tandem SARs shall terminate upon the first
to occur of the consummation of the Approved Transaction, the
expiration of the TCOMA Option Term or the earlier termination of the
TCOMA Option and TCOMA Tandem SARs pursuant to paragraph 8 hereof.
Notwithstanding the foregoing, the Committee may, in its discretion,
determine that the TCOMA Option and TCOMA Tandem SARs will not become
exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to
consummation of the Approved Transaction, if the Board or the
surviving or acquiring corporation, as the case may be, shall have
taken or made effective provision for the taking of such action as in
the opinion of the Committee is equitable and appropriate to
substitute a new Award for the Award evidenced by this Agreement or to
assume this Agreement and the Award evidenced hereby and in order to
make such new or assumed Award, as nearly as may be practicable,
equivalent to the Award evidenced by this Agreement as then in effect
(but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Committee), taking into
account, to the extent applicable, the kind and amount of securities,
cash or other assets into or for which the TCOMA may be changed,
converted or exchanged in connection with the Approved Transaction.
13. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality
of Section 11.9 of the Plan, the Grantee agrees that Grantee will not exercise
the TCOMA Option or any TCOMA Tandem SAR and that the Company will not be
obligated to deliver any shares of TCOMA or make any cash payment, if counsel
to the Company determines that such exercise, delivery or payment would violate
any applicable law or any rule or regulation of any governmental authority or
any rule or regulation of, or agreement of the Company with, any
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<PAGE> 7
securities exchange or association upon which the TCOMA is listed or quoted.
The Company shall in no event be obligated to take any affirmative action in
order to cause the exercise of the TCOMA Option or any TCOMA Tandem SAR or the
resulting delivery of shares of TCOMA or other payment to comply with any such
law, rule, regulation or agreement.
14. NOTICE. Unless the Company notifies the Grantee in writing of
a different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and
addressed as follows:
Tele-Communications, Inc.
c/o General Counsel, Tele-Communications,
Inc.
P.O. Box 5630
Denver, Colorado 80217
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by
first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Grant Date, unless the Company has received
written notification from the Grantee of a change of address.
15. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 11.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee,
(a) this Agreement may be amended or supplemented (i) to
cure any ambiguity or to correct or supplement any provision herein
which may be defective or inconsistent with any other provision
herein, or (ii) to add to the covenants and agreements of the Company
for the benefit of Grantee or surrender any right or power reserved to
or conferred upon the Company in this Agreement, subject, however, to
any required approval of the Company's stockholders and, provided, in
each case, that such changes or corrections shall not adversely affect
the rights of Grantee with respect to the Award evidenced hereby, or
(iii) to make such other changes as the Company, upon advice of
counsel, determines are necessary or advisable because of the adoption
or promulgation of, or change in or of the interpretation of, any law
or governmental rule or regulation, including any applicable federal
or state securities laws; and
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<PAGE> 8
(b) subject to Section 11.8(b) of the Plan and any
required approval of the Company's stockholders, the Award evidenced
by this Agreement may be canceled by the Committee and a new Award
made in substitution therefor, provided that the Award so substituted
shall satisfy all of the requirements of the Plan as of the date such
new Award is made and no such action shall adversely affect the TCOMA
Option or any TCOMA Tandem SAR to the extent then exercisable.
16. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and
no action of the Company or the Committee with respect hereto, shall confer or
be construed to confer on the Grantee any right to continue in the employ of
the Company or any of its Subsidiaries or interfere in any way with the right
of the Company or any employing Subsidiary to terminate the Grantee's
employment at any time, with or without cause; subject, however, to the
provisions of any employment agreement between the Grantee and the Company or
any Subsidiary.
17. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
18. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
include all Exhibits and Schedules appended hereto, including the Plan. This
Agreement is entered into, and the Award evidenced hereby is granted, pursuant
to the Plan and shall be governed by and construed in accordance with the Plan
and the administrative interpretations adopted by the Committee thereunder.
All decisions of the Committee upon questions regarding the Plan or this
Agreement shall be conclusive. Unless otherwise expressly stated herein, in
the event of any inconsistency between the terms of the Plan and this
Agreement, the terms of the Plan shall control. The headings of the paragraphs
of this Agreement have been included for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms or provisions hereof.
19. DUPLICATE ORIGINALS. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
20. RULES BY COMMITTEE. The rights of the Grantee and obligations
of the Company hereunder shall be subject to such reasonable rules and
regulations as the Committee may adopt from time to time hereafter.
21. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee regarding the subject matter hereof. Grantee and the
Company hereby declare and represent that no promise or agreement not herein
expressed has been made and that this Agreement contains the entire agreement
between the parties hereto with respect to the TCOMA Options and TCOMA Tandem
SARs and replaces and makes null and void any prior agreements between Grantee
and the Company regarding the TCOMA Options.
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<PAGE> 9
22. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the
terms and conditions of this Agreement by signing in the space provided at the
end hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS, INC.
By:
------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
ACCEPTED:
----------------------------------------
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<PAGE> 10
Schedule 1 to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Option Price: $_____ per share
Option Shares: __________ shares of Series A TCI Group Common Stock
("TCOMA"), $_____ par value per share.
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<PAGE> 11
Exhibit B to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of _____________________________________________________________,
Street Address City State Zip Code
who is my _________________________________________________, shall be entitled
Relationship to Grantee
to the TCOMA Option, TCOMA Tandem SARs and all other rights accorded the Grantee
by the above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the
laws of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ---------------------------------- -------------------------------------------
Date Grantee
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<PAGE> 1
EXHIBIT 10.39
1996 PLAN
TCIVA NQSO/SAR
7/23/97 GRANT
TELE-COMMUNICATIONS, INC.
1996 INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AND
STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of July,
1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and the person signing adjacent to the caption
"Grantee" on the signature page hereof (the "Grantee").
The Company has adopted the Tele-Communications, Inc. 1996
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees of the Company and its Subsidiaries. Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to grant the options and rights provided herein in order to provide
Grantee with additional remuneration for services rendered, to encourage Grantee
to remain in the employ of the Company or its Subsidiaries and to increase
Grantee's personal interest in the continued success and progress of the
Company.
The Company and Grantee therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions herein, the
Company grants to the Grantee during the period commencing on July 23, 1997 and
expiring at 5:00 p.m., Denver, Colorado time ("Close of Business") on July 23,
2007 (the "Option Term"), subject to earlier termination as provided in
paragraphs 8 and 12(b) below, an option to purchase from the Company, at the
price per share set forth on Schedule 1 hereto (the "TCIVA Option Price"), the
number of shares of Series A TCI Ventures Group Common Stock ("TCIVA") set forth
on said Schedule 1 (the "TCIVA Option Shares"). The TCIVA Option Price and TCIVA
Option Shares are subject to adjustment pursuant to paragraph 12 below. This
option is as a "Nonqualified Stock Option" and is hereinafter referred to as the
"TCIVA Option."
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<PAGE> 2
2. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions herein and in tandem with the TCIVA Option, the Grantee shall also
have, during the Option Term, subject to earlier termination as provided in
paragraphs 8 and 12(b) below, a stock appreciation right with respect to each
TCIVA Option Share (individually, a "TCIVA Tandem SAR" and collectively, the
"TCIVA Tandem SARs"). Upon exercise of a TCIVA Tandem SAR in accordance with
this Agreement, the Company shall, subject to paragraph 6 below, make payment as
follows:
(a) the amount of payment shall equal the amount, if any, by
which the Fair Market Value of the TCIVA Option Share on the date of
exercise exceeds the TCIVA Option Price; and
(b) payment of the amount determined in accordance with clause
(i) shall be made in shares of TCIVA (valued at their Fair Market Value
as of the date of exercise of such TCIVA Tandem SAR), or, in the sole
discretion of the Compensation Committee of the Board of Directors of
the Company (the "Committee"), in cash, or partly in cash and partly in
shares of TCIVA.
3. REDUCTION UPON EXERCISE. The exercise of any number of TCIVA
Tandem SARs shall cause a corresponding reduction in the number of TCIVA Option
Shares which shall apply against the TCIVA Option Shares then available for
purchase. The exercise of the TCIVA Option to purchase any number of TCIVA
Option Shares shall cause a corresponding reduction in the number of TCIVA
Tandem SARs.
4. CONDITIONS OF EXERCISE. Unless otherwise determined by the
Committee in its sole discretion, the TCIVA Option and TCIVA Tandem SARs are
exercisable only in accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in paragraph 12(b) below or in
the last sentence of this subparagraph (a), the TCIVA Option shall not
be exercisable until July 23, 1998 and the TCIVA Option may only be
exercised to the extent the TCIVA Option Shares have become available
for purchase in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of TCIVA Option
Date Shares Available for Purchase
---- -----------------------------
<S> <C>
July 23, 1998 20%
July 23, 1999 40%
July 23, 2000 60%
July 23, 2001 80%
July 23, 2002 100%
</TABLE>
Notwithstanding the foregoing, all TCIVA Option Shares shall become
available for purchase on the date of Grantee's termination of
employment if (i) Grantee's employment
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<PAGE> 3
with the Company and its Subsidiaries shall terminate by reason of
Disability or good reason (as defined herein) or (ii) Grantee dies
while employed by the Company or a Subsidiary.
(b) A TCIVA Tandem SAR with respect to an TCIVA Option Share
shall be exercisable only if the TCIVA Option Share is then available
for purchase in accordance with subparagraph (a).
(c) To the extent the TCIVA Option or TCIVA Tandem SARs become
exercisable, such TCIVA Option or TCIVA Tandem SARs may be exercised in
whole or in part (at any time or from time to time, except as otherwise
provided herein) until expiration of the Option Term or earlier
termination thereof.
(d) Grantee acknowledges and agrees that the Committee may, in
its discretion and as contemplated by Section 7.5 of the Plan, adopt
rules and regulations from time to time after the date hereof with
respect to the exercise of TCIVA Tandem SARs and that the exercise by
Grantee of the TCIVA Tandem SARs will be subject to the further
condition that such exercise is made in accordance with all such rules
and regulations as the Committee may determine are applicable thereto.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without the Grantee's consent, to a location outside of the
Denver and Boulder-Longmont Primary Metropolitan Statistical Areas (as so
designated on the Grant Date), but only if Grantee's office location on the date
of grant is in either such area.
5. MANNER OF EXERCISE. The TCIVA Option or a TCIVA Tandem SAR shall
be considered exercised (as to the number of TCIVA Option Shares or TCIVA Tandem
SARs specified in the notice referred to in subparagraph (a) below) on the
latest of (i) the date of exercise designated in the written notice referred to
in subparagraph (a) below, (ii) if the date so designated is not a business day,
the first business day following such date or (iii) the earliest business day by
which the Company has received all of the following:
(a) Written notice, in such form as the Committee may require,
designating, among other things, the date of exercise, the number of
TCIVA Option Shares to be purchased and/or the number of TCIVA Tandem
SARs to be exercised;
(b) If the TCIVA Option is to be exercised, payment of the TCIVA
Option Price for each TCIVA Option Share to be purchased in cash or in
such other form, or combination of forms, of payment contemplated by
Section 6.6(a) of the Plan as the Committee may permit; provided,
however, that any shares of TCIVA (or, if applicable, shares of Series
B TCI Ventures Group Common Stock ("TCIVB")) delivered in payment of
the TCIVA Option Price, if such form of payment is so permitted by the
Committee, shall be shares that the Grantee has owned for a period of
at least six months prior to the
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<PAGE> 4
date of exercise, and provided, further, that, notwithstanding clause
(v) of Section 6.6(a) of the Plan, TCIVA Option Shares may not be
withheld in payment or partial payment of the TCIVA Option Price; and
(c) Any other documentation that the Committee may reasonably
require.
6. MANDATORY WITHHOLDING FOR TAXES. Grantee acknowledges and agrees
that the Company shall deduct from the cash and/or shares of TCIVA otherwise
payable or deliverable upon exercise of the TCIVA Option or a TCIVA Tandem SAR
an amount of cash and/or number of shares of TCIVA (valued at their Fair Market
Value on the date of exercise) that is equal to the amount of all federal, state
and local taxes required to be withheld by the Company upon such exercise, as
determined by the Committee.
7. DELIVERY BY THE COMPANY. As soon as practicable after receipt of
all items referred to in paragraph 5, and subject to the withholding referred to
in paragraph 6, the Company shall deliver to the Grantee certificates issued in
Grantee's name for the number of shares of TCIVA purchased by exercise of the
TCIVA Option and for the number of shares of TCIVA to which the Grantee is
entitled by the exercise of TCIVA Tandem SARs and any cash payment to which the
Grantee is entitled by the exercise of TCIVA Tandem SARs. If delivery is by
mail, delivery of shares of TCIVA shall be deemed effected for all purposes when
a stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to the Grantee, and any cash payment shall be
deemed effected when a Company check, payable to Grantee and in an amount equal
to the amount of the cash payment, shall have been deposited in the United
States mail, addressed to the Grantee.
8. EARLY TERMINATION OF OPTION AND TANDEM SARS. Unless otherwise
determined by the Committee in its sole discretion, the TCIVA Option and TCIVA
Tandem SARs shall terminate, prior to the expiration of the Option Term, at the
time specified below:
(a) Subject to paragraph 8(b), if Grantee's employment with the
Company and its Subsidiaries terminates other than (i) by the Company
for "cause" (as defined in Section 11.2(b) of the Plan) or (ii) by
reason of death or Disability, then the TCIVA Option and all TCIVA
Tandem SARs shall terminate at the Close of Business on the first
business day following the expiration of the 90-day period which began
on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or a
Subsidiary, or prior to the expiration of a period of time following
termination of Grantee's employment during which the TCIVA Option and
TCIVA Tandem SARs remain exercisable as provided in paragraph (a), the
TCIVA Option and all TCIVA Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period which began on the date of death;
-4-
<PAGE> 5
(c) Subject to paragraph 8(b), if Grantee's employment with
the Company and its Subsidiaries terminates by reason of Disability,
then the TCIVA Option and all TCIVA Tandem SARs shall terminate at the
Close of Business on the first business day following the expiration of
the one-year period which began on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the Company and its
Subsidiaries is terminated by the Company for "cause" (as defined in
Section 11.2(b) of the Plan), then the TCIVA Option and all TCIVA
Tandem SARs shall terminate immediately upon such termination of
Grantee's employment.
In any event in which the TCIVA Option and TCIVA Tandem SARs
remain exercisable for a period of time following the date of termination of
Grantee's employment as provided above, the TCIVA Option and TCIVA Tandem SARs
may be exercised during such period of time only to the extent the same were
exercisable as provided in paragraph 4 above on such date of termination of
Grantee's employment. A change of employment is not a termination of employment
within the meaning of this paragraph 8 provided that, after giving effect to
such change, the Grantee continues to be an employee of the Company or any
Subsidiary. Notwithstanding any period of time referenced in this paragraph 8 or
any other provision of this paragraph that may be construed to the contrary, the
TCIVA Option and all TCIVA Tandem SARs shall in any event terminate upon the
expiration of the Option Term.
9. AUTOMATIC EXERCISE OF TCIVA TANDEM SARS. Immediately prior to the
termination of the TCIVA Option, as provided in paragraph 8 above, or the
expiration of the Option Term, all remaining TCIVA Tandem SARs shall be deemed
to have been exercised by the Grantee.
10. NONTRANSFERABILITY OF TCIVA OPTION AND TCIVA TANDEM SARS. During
Grantee's lifetime, the TCIVA Option and TCIVA Tandem SARs are not transferable
(voluntarily or involuntarily) other than pursuant to a domestic relations order
and, except as otherwise required pursuant to a domestic relations order, are
exercisable only by the Grantee or Grantee's court appointed legal
representative. The Grantee may designate a beneficiary or beneficiaries to whom
the TCIVA Option and TCIVA Tandem SARs shall pass upon Grantee's death and may
change such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form annexed hereto as
Exhibit B or such other form as may be prescribed by the Committee, provided
that no such designation shall be effective unless so filed prior to the death
of Grantee. If no such designation is made or if the designated beneficiary does
not survive the Grantee's death, the TCIVA Option and TCIVA Tandem SARs shall
pass by will or the laws of descent and distribution. Following Grantee's death,
the TCIVA Option and any TCIVA Tandem SARs, if otherwise exercisable, may be
exercised by the person to whom such option or right passes accordingly to the
foregoing and such person shall be deemed the Grantee for purposes of any
applicable provisions of this Agreement.
-5-
<PAGE> 6
11. NO SHAREHOLDER RIGHTS. The Grantee shall not be deemed for any
purpose to be, or to have any of the rights of, a stockholder of the Company
with respect to any shares of TCIVA as to which this Agreement relates until
such shares shall have been issued to Grantee by the Company. Furthermore, the
existence of this Agreement shall not affect in any way the right or power of
the Company or its stockholders to accomplish any corporate act, including,
without limitation, the acts referred to in Section 11.18 of the Plan.
12. ADJUSTMENTS.
(a) The TCIVA Option and TCIVA Tandem SARs shall be subject to
adjustment (including, without limitation, as to the number of TCIVA
Option Shares and the TCIVA Option Price per share) in the sole
discretion of the Committee and in such manner as the Committee may
deem equitable and appropriate in connection with the occurrence of any
of the events described in Section 4.2 of the Plan following the Grant
Date.
(b) In the event of any Approved Transaction, Board Change or
Control Purchase, the TCIVA Option and all TCIVA Tandem SARs shall
become exercisable in full without regard to paragraph 4(a); provided,
however, that to the extent not theretofore exercised the TCIVA Option
and all TCIVA Tandem SARs shall terminate upon the first to occur of
the consummation of the Approved Transaction, the expiration of the
TCIVA Option Term or the earlier termination of the TCIVA Option and
TCIVA Tandem SARs pursuant to paragraph 8 hereof. Notwithstanding the
foregoing, the Committee may, in its discretion, determine that the
TCIVA Option and TCIVA Tandem SARs will not become exercisable on an
accelerated basis in connection with an Approved Transaction and/or
will not terminate if not exercised prior to consummation of the
Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall have taken or made effective
provision for the taking of such action as in the opinion of the
Committee is equitable and appropriate to substitute a new Award for
the Award evidenced by this Agreement or to assume this Agreement and
the Award evidenced hereby and in order to make such new or assumed
Award, as nearly as may be practicable, equivalent to the Award
evidenced by this Agreement as then in effect (but before giving effect
to any acceleration of the exercisability hereof unless otherwise
determined by the Committee), taking into account, to the extent
applicable, the kind and amount of securities, cash or other assets
into or for which the TCIVA may be changed, converted or exchanged in
connection with the Approved Transaction.
13. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality of
Section 11.9 of the Plan, the Grantee agrees that Grantee will not exercise the
TCIVA Option or any TCIVA Tandem SAR and that the Company will not be obligated
to deliver any shares of TCIVA or make any cash payment, if counsel to the
Company determines that such exercise, delivery or payment would violate any
applicable law or any rule or regulation of any governmental authority or any
rule or regulation of, or agreement of the Company with, any securities exchange
or association upon which the TCIVA is listed or quoted. The Company shall in no
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<PAGE> 7
event be obligated to take any affirmative action in order to cause the exercise
of the TCIVA Option or any TCIVA Tandem SAR or the resulting delivery of shares
of TCIVA or other payment to comply with any such law, rule, regulation or
agreement.
14. NOTICE. Unless the Company notifies the Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and addressed as
follows:
Tele-Communications, Inc.
c/o General Counsel,
Tele-Communications, Inc.
P.O. Box 5630
Denver, Colorado 80217
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by first
class mail, postage prepaid, to Grantee's address as listed in the records of
the Company on the Grant Date, unless the Company has received written
notification from the Grantee of a change of address.
15. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 11.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee,
(a) this Agreement may be amended or supplemented (i) to cure any
ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein, or (ii) to
add to the covenants and agreements of the Company for the benefit of
Grantee or surrender any right or power reserved to or conferred upon
the Company in this Agreement, subject, however, to any required
approval of the Company's stockholders and, provided, in each case,
that such changes or corrections shall not adversely affect the rights
of Grantee with respect to the Award evidenced hereby, or (iii) to make
such other changes as the Company, upon advice of counsel, determines
are necessary or advisable because of the adoption or promulgation of,
or change in or of the interpretation of, any law or governmental rule
or regulation, including any applicable federal or state securities
laws; and
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<PAGE> 8
(b) subject to Section 11.8(b) of the Plan and any required
approval of the Company's stockholders, the Award evidenced by this
Agreement may be canceled by the Committee and a new Award made in
substitution therefor, provided that the Award so substituted shall
satisfy all of the requirements of the Plan as of the date such new
Award is made and no such action shall adversely affect the TCIVA
Option or any TCIVA Tandem SAR to the extent then exercisable.
16. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and no
action of the Company or the Committee with respect hereto, shall confer or be
construed to confer on the Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of the
Company or any employing Subsidiary to terminate the Grantee's employment at any
time, with or without cause; subject, however, to the provisions of any
employment agreement between the Grantee and the Company or any Subsidiary.
17. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
18. CONSTRUCTION. References in this Agreement to "this Agreement"
and the words "herein," "hereof," "hereunder" and similar terms include all
Exhibits and Schedules appended hereto, including the Plan. This Agreement is
entered into, and the Award evidenced hereby is granted, pursuant to the Plan
and shall be governed by and construed in accordance with the Plan and the
administrative interpretations adopted by the Committee thereunder. All
decisions of the Committee upon questions regarding the Plan or this Agreement
shall be conclusive. Unless otherwise expressly stated herein, in the event of
any inconsistency between the terms of the Plan and this Agreement, the terms of
the Plan shall control. The headings of the paragraphs of this Agreement have
been included for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
19. DUPLICATE ORIGINALS. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
20. RULES BY COMMITTEE. The rights of the Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Committee may adopt from time to time hereafter.
21. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee regarding the subject matter hereof. Grantee and the Company
hereby declare and represent that no promise or agreement not herein expressed
has been made and that this Agreement contains the entire agreement between the
parties hereto with respect to the TCIVA Options and TCIVA Tandem SARs and
replaces and makes null and void any prior agreements between Grantee and the
Company regarding the TCIVA Options.
-8-
<PAGE> 9
22. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided at the end
hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS, INC.
By:
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
ACCEPTED:
---------------------------------------
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<PAGE> 10
Schedule 1 to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Option Price: $_____ per share
Option Shares: __________ shares of Series A TCI Ventures Group
Common Stock ("TCIVA"), $_____ par value per share.
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<PAGE> 11
Exhibit B to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ____________________________________ (the "Grantee"), hereby declare
that upon my death _____________________________________ (the "Beneficiary") of
Name
_______________________________________________________________________________,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
TCIVA Option, TCIVA Tandem SARs and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the laws
of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ------------------------------- ------------------------------
Date Grantee
-11-
<PAGE> 1
EXHIBIT 10.40
1996 PLAN
LBTYA NQSO/SAR
7/23/97 GRANT
TELE-COMMUNICATIONS, INC.
1996 INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AND
STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of
July, 1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), and the person signing adjacent to the
caption "Grantee" on the signature page hereof (the "Grantee").
The Company has adopted the Tele-Communications, Inc. 1996
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees of the Company and its Subsidiaries. Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to grant the options and rights provided herein in order to
provide Grantee with additional remuneration for services rendered, to
encourage Grantee to remain in the employ of the Company or its Subsidiaries
and to increase Grantee's personal interest in the continued success and
progress of the Company.
The Company and Grantee therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions herein,
the Company grants to the Grantee during the period commencing on July 23, 1997
and expiring at 5:00 p.m., Denver, Colorado time ("Close of Business") on July
23, 2007 (the "Option Term"), subject to earlier termination as provided in
paragraphs 8 and 12(b) below, an option to purchase from the Company, at the
price per share set forth on Schedule 1 hereto (the "LBTYA Option Price"), the
number of shares of Series A Liberty Media Group Common Stock ("LBTYA") set
forth on said Schedule 1 (the "LBTYA Option Shares"). The LBTYA Option Price
and LBTYA Option Shares are subject to adjustment pursuant to paragraph 12
below. This option is as a "Nonqualified Stock Option" and is hereinafter
referred to as the "LBTYA Option."
-1-
<PAGE> 2
2. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions herein and in tandem with the LBTYA Option, the Grantee shall also
have, during the Option Term, subject to earlier termination as provided in
paragraphs 8 and 12(b) below, a stock appreciation right with respect to each
LBTYA Option Share (individually, a "LBTYA Tandem SAR" and collectively, the
"LBTYA Tandem SARs"). Upon exercise of a LBTYA Tandem SAR in accordance with
this Agreement, the Company shall, subject to paragraph 6 below, make payment
as follows:
(a) the amount of payment shall equal the amount, if any,
by which the Fair Market Value of the LBTYA Option Share on the date
of exercise exceeds the LBTYA Option Price; and
(b) payment of the amount determined in accordance with
clause (i) shall be made in shares of LBTYA (valued at their Fair
Market Value as of the date of exercise of such LBTYA Tandem SAR), or,
in the sole discretion of the Compensation Committee of the Board of
Directors of the Company (the "Committee"), in cash, or partly in cash
and partly in shares of LBTYA.
3. REDUCTION UPON EXERCISE. The exercise of any number of LBTYA
Tandem SARs shall cause a corresponding reduction in the number of LBTYA Option
Shares which shall apply against the LBTYA Option Shares then available for
purchase. The exercise of the LBTYA Option to purchase any number of LBTYA
Option Shares shall cause a corresponding reduction in the number of LBTYA
Tandem SARs.
4. CONDITIONS OF EXERCISE. Unless otherwise determined by the
Committee in its sole discretion, the LBTYA Option and LBTYA Tandem SARs are
exercisable only in accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in paragraph 12(b) below
or in the last sentence of this subparagraph (a), the LBTYA Option
shall not be exercisable until July 23, 1998 and the LBTYA Option may
only be exercised to the extent the LBTYA Option Shares have become
available for purchase in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of LBTYA Option
Date Shares Available for Purchase
------------- -----------------------------
<S> <C>
July 23, 1998 20%
July 23, 1999 40%
July 23, 2000 60%
July 23, 2001 80%
July 23, 2002 100%
</TABLE>
Notwithstanding the foregoing, all LBTYA Option Shares shall become
available for purchase on the date of Grantee's termination of
employment if (i) Grantee's employment
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<PAGE> 3
with the Company and its Subsidiaries shall terminate by reason of
Disability or good reason (as defined herein) or (ii) Grantee dies
while employed by the Company or a Subsidiary.
(b) A LBTYA Tandem SAR with respect to an LBTYA Option
Share shall be exercisable only if the LBTYA Option Share is then
available for purchase in accordance with subparagraph (a).
(c) To the extent the LBTYA Option or LBTYA Tandem SARs
become exercisable, such LBTYA Option or LBTYA Tandem SARs may be
exercised in whole or in part (at any time or from time to time,
except as otherwise provided herein) until expiration of the Option
Term or earlier termination thereof.
(d) Grantee acknowledges and agrees that the Committee
may, in its discretion and as contemplated by Section 7.5 of the Plan,
adopt rules and regulations from time to time after the date hereof
with respect to the exercise of LBTYA Tandem SARs and that the
exercise by Grantee of the LBTYA Tandem SARs will be subject to the
further condition that such exercise is made in accordance with all
such rules and regulations as the Committee may determine are
applicable thereto.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without the Grantee's consent, to a location outside of the
Denver and Boulder-Longmont Primary Metropolitan Statistical Areas (as so
designated on the Grant Date), but only if Grantee's office location on the
date of grant is in either such area.
5. MANNER OF EXERCISE. The LBTYA Option or a LBTYA Tandem SAR
shall be considered exercised (as to the number of LBTYA Option Shares or LBTYA
Tandem SARs specified in the notice referred to in subparagraph (a) below) on
the latest of (i) the date of exercise designated in the written notice
referred to in subparagraph (a) below, (ii) if the date so designated is not a
business day, the first business day following such date or (iii) the earliest
business day by which the Company has received all of the following:
(a) Written notice, in such form as the Committee may
require, designating, among other things, the date of exercise, the
number of LBTYA Option Shares to be purchased and/or the number of
LBTYA Tandem SARs to be exercised;
(b) If the LBTYA Option is to be exercised, payment of
the LBTYA Option Price for each LBTYA Option Share to be purchased in
cash or in such other form, or combination of forms, of payment
contemplated by Section 6.6(a) of the Plan as the Committee may
permit; provided, however, that any shares of LBTYA (or, if
applicable, shares of Series B Liberty Media Group Common Stock
("LBTYB")) delivered in payment of the LBTYA Option Price, if such
form of payment is so permitted by the Committee, shall be shares that
the Grantee has owned for a period of at least six months
-3-
<PAGE> 4
prior to the date of exercise, and provided, further, that,
notwithstanding clause (v) of Section 6.6(a) of the Plan, LBTYA Option
Shares may not be withheld in payment or partial payment of the LBTYA
Option Price; and
(c) Any other documentation that the Committee may
reasonably require.
6. MANDATORY WITHHOLDING FOR TAXES. Grantee acknowledges and
agrees that the Company shall deduct from the cash and/or shares of LBTYA
otherwise payable or deliverable upon exercise of the LBTYA Option or a LBTYA
Tandem SAR an amount of cash and/or number of shares of LBTYA (valued at their
Fair Market Value on the date of exercise) that is equal to the amount of all
federal, state and local taxes required to be withheld by the Company upon such
exercise, as determined by the Committee.
7. DELIVERY BY THE COMPANY. As soon as practicable after receipt
of all items referred to in paragraph 5, and subject to the withholding
referred to in paragraph 6, the Company shall deliver to the Grantee
certificates issued in Grantee's name for the number of shares of LBTYA
purchased by exercise of the LBTYA Option and for the number of shares of LBTYA
to which the Grantee is entitled by the exercise of LBTYA Tandem SARs and any
cash payment to which the Grantee is entitled by the exercise of LBTYA Tandem
SARs. If delivery is by mail, delivery of shares of LBTYA shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment shall be deemed effected when a Company check, payable to
Grantee and in an amount equal to the amount of the cash payment, shall have
been deposited in the United States mail, addressed to the Grantee.
8. EARLY TERMINATION OF OPTION AND TANDEM SARS. Unless otherwise
determined by the Committee in its sole discretion, the LBTYA Option and LBTYA
Tandem SARs shall terminate, prior to the expiration of the Option Term, at the
time specified below:
(a) Subject to paragraph 8(b), if Grantee's employment
with the Company and its Subsidiaries terminates other than (i) by the
Company for "cause" (as defined in Section 11.2(b) of the Plan) or
(ii) by reason of death or Disability, then the LBTYA Option and all
LBTYA Tandem SARs shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period which
began on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or a
Subsidiary, or prior to the expiration of a period of time following
termination of Grantee's employment during which the LBTYA Option and
LBTYA Tandem SARs remain exercisable as provided in paragraph (a), the
LBTYA Option and all LBTYA Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period which began on the date of death;
(c) Subject to paragraph 8(b), if Grantee's employment
with the Company and
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<PAGE> 5
its Subsidiaries terminates by reason of Disability, then the LBTYA
Option and all LBTYA Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period which began on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the Company and its
Subsidiaries is terminated by the Company for "cause" (as defined in
Section 11.2(b) of the Plan), then the LBTYA Option and all LBTYA
Tandem SARs shall terminate immediately upon such termination of
Grantee's employment.
In any event in which the LBTYA Option and LBTYA Tandem SARs
remain exercisable for a period of time following the date of termination of
Grantee's employment as provided above, the LBTYA Option and LBTYA Tandem SARs
may be exercised during such period of time only to the extent the same were
exercisable as provided in paragraph 4 above on such date of termination of
Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 8 provided that, after giving
effect to such change, the Grantee continues to be an employee of the Company
or any Subsidiary. Notwithstanding any period of time referenced in this
paragraph 8 or any other provision of this paragraph that may be construed to
the contrary, the LBTYA Option and all LBTYA Tandem SARs shall in any event
terminate upon the expiration of the Option Term.
9. AUTOMATIC EXERCISE OF LBTYA TANDEM SARS. Immediately prior to
the termination of the LBTYA Option, as provided in paragraph 8 above, or the
expiration of the Option Term, all remaining LBTYA Tandem SARs shall be deemed
to have been exercised by the Grantee.
10. NONTRANSFERABILITY OF LBTYA OPTION AND LBTYA TANDEM SARS.
During Grantee's lifetime, the LBTYA Option and LBTYA Tandem SARs are not
transferable (voluntarily or involuntarily) other than pursuant to a domestic
relations order and, except as otherwise required pursuant to a domestic
relations order, are exercisable only by the Grantee or Grantee's court
appointed legal representative. The Grantee may designate a beneficiary or
beneficiaries to whom the LBTYA Option and LBTYA Tandem SARs shall pass upon
Grantee's death and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Committee on the
form annexed hereto as Exhibit B or such other form as may be prescribed by the
Committee, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive the Grantee's death, the LBTYA Option
and LBTYA Tandem SARs shall pass by will or the laws of descent and
distribution. Following Grantee's death, the LBTYA Option and any LBTYA Tandem
SARs, if otherwise exercisable, may be exercised by the person to whom such
option or right passes accordingly to the foregoing and such person shall be
deemed the Grantee for purposes of any applicable provisions of this Agreement.
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<PAGE> 6
11. NO SHAREHOLDER RIGHTS. The Grantee shall not be deemed for
any purpose to be, or to have any of the rights of, a stockholder of the
Company with respect to any shares of LBTYA as to which this Agreement relates
until such shares shall have been issued to Grantee by the Company.
Furthermore, the existence of this Agreement shall not affect in any way the
right or power of the Company or its stockholders to accomplish any corporate
act, including, without limitation, the acts referred to in Section 11.18 of
the Plan.
12. ADJUSTMENTS.
(a) The LBTYA Option and LBTYA Tandem SARs shall be
subject to adjustment (including, without limitation, as to the number
of LBTYA Option Shares and the LBTYA Option Price per share) in the
sole discretion of the Committee and in such manner as the Committee
may deem equitable and appropriate in connection with the occurrence
of any of the events described in Section 4.2 of the Plan following
the Grant Date.
(b) In the event of any Approved Transaction, Board
Change or Control Purchase, the LBTYA Option and all LBTYA Tandem SARs
shall become exercisable in full without regard to paragraph 4(a);
provided, however, that to the extent not theretofore exercised the
LBTYA Option and all LBTYA Tandem SARs shall terminate upon the first
to occur of the consummation of the Approved Transaction, the
expiration of the LBTYA Option Term or the earlier termination of the
LBTYA Option and LBTYA Tandem SARs pursuant to paragraph 8 hereof.
Notwithstanding the foregoing, the Committee may, in its discretion,
determine that the LBTYA Option and LBTYA Tandem SARs will not become
exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to
consummation of the Approved Transaction, if the Board or the
surviving or acquiring corporation, as the case may be, shall have
taken or made effective provision for the taking of such action as in
the opinion of the Committee is equitable and appropriate to
substitute a new Award for the Award evidenced by this Agreement or to
assume this Agreement and the Award evidenced hereby and in order to
make such new or assumed Award, as nearly as may be practicable,
equivalent to the Award evidenced by this Agreement as then in effect
(but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Committee), taking into
account, to the extent applicable, the kind and amount of securities,
cash or other assets into or for which the LBTYA may be changed,
converted or exchanged in connection with the Approved Transaction.
13. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality
of Section 11.9 of the Plan, the Grantee agrees that Grantee will not exercise
the LBTYA Option or any LBTYA Tandem SAR and that the Company will not be
obligated to deliver any shares of LBTYA or make any cash payment, if counsel
to the Company determines that such exercise, delivery or payment would violate
any applicable law or any rule or regulation of any governmental authority or
any rule or regulation of, or agreement of the Company with, any securities
exchange or association upon which the LBTYA is listed or quoted. The Company
shall in no
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<PAGE> 7
event be obligated to take any affirmative action in order to cause the
exercise of the LBTYA Option or any LBTYA Tandem SAR or the resulting delivery
of shares of LBTYA or other payment to comply with any such law, rule,
regulation or agreement.
14. NOTICE. Unless the Company notifies the Grantee in writing of
a different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and
addressed as follows:
Tele-Communications, Inc.
c/o General Counsel, Tele-Communications, Inc.
P. O. Box 5630
Denver, Colorado 80217
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by
first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Grant Date, unless the Company has received
written notification from the Grantee of a change of address.
15. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 11.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee,
(a) this Agreement may be amended or supplemented (i) to
cure any ambiguity or to correct or supplement any provision herein
which may be defective or inconsistent with any other provision
herein, or (ii) to add to the covenants and agreements of the Company
for the benefit of Grantee or surrender any right or power reserved to
or conferred upon the Company in this Agreement, subject, however, to
any required approval of the Company's stockholders and, provided, in
each case, that such changes or corrections shall not adversely affect
the rights of Grantee with respect to the Award evidenced hereby, or
(iii) to make such other changes as the Company, upon advice of
counsel, determines are necessary or advisable because of the adoption
or promulgation of, or change in or of the interpretation of, any law
or governmental rule or regulation, including any applicable federal
or state securities laws; and
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<PAGE> 8
(b) subject to Section 11.8(b) of the Plan and any
required approval of the Company's stockholders, the Award evidenced
by this Agreement may be canceled by the Committee and a new Award
made in substitution therefor, provided that the Award so substituted
shall satisfy all of the requirements of the Plan as of the date such
new Award is made and no such action shall adversely affect the LBTYA
Option or any LBTYA Tandem SAR to the extent then exercisable.
16. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and
no action of the Company or the Committee with respect hereto, shall confer or
be construed to confer on the Grantee any right to continue in the employ of
the Company or any of its Subsidiaries or interfere in any way with the right
of the Company or any employing Subsidiary to terminate the Grantee's
employment at any time, with or without cause; subject, however, to the
provisions of any employment agreement between the Grantee and the Company or
any Subsidiary.
17. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
18. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
include all Exhibits and Schedules appended hereto, including the Plan. This
Agreement is entered into, and the Award evidenced hereby is granted, pursuant
to the Plan and shall be governed by and construed in accordance with the Plan
and the administrative interpretations adopted by the Committee thereunder.
All decisions of the Committee upon questions regarding the Plan or this
Agreement shall be conclusive. Unless otherwise expressly stated herein, in
the event of any inconsistency between the terms of the Plan and this
Agreement, the terms of the Plan shall control. The headings of the paragraphs
of this Agreement have been included for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms or provisions hereof.
19. DUPLICATE ORIGINALS. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
20. RULES BY COMMITTEE. The rights of the Grantee and obligations
of the Company hereunder shall be subject to such reasonable rules and
regulations as the Committee may adopt from time to time hereafter.
21. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee regarding the subject matter hereof. Grantee and the
Company hereby declare and represent that no promise or agreement not herein
expressed has been made and that this Agreement contains the entire agreement
between the parties hereto with respect to the LBTYA Options and LBTYA Tandem
SARs and replaces and makes null and void any prior agreements between Grantee
and the Company regarding the LBTYA Options.
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<PAGE> 9
22. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the
terms and conditions of this Agreement by signing in the space provided at the
end hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS, INC.
By:
----------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
ACCEPTED:
-------------------------------------
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<PAGE> 10
Schedule 1 to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Option Price: $_____ per share
Option Shares: __________ shares of Series A Liberty Media Group Common Stock
("LBTYA"), $_____ par value per share.
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<PAGE> 11
Exhibit B to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ____________________________________ (the "Grantee"), hereby declare
that upon my death ______________________________________ (the "Beneficiary") of
Name
_______________________________________________________________________________,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
LBTYA Option, LBTYA Tandem SARs and all other rights accorded the Grantee by
the above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the
laws of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ---------------------------- -------------------------------------------
Date Grantee
-11-
<PAGE> 1
EXHIBIT 10.41
1996 PLAN
TCOMA RESTRICTED STOCK
7/23/97 GRANT
TELE-COMMUNICATIONS, INC.
1996 INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of July,
1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), and Grantee.
The Company has adopted the Tele-Communications, Inc. 1996
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees of the Company and its Subsidiaries. Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to award shares of common stock to Grantee, subject to the
conditions and restrictions set forth herein and in the Plan, in order to
provide Grantee with additional remuneration for services rendered, to encourage
Grantee to remain in the employ of the Company or its Subsidiaries and to
increase Grantee's personal interest in the continued success and progress of
the Company.
The Company and Grantee therefore agree as follows:
1. AWARD. Pursuant to the terms of the Plan and in consideration of
the covenants and promises of Grantee herein contained, the Company hereby
awards to Grantee as of the Grant Date, a total of 140,000 shares of Series A
TCI Group ("TCOMA") Common Stock, as set forth on Schedule 1 hereto, subject to
the conditions and restrictions set forth below and in the Plan (the "Restricted
Shares").
2. ISSUANCE OF RESTRICTED SHARES AT BEGINNING OF THE RESTRICTION
PERIOD. Upon issuance of the Restricted Shares the stock certificate or
certificates representing such Restricted Shares shall be registered in the name
of Grantee. During the Restriction Period, certificates representing the
Restricted Shares and any securities constituting Retained Distributions shall
bear a restrictive legend to the effect that ownership of the Restricted Shares
(and such Retained Distributions), and the enjoyment of all rights appurtenant
thereto, are subject to the restrictions, terms and conditions provided in the
Plan and this Agreement. Such certificates shall remain in
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<PAGE> 2
the custody of the Company and Grantee shall deposit with the Company stock
powers or other instruments of assignment, each endorsed in blank, so as to
permit retransfer to the Company of all or any portion of the Restricted Shares
and any securities constituting Retained Distributions that shall be forfeited
or otherwise not become vested in accordance with the Plan and this Agreement.
3. RESTRICTIONS. Restricted Shares shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. Grantee will have
the right to vote such Restricted Shares, to receive and retain such dividends
and distributions, as the Committee may in its sole discretion designate, paid
or distributed on such Restricted Shares and to exercise all other rights,
powers and privileges of a Holder of Common Stock with respect to such
Restricted Shares; except, that (a) Grantee will not be entitled to delivery of
the stock certificate or certificates representing such Restricted Shares until
the Restriction Period shall have expired and unless all other vesting
requirements with respect thereto shall have been fulfilled or waived; (b) the
Company will retain custody of the stock certificate or certificates
representing the Restricted Shares during the Restriction Period as provided in
Section 8.2 of the Plan; (c) other than such dividends and distributions as the
Committee may in its sole discretion designate, the Company will retain custody
of all distributions ("Retained Distributions") made or declared with respect to
the Restricted Shares (and such Retained Distributions will be subject to the
same restrictions, terms and vesting and other conditions as are applicable to
the Restricted Shares) until such time, if ever, as the Restricted Shares with
respect to which such Retained Distributions shall have been made, paid or
declared shall have become vested, and such Retained Distributions shall not
bear interest or be segregated in a separate account; (d) Grantee may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the Restricted Shares
or any Retained Distributions or his interest in any of them during the
Restriction Period; and (e) a breach of any restrictions, terms or conditions
provided in the Plan or established by the Committee with respect to any
Restricted Shares or Retained Distributions will cause a forfeiture of such
Restricted Shares and any Retained Distributions with respect thereto.
4. VESTING AND FORFEITURE OF RESTRICTED STOCK: Subject to earlier
vesting in accordance with the provisions of Paragraph 7(b) below, Grantee shall
become vested as to 50% of the shares of Restricted Shares subject to this
Agreement as of four years following the Grant Date, and Grantee shall become
vested as to the remaining 50% of the shares of Restricted Shares subject to
this Agreement as of five years following the Grant Date, each such date being a
Vesting Date; provided, however, that Grantee shall not vest, pursuant to this
Paragraph 4, in shares of Restricted Shares as to which Grantee would otherwise
vest as of a given date if Grantee has not been continuously employed by the
Company or its Subsidiaries from the date of this Agreement through such date
(the vesting or forfeiture of such shares to be governed instead by the
provisions of Paragraph 5). Notwithstanding the foregoing, in the event that any
date on which vesting would otherwise occur is a Saturday, Sunday or a holiday,
such vesting shall instead occur on the business day next following such date.
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<PAGE> 3
5. EARLY TERMINATION OF AWARD. Unless otherwise determined by the
Committee in its sole discretion, the Award shall terminate, to the extent not
theretofore vested, prior to the expiration of the Restricted Period, at the
time specified below:
(a) If Grantee's employment with the Company and its
Subsidiaries terminates other than (i) by the Grantee with "good
reason" (as defined herein) or (ii) by reason of death or Disability,
then the Award, to the extent not theretofore vested, shall be
forfeited immediately;
(b) If Grantee's employment with the Company terminates (i) by
the Grantee with "good reason" or (ii) by reason of death or
Disability, then the Award, to the extent not theretofore vested, shall
immediately become fully vested.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without Grantee's consent, to a location outside the Denver and
Boulder-Longmont Primary Metropolitan Statistical Areas (as so designated on the
Grant Date), but only if Grantee's office location on the date of grant is in
either such area.
6. COMPLETION OF THE RESTRICTION PERIOD. On the Vesting Date with
respect to each award of Restricted Shares, and the satisfaction of any other
applicable restrictions, terms and conditions (a) all or the applicable portion
of such Restricted Shares shall become vested, (b) any Retained Distributions
and any unpaid Dividend Equivalents with respect to such Restricted Shares shall
become vested to the extent that the Restricted Shares related thereto shall
have become vested and (c) any cash award to be received by Grantee with respect
to such Restricted Shares shall become payable, all in accordance with the terms
of this Agreement. Any such Restricted Shares, Retained Distributions and any
unpaid Dividend Equivalents that shall not become vested shall be forfeited to
the Company and Grantee shall not thereafter have any rights (including dividend
and voting rights) with respect to such Restricted Shares, Retained
Distributions and any unpaid Dividend Equivalents that shall have been so
forfeited. The Committee may, in its discretion, provide that the delivery of
any Restricted Shares, Retained Distributions and unpaid Dividend Equivalents
that shall have become vested, and payment of any cash awards that shall have
become payable, shall be deferred until such date or dates as the recipient may
elect. Any election of a recipient pursuant to the preceding sentence shall be
filed in writing with the Committee in accordance with such rules and
regulations, including any deadline for the making of such an election, as the
Committee may provide.
7. ADJUSTMENTS.
(a) The Restricted Shares shall be subject to adjustment
(including, without limitation, as to the number of Restricted Shares)
in the sole discretion of the Committee and in such manner as the
Committee may deem equitable and appropriate in connection
-3-
<PAGE> 4
with the occurrence of any of the events described in Section 4.2 of
the Plan following the Grant Date.
(b) In the event of any Approved Transaction, Board Change or
Control Purchase, the restrictions in Paragraph 3 shall lapse.
Notwithstanding the foregoing, the Committee may, in its discretion,
determine that the restrictions in Paragraph 3 will not lapse on an
accelerated basis in connection with an Approved Transaction, if the
Board or the surviving or acquiring corporation, as the case may be,
shall have taken or made effective provision for the taking of such
action as in the opinion of the Committee is equitable and appropriate
to substitute a new Award for the Award evidenced by this Agreement or
to assume this Agreement and the Award evidenced hereby and in order to
make such new or assumed Award, as nearly as may be practicable,
equivalent to the Award evidenced by this Agreement as then in effect
(but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Committee), taking into
account, to the extent applicable, the kind and amount of securities,
cash or other assets into or for which the TCOMA Common Stock may be
changed, converted or exchanged in connection with the Approved
Transaction.
8. MANDATORY WITHHOLDING FOR TAXES. Upon the expiration of the
Restriction Period, Grantee (or Beneficiary, as defined in Paragraph 10 below)
must remit to the Company the amount of all federal, state and other
governmental withholding tax requirements imposed upon the Company with respect
to the vesting of shares of Restricted Stock, unless provisions to so pay such
withholding requirements have been made to the satisfaction of the Committee.
Upon the payment of any cash dividends with respect to shares of Restricted
Stock during the Restriction Period, the amount of such dividends shall be
reduced to the extent necessary to satisfy any withholding tax requirements
applicable thereto prior to payment to Grantee.
9. DELIVERY BY THE COMPANY. As soon as practicable after vesting in
Restricted Shares pursuant to Paragraphs 4 or 5, and subject to the withholding
referred to in paragraph 8, the Company shall deliver to Grantee certificates
issued in Grantee's name for the number of Restricted Shares. If delivery is by
mail, delivery of shares of TCOMA Common Stock shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited the
certificates in the United States mail, addressed to Grantee, and any cash
payment shall be deemed effected when a Company check, payable to Grantee and in
an amount equal to the amount of the cash payment, shall have been deposited in
the United States mail, addressed to Grantee.
10. NONTRANSFERABILITY OF RESTRICTED SHARES BEFORE VESTING. Before
vesting and during Grantee's lifetime, the Restricted Shares are not
transferable (voluntarily or involuntarily) other than pursuant to a domestic
relations order and, except as otherwise required pursuant to a domestic
relations order, are exercisable only by Grantee or Grantee's court appointed
legal representative. The Grantee may designate a beneficiary or beneficiaries
to whom the Restricted Shares shall pass upon Grantee's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form
-4-
<PAGE> 5
annexed hereto as Exhibit B or such other form as may be prescribed by the
Committee, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive the Grantee's death, the Restricted
Shares shall pass by will or the laws of descent and distribution. Following
Grantee's death, the Restricted Shares shall pass accordingly to the designated
beneficiary and such person shall be deemed the Grantee for purposes of any
applicable provisions of this Agreement.
11. COMPANY'S RIGHTS. The existence of this Agreement shall not
affect in any way the right or power of the Company or its stockholders to
accomplish any corporate act, including, without limitation, the acts referred
to in Section 11.18 of the Plan.
12. LIMITATION OF RIGHTS: Nothing in this Agreement or the Plan shall
be construed to:
(a) give Grantee any right to be awarded any further restricted
stock other than in the sole discretion of the Committee;
(b) give Grantee or any other person any interest in any fund or
in any specified asset or assets of the Company or any subsidiary of
the Company; or
(c) confer upon Grantee the right to continue in the employment
or service of the Company or any subsidiary of the Company, or affect
the right of the Company or any subsidiary of the Company to terminate
the employment or service of Grantee at any time or for any reason.
13. PREREQUISITES TO BENEFITS: Neither Grantee nor any person
claiming through Grantee shall have any right or interest in the Restricted
Shares awarded hereunder, unless and until all the terms, conditions and
provisions of this Agreement and the Plan which affect the Grantee or such other
person shall have been complied with as specified herein.
14. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality of
Section 11.9 of the Plan, Grantee agrees that Grantee will not require the
Company to deliver any Restricted Shares and that the Company will not be
obligated to deliver any Restricted Shares or make any cash payment, if counsel
to the Company determines that such exercise, delivery or payment would violate
any applicable law or any rule or regulation of any governmental authority or
any rule or regulation of, or agreement of the Company with, any securities
exchange or association upon which the TCOMA Common Stock is listed or quoted.
The Company shall in no event be obligated to take any affirmative action in
order to cause the delivery of any Restricted Shares or other payment to comply
with any such law, rule, regulation or agreement.
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<PAGE> 6
15. NOTICE. Unless the Company notifies Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and addressed as
follows:
Tele-Communications, Inc.
c/o General Counsel,
Tele-Communications, Inc.
P. O. Box 5630
Denver, Colorado 80217
Any notice or other communication to Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by first
class mail, postage prepaid, to Grantee's address as listed in the records of
the Company on the Grant Date, unless the Company has received written
notification from Grantee of a change of address.
16. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 11.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of Grantee,
(a) this Agreement may be amended or supplemented (i) to cure
any ambiguity or to correct or supplement any provision herein which
may be defective or inconsistent with any other provision herein, or
(ii) to add to the covenants and agreements of the Company for the
benefit of Grantee or surrender any right or power reserved to or
conferred upon the Company in this Agreement, subject, however, to any
required approval of the Company's stockholders and, provided, in each
case, that such changes or corrections shall not adversely affect the
rights of Grantee with respect to the Award evidenced hereby, or (iii)
to make such other changes as the Company, upon advice of counsel,
determines are necessary or advisable because of the adoption or
promulgation of, or change in or of the interpretation of, any law or
governmental rule or regulation, including any applicable federal or
state securities laws; and
(b) subject to Section 11.8(b) of the Plan and any required
approval of the Company's stockholders, the Award evidenced by this
Agreement may be canceled by the Committee and a new Award made in
substitution therefor, provided that the Award so substituted shall
satisfy all of the requirements of the Plan as of the date such new
Award is made and no such action shall adversely affect the Restricted
Shares to the extent then vested.
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<PAGE> 7
17. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and no
action of the Company or the Committee with respect hereto, shall confer or be
construed to confer on Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of the
Company or any employing Subsidiary to terminate Grantee's employment at any
time, with or without cause; subject, however, to the provisions of any
employment agreement between Grantee and the Company or any Subsidiary.
18. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
19. CONSTRUCTION. References in this Agreement to "this Agreement"
and the words "herein," "hereof," "hereunder" and similar terms include all
Exhibits and Schedules appended hereto, including the Plan. This Agreement is
entered into, and the Award evidenced hereby is granted, pursuant to the Plan
and shall be governed by and construed in accordance with the Plan and the
administrative interpretations adopted by the Committee thereunder. All
decisions of the Committee upon questions regarding the Plan or this Agreement
shall be conclusive. Unless otherwise expressly stated herein, in the event of
any inconsistency between the terms of the Plan and this Agreement, the terms
of the Plan shall control. The headings of the paragraphs of this Agreement
have been included for convenience of reference only, are not to be considered
a part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
20. DUPLICATE ORIGINALS. The Company and Grantee may sign any number
of copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
21. RULES BY COMMITTEE. The rights of Grantee and obligations of the
Company hereunder shall be subject to such reasonable rules and regulations as
the Committee may adopt from time to time hereafter.
22. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee. Grantee and the Company hereby declare and represent that
no promise or agreement not herein expressed has been made and that this
Agreement contains the entire agreement between the parties hereto with respect
to the Restricted Shares and replaces and makes null and void any prior
agreements between Grantee and the Company regarding the Restricted Shares.
-7-
<PAGE> 8
23. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided at the end
hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title:
ACCEPTED:
----------------------------
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<PAGE> 9
Schedule 1 to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Restricted Shares: shares of Series A TCI Group ("TCOMA") Common
Stock, $1.00 par value per share.
-9-
<PAGE> 10
Exhibit B to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ___________________________________ (the "Grantee"), hereby declare
that upon my death _____________________________________ (the "Beneficiary") of
Name
_______________________________________________________________________________,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
Restricted Shares and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the laws
of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ------------------------------- ----------------------------------
Date Grantee
-10-
<PAGE> 1
EXHIBIT 10.42
1996 PLAN
TCIVA RESTRICTED STOCK
7/23/97 GRANT
TELE-COMMUNICATIONS, INC.
1996 INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of
July, 1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), and Grantee.
The Company has adopted the Tele-Communications, Inc. 1996
Incentive Plan (the "Plan"), a copy of which is appended to this Agreement as
Exhibit A and by this reference made a part hereof, for the benefit of eligible
employees of the Company and its Subsidiaries. Capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to award shares of common stock to Grantee, subject to the
conditions and restrictions set forth herein and in the Plan, in order to
provide Grantee with additional remuneration for services rendered, to
encourage Grantee to remain in the employ of the Company or its Subsidiaries
and to increase Grantee's personal interest in the continued success and
progress of the Company.
The Company and Grantee therefore agree as follows:
1. AWARD. Pursuant to the terms of the Plan and in consideration
of the covenants and promises of Grantee herein contained, the Company hereby
awards to Grantee as of the Grant Date, a total of 120,000 shares of Series A
TCI Ventures Group ("TCIVA") Common Stock, as set forth on Schedule 1 hereto,
subject to the conditions and restrictions set forth below and in the Plan (the
"Restricted Shares").
2. ISSUANCE OF RESTRICTED SHARES AT BEGINNING OF THE RESTRICTION
PERIOD. Upon issuance of the Restricted Shares the stock certificate or
certificates representing such Restricted Shares shall be registered in the
name of Grantee. During the Restriction Period, certificates representing the
Restricted Shares and any securities constituting Retained Distributions shall
bear a restrictive legend to the effect that ownership of the Restricted Shares
(and such Retained Distributions), and the enjoyment of all rights appurtenant
thereto, are subject to the restrictions,
-1-
<PAGE> 2
terms and conditions provided in the Plan and this Agreement. Such
certificates shall remain in the custody of the Company and Grantee shall
deposit with the Company stock powers or other instruments of assignment, each
endorsed in blank, so as to permit retransfer to the Company of all or any
portion of the Restricted Shares and any securities constituting Retained
Distributions that shall be forfeited or otherwise not become vested in
accordance with the Plan and this Agreement.
3. RESTRICTIONS. Restricted Shares shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. Grantee will
have the right to vote such Restricted Shares, to receive and retain such
dividends and distributions, as the Committee may in its sole discretion
designate, paid or distributed on such Restricted Shares and to exercise all
other rights, powers and privileges of a Holder of Common Stock with respect to
such Restricted Shares; except, that (a) Grantee will not be entitled to
delivery of the stock certificate or certificates representing such Restricted
Shares until the Restriction Period shall have expired and unless all other
vesting requirements with respect thereto shall have been fulfilled or waived;
(b) the Company will retain custody of the stock certificate or certificates
representing the Restricted Shares during the Restriction Period as provided in
Section 8.2 of the Plan; (c) other than such dividends and distributions as the
Committee may in its sole discretion designate, the Company will retain custody
of all distributions ("Retained Distributions") made or declared with respect
to the Restricted Shares (and such Retained Distributions will be subject to
the same restrictions, terms and vesting and other conditions as are applicable
to the Restricted Shares) until such time, if ever, as the Restricted Shares
with respect to which such Retained Distributions shall have been made, paid or
declared shall have become vested, and such Retained Distributions shall not
bear interest or be segregated in a separate account; (d) Grantee may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the Restricted
Shares or any Retained Distributions or his interest in any of them during the
Restriction Period; and (e) a breach of any restrictions, terms or conditions
provided in the Plan or established by the Committee with respect to any
Restricted Shares or Retained Distributions will cause a forfeiture of such
Restricted Shares and any Retained Distributions with respect thereto.
4. VESTING AND FORFEITURE OF RESTRICTED STOCK: Subject to
earlier vesting in accordance with the provisions of Paragraph 7(b) below,
Grantee shall become vested as to 50% of the shares of Restricted Shares
subject to this Agreement as of four years following the Grant Date, and
Grantee shall become vested as to the remaining 50% of the shares of Restricted
Shares subject to this Agreement as of five years following the Grant Date,
each such date being a Vesting Date; provided, however, that Grantee shall not
vest, pursuant to this Paragraph 4, in shares of Restricted Shares as to which
Grantee would otherwise vest as of a given date if Grantee has not been
continuously employed by the Company or its Subsidiaries from the date of this
Agreement through such date (the vesting or forfeiture of such shares to be
governed instead by the provisions of Paragraph 5). Notwithstanding the
foregoing, in the event that any date on which vesting would otherwise occur is
a Saturday, Sunday or a holiday, such vesting shall instead occur on the
business day next following such date.
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<PAGE> 3
5. EARLY TERMINATION OF AWARD. Unless otherwise determined by
the Committee in its sole discretion, the Award shall terminate, to the extent
not theretofore vested, prior to the expiration of the Restricted Period, at
the time specified below:
(a) If Grantee's employment with the Company and its
Subsidiaries terminates other than (i) by the Grantee with "good
reason" (as defined herein) or (ii) by reason of death or Disability,
then the Award, to the extent not theretofore vested, shall be
forfeited immediately;
(b) If Grantee's employment with the Company terminates
(i) by the Grantee with "good reason" or (ii) by reason of death or
Disability, then the Award, to the extent not theretofore vested,
shall immediately become fully vested.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without Grantee's consent, to a location outside the Denver and
Boulder-Longmont Primary Metropolitan Statistical Areas (as so designated on
the Grant Date), but only if Grantee's office location on the date of grant is
in either such area.
6. COMPLETION OF THE RESTRICTION PERIOD. On the Vesting Date
with respect to each award of Restricted Shares, and the satisfaction of any
other applicable restrictions, terms and conditions (a) all or the applicable
portion of such Restricted Shares shall become vested, (b) any Retained
Distributions and any unpaid Dividend Equivalents with respect to such
Restricted Shares shall become vested to the extent that the Restricted Shares
related thereto shall have become vested and (c) any cash award to be received
by Grantee with respect to such Restricted Shares shall become payable, all in
accordance with the terms of this Agreement. Any such Restricted Shares,
Retained Distributions and any unpaid Dividend Equivalents that shall not
become vested shall be forfeited to the Company and Grantee shall not
thereafter have any rights (including dividend and voting rights) with respect
to such Restricted Shares, Retained Distributions and any unpaid Dividend
Equivalents that shall have been so forfeited. The Committee may, in its
discretion, provide that the delivery of any Restricted Shares, Retained
Distributions and unpaid Dividend Equivalents that shall have become vested,
and payment of any cash awards that shall have become payable, shall be
deferred until such date or dates as the recipient may elect. Any election of
a recipient pursuant to the preceding sentence shall be filed in writing with
the Committee in accordance with such rules and regulations, including any
deadline for the making of such an election, as the Committee may provide.
7. ADJUSTMENTS.
(a) The Restricted Shares shall be subject to adjustment
(including, without limitation, as to the number of Restricted Shares)
in the sole discretion of the Committee and in such manner as the
Committee may deem equitable and appropriate in connection
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<PAGE> 4
with the occurrence of any of the events described in Section 4.2 of
the Plan following the Grant Date.
(b) In the event of any Approved Transaction, Board
Change or Control Purchase, the restrictions in Paragraph 3 shall
lapse. Notwithstanding the foregoing, the Committee may, in its
discretion, determine that the restrictions in Paragraph 3 will not
lapse on an accelerated basis in connection with an Approved
Transaction, if the Board or the surviving or acquiring corporation,
as the case may be, shall have taken or made effective provision for
the taking of such action as in the opinion of the Committee is
equitable and appropriate to substitute a new Award for the Award
evidenced by this Agreement or to assume this Agreement and the Award
evidenced hereby and in order to make such new or assumed Award, as
nearly as may be practicable, equivalent to the Award evidenced by
this Agreement as then in effect (but before giving effect to any
acceleration of the exercisability hereof unless otherwise determined
by the Committee), taking into account, to the extent applicable, the
kind and amount of securities, cash or other assets into or for which
the TCIVA Common Stock may be changed, converted or exchanged in
connection with the Approved Transaction.
8. MANDATORY WITHHOLDING FOR TAXES. Upon the expiration of the
Restriction Period, Grantee (or Beneficiary, as defined in Paragraph 10 below)
must remit to the Company the amount of all federal, state and other
governmental withholding tax requirements imposed upon the Company with respect
to the vesting of shares of Restricted Stock, unless provisions to so pay such
withholding requirements have been made to the satisfaction of the Committee.
Upon the payment of any cash dividends with respect to shares of Restricted
Stock during the Restriction Period, the amount of such dividends shall be
reduced to the extent necessary to satisfy any withholding tax requirements
applicable thereto prior to payment to Grantee.
9. DELIVERY BY THE COMPANY. As soon as practicable after vesting
in Restricted Shares pursuant to Paragraphs 4 or 5, and subject to the
withholding referred to in paragraph 8, the Company shall deliver to Grantee
certificates issued in Grantee's name for the number of Restricted Shares. If
delivery is by mail, delivery of shares of TCIVA Common Stock shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to Grantee, and
any cash payment shall be deemed effected when a Company check, payable to
Grantee and in an amount equal to the amount of the cash payment, shall have
been deposited in the United States mail, addressed to Grantee.
10. NONTRANSFERABILITY OF RESTRICTED SHARES BEFORE VESTING.
Before vesting and during Grantee's lifetime, the Restricted Shares are not
transferable (voluntarily or involuntarily) other than pursuant to a domestic
relations order and, except as otherwise required pursuant to a domestic
relations order, are exercisable only by Grantee or Grantee's court appointed
legal representative. The Grantee may designate a beneficiary or beneficiaries
to whom the Restricted Shares shall pass upon Grantee's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form
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<PAGE> 5
annexed hereto as Exhibit B or such other form as may be prescribed by the
Committee, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive the Grantee's death, the Restricted
Shares shall pass by will or the laws of descent and distribution. Following
Grantee's death, the Restricted Shares shall pass accordingly to the designated
beneficiary and such person shall be deemed the Grantee for purposes of any
applicable provisions of this Agreement.
11. COMPANY'S RIGHTS. The existence of this Agreement shall not
affect in any way the right or power of the Company or its stockholders to
accomplish any corporate act, including, without limitation, the acts referred
to in Section 11.18 of the Plan.
12. LIMITATION OF RIGHTS: Nothing in this Agreement or the Plan
shall be construed to:
(a) give Grantee any right to be awarded any further
restricted stock other than in the sole discretion of the Committee;
(b) give Grantee or any other person any interest in any
fund or in any specified asset or assets of the Company or any
subsidiary of the Company; or
(c) confer upon Grantee the right to continue in the
employment or service of the Company or any subsidiary of the Company,
or affect the right of the Company or any subsidiary of the Company to
terminate the employment or service of Grantee at any time or for any
reason.
13. PREREQUISITES TO BENEFITS: Neither Grantee nor any person
claiming through Grantee shall have any right or interest in the Restricted
Shares awarded hereunder, unless and until all the terms, conditions and
provisions of this Agreement and the Plan which affect the Grantee or such
other person shall have been complied with as specified herein.
14. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality
of Section 11.9 of the Plan, Grantee agrees that Grantee will not require the
Company to deliver any Restricted Shares and that the Company will not be
obligated to deliver any Restricted Shares or make any cash payment, if counsel
to the Company determines that such exercise, delivery or payment would violate
any applicable law or any rule or regulation of any governmental authority or
any rule or regulation of, or agreement of the Company with, any securities
exchange or association upon which the TCIVA Common Stock is listed or quoted.
The Company shall in no event be obligated to take any affirmative action in
order to cause the delivery of any Restricted Shares or other payment to comply
with any such law, rule, regulation or agreement.
15. NOTICE. Unless the Company notifies Grantee in writing of a
different procedure,
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<PAGE> 6
any notice or other communication to the Company with respect to this Agreement
shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and addressed as follows:
Tele-Communications, Inc.
c/o General Counsel, Tele-Communications, Inc.
P. O. Box 5630
Denver, Colorado 80217
Any notice or other communication to Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by
first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Grant Date, unless the Company has received
written notification from Grantee of a change of address.
16. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 11.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of Grantee,
(a) this Agreement may be amended or supplemented (i) to
cure any ambiguity or to correct or supplement any provision herein
which may be defective or inconsistent with any other provision
herein, or (ii) to add to the covenants and agreements of the Company
for the benefit of Grantee or surrender any right or power reserved to
or conferred upon the Company in this Agreement, subject, however, to
any required approval of the Company's stockholders and, provided, in
each case, that such changes or corrections shall not adversely affect
the rights of Grantee with respect to the Award evidenced hereby, or
(iii) to make such other changes as the Company, upon advice of
counsel, determines are necessary or advisable because of the adoption
or promulgation of, or change in or of the interpretation of, any law
or governmental rule or regulation, including any applicable federal
or state securities laws; and
(b) subject to Section 11.8(b) of the Plan and any
required approval of the Company's stockholders, the Award evidenced
by this Agreement may be canceled by the Committee and a new Award
made in substitution therefor, provided that the Award so substituted
shall satisfy all of the requirements of the Plan as of the date such
new Award is made and no such action shall adversely affect the
Restricted Shares to the extent then vested.
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<PAGE> 7
17. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and
no action of the Company or the Committee with respect hereto, shall confer or
be construed to confer on Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of
the Company or any employing Subsidiary to terminate Grantee's employment at
any time, with or without cause; subject, however, to the provisions of any
employment agreement between Grantee and the Company or any Subsidiary.
18. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
19. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
include all Exhibits and Schedules appended hereto, including the Plan. This
Agreement is entered into, and the Award evidenced hereby is granted, pursuant
to the Plan and shall be governed by and construed in accordance with the Plan
and the administrative interpretations adopted by the Committee thereunder.
All decisions of the Committee upon questions regarding the Plan or this
Agreement shall be conclusive. Unless otherwise expressly stated herein, in
the event of any inconsistency between the terms of the Plan and this
Agreement, the terms of the Plan shall control. The headings of the paragraphs
of this Agreement have been included for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms or provisions hereof.
20. DUPLICATE ORIGINALS. The Company and Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
21. RULES BY COMMITTEE. The rights of Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Committee may adopt from time to time hereafter.
22. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee. Grantee and the Company hereby declare and represent that
no promise or agreement not herein expressed has been made and that this
Agreement contains the entire agreement between the parties hereto with respect
to the Restricted Shares and replaces and makes null and void any prior
agreements between Grantee and the Company regarding the Restricted Shares.
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<PAGE> 8
23. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the
terms and conditions of this Agreement by signing in the space provided at the
end hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS, INC.
By:
-----------------------------
Name:
Title:
ACCEPTED:
---------------------------------
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<PAGE> 9
Schedule 1 to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Restricted Shares: shares of Series A TCI Ventures Group ("TCIVA")
Common Stock, $1.00 par value per share.
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<PAGE> 10
Exhibit B to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS, INC. 1996 INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby declare
that upon my death __________________________________________ (the
Name
"Beneficiary") of _____________________________________________________________
Street Address City State
___________ , who is my _______________________, shall be entitled to the
Zip Code Relationship to Grantee
Restricted Shares and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the
laws of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ---------------------- --------------------------------
Date Grantee
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<PAGE> 1
EXHIBIT 10.47
1995 PLAN
TINTA NQSO/SAR
7/23/97 GRANT
TELE-COMMUNICATIONS INTERNATIONAL, INC.
1995 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AND
STOCK APPRECIATION RIGHTS AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23rd day of July,
1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS INTERNATIONAL, INC.,
a Delaware corporation (the "Company"), and the person signing adjacent to the
caption "Grantee" on the signature page hereof (the "Grantee").
The Company has adopted the Tele-Communications International,
Inc. 1995 Stock Incentive Plan (the "Plan"), a copy of which is appended to this
Agreement as Exhibit A and by this reference made a part hereof, for the benefit
of eligible employees of the Company and its Subsidiaries. Capitalized terms
used and not otherwise defined herein shall have the meaning ascribed thereto in
the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to grant the options and rights provided herein in order to provide
Grantee with additional remuneration for services rendered, to encourage Grantee
to remain in the employ of the Company or its Subsidiaries and to increase
Grantee's personal interest in the continued success and progress of the
Company.
The Company and Grantee therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions herein, the
Company grants to the Grantee during the period commencing on July 23, 1997 and
expiring at 5:00 p.m., Denver, Colorado time ("Close of Business") on July 23,
2007 (the "Option Term"), subject to earlier termination as provided in
paragraphs 8 and 12(b) below, an option to purchase from the Company, at the
price per share set forth on Schedule 1 hereto (the "TINTA Option Price"), the
number of shares of Series A Common Stock of the Company ("TINTA") set forth on
said Schedule 1 (the "TINTA Option Shares"). The TINTA Option Price and TINTA
Option Shares are subject to adjustment pursuant to paragraph 12 below. This
option is as a "Nonqualified Stock Option" and is hereinafter referred to as the
"TINTA Option."
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<PAGE> 2
2. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions herein and in tandem with the TINTA Option, the Grantee shall also
have, during the Option Term, subject to earlier termination as provided in
paragraphs 8 and 12(b) below, a stock appreciation right with respect to each
TINTA Option Share (individually, a "TINTA Tandem SAR" and collectively, the
"TINTA Tandem SARs"). Upon exercise of a TINTA Tandem SAR in accordance with
this Agreement, the Company shall, subject to paragraph 6 below, make payment as
follows:
(a) the amount of payment shall equal the amount, if any, by
which the Fair Market Value of the TINTA Option Share on the date of
exercise exceeds the TINTA Option Price; and
(b) payment of the amount determined in accordance with clause
(i) shall be made in shares of TINTA (valued at their Fair Market Value
as of the date of exercise of such TINTA Tandem SAR), or, in the sole
discretion of the Compensation Committee of the Board of Directors of
the Company (the "Committee"), in cash, or partly in cash and partly in
shares of TINTA.
3. REDUCTION UPON EXERCISE. The exercise of any number of TINTA
Tandem SARs shall cause a corresponding reduction in the number of TINTA Option
Shares which shall apply against the TINTA Option Shares then available for
purchase. The exercise of the TINTA Option to purchase any number of TINTA
Option Shares shall cause a corresponding reduction in the number of TINTA
Tandem SARs.
4. CONDITIONS OF EXERCISE. Unless otherwise determined by the
Committee in its sole discretion, the TINTA Option and TINTA Tandem SARs are
exercisable only in accordance with the conditions stated in this paragraph.
(a) Except as otherwise provided in paragraph 12(b) below or in
the last sentence of this subparagraph (a), the TINTA Option shall not
be exercisable until July 23, 1998 and the TINTA Option may only be
exercised to the extent the TINTA Option Shares have become available
for purchase in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of TINTA Option
Date Shares Available for Purchase
---- -----------------------------
<S> <C>
July 23, 1998 20%
July 23, 1999 40%
July 23, 2000 60%
July 23, 2001 80%
July 23, 2002 100%
</TABLE>
Notwithstanding the foregoing, all TINTA Option Shares shall become
available for purchase on the date of Grantee's termination of
employment if (i) Grantee's employment
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<PAGE> 3
with the Company and its Subsidiaries shall terminate by reason of
Disability or good reason (as defined herein) or (ii) Grantee dies
while employed by the Company or a Subsidiary.
(b) A TINTA Tandem SAR with respect to an TINTA Option Share
shall be exercisable only if the TINTA Option Share is then available
for purchase in accordance with subparagraph (a).
(c) To the extent the TINTA Option or TINTA Tandem SARs become
exercisable, such TINTA Option or TINTA Tandem SARs may be exercised in
whole or in part (at any time or from time to time, except as otherwise
provided herein) until expiration of the Option Term or earlier
termination thereof.
(d) Grantee acknowledges and agrees that the Committee may, in
its discretion and as contemplated by Section 7.5 of the Plan, adopt
rules and regulations from time to time after the date hereof with
respect to the exercise of TINTA Tandem SARs and that the exercise by
Grantee of the TINTA Tandem SARs will be subject to the further
condition that such exercise is made in accordance with all such rules
and regulations as the Committee may determine are applicable thereto.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without the Grantee's consent, to a location outside of the
Denver and Boulder-Longmont Primary Metropolitan Statistical Areas (as so
designated on the Grant Date), but only if Grantee's office location on the date
of grant is in either such area.
5. MANNER OF EXERCISE. The TINTA Option or a TINTA Tandem SAR shall
be considered exercised (as to the number of TINTA Option Shares or TINTA Tandem
SARs specified in the notice referred to in subparagraph (a) below) on the
latest of (i) the date of exercise designated in the written notice referred to
in subparagraph (a) below, (ii) if the date so designated is not a business day,
the first business day following such date or (iii) the earliest business day by
which the Company has received all of the following:
(a) Written notice, in such form as the Committee may require,
designating, among other things, the date of exercise, the number of
TINTA Option Shares to be purchased and/or the number of TINTA Tandem
SARs to be exercised;
(b) If the TINTA Option is to be exercised, payment of the TINTA
Option Price for each TINTA Option Share to be purchased in cash or in
such other form, or combination of forms, of payment contemplated by
Section 6.5(a) of the Plan as the Committee may permit; provided,
however, that any shares of TINTA (or, if applicable, shares of Series
B Common Stock of the Company ("TINTB")) delivered in payment of the
TINTA Option Price, if such form of payment is so permitted by the
Committee, shall be shares that the Grantee has owned for a period of
at least six months prior to the date
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<PAGE> 4
of exercise, and provided, further, that, notwithstanding clause (v)
of Section 6.5(a) of the Plan, TINTA Option Shares may not be withheld
in payment or partial payment of the TINTA Option Price; and
(c) Any other documentation that the Committee may reasonably
require.
6. MANDATORY WITHHOLDING FOR TAXES. Grantee acknowledges and agrees
that the Company shall deduct from the cash and/or shares of TINTA otherwise
payable or deliverable upon exercise of the TINTA Option or a TINTA Tandem SAR
an amount of cash and/or number of shares of TINTA (valued at their Fair Market
Value on the date of exercise) that is equal to the amount of all federal, state
and local taxes required to be withheld by the Company upon such exercise, as
determined by the Committee.
7. DELIVERY BY THE COMPANY. As soon as practicable after receipt of
all items referred to in paragraph 5, and subject to the withholding referred to
in paragraph 6, the Company shall deliver to the Grantee certificates issued in
Grantee's name for the number of shares of TINTA purchased by exercise of the
TINTA Option and for the number of shares of TINTA to which the Grantee is
entitled by the exercise of TINTA Tandem SARs and any cash payment to which the
Grantee is entitled by the exercise of TINTA Tandem SARs. If delivery is by
mail, delivery of shares of TINTA shall be deemed effected for all purposes when
a stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to the Grantee, and any cash payment shall be
deemed effected when a Company check, payable to Grantee and in an amount equal
to the amount of the cash payment, shall have been deposited in the United
States mail, addressed to the Grantee.
8. EARLY TERMINATION OF OPTION AND TANDEM SARS. Unless otherwise
determined by the Committee in its sole discretion, the TINTA Option and TINTA
Tandem SARs shall terminate, prior to the expiration of the Option Term, at the
time specified below:
(a) Subject to paragraph 8(b), if Grantee's employment with the
Company and its Subsidiaries terminates other than (i) by the Company
for "cause" (as defined in Section 10.2(b) of the Plan) or (ii) by
reason of death or Disability, then the TINTA Option and all TINTA
Tandem SARs shall terminate at the Close of Business on the first
business day following the expiration of the 90-day period which began
on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or a
Subsidiary, or prior to the expiration of a period of time following
termination of Grantee's employment during which the TINTA Option and
TINTA Tandem SARs remain exercisable as provided in paragraph (a), the
TINTA Option and all TINTA Tandem SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period which began on the date of death;
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<PAGE> 5
(c) Subject to paragraph 8(b), if Grantee's employment with the
Company and its Subsidiaries terminates by reason of Disability, then
the TINTA Option and all TINTA Tandem SARs shall terminate at the Close
of Business on the first business day following the expiration of the
one-year period which began on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the Company and its
Subsidiaries is terminated by the Company for "cause" (as defined in
Section 10.2(b) of the Plan), then the TINTA Option and all TINTA
Tandem SARs shall terminate immediately upon such termination of
Grantee's employment.
In any event in which the TINTA Option and TINTA Tandem SARs
remain exercisable for a period of time following the date of termination of
Grantee's employment as provided above, the TINTA Option and TINTA Tandem SARs
may be exercised during such period of time only to the extent the same were
exercisable as provided in paragraph 4 above on such date of termination of
Grantee's employment. A change of employment is not a termination of employment
within the meaning of this paragraph 8 provided that, after giving effect to
such change, the Grantee continues to be an employee of the Company or any
Subsidiary. Notwithstanding any period of time referenced in this paragraph 8 or
any other provision of this paragraph that may be construed to the contrary, the
TINTA Option and all TINTA Tandem SARs shall in any event terminate upon the
expiration of the Option Term.
9. AUTOMATIC EXERCISE OF TINTA TANDEM SARS. Immediately prior to
the termination of the TINTA Option, as provided in paragraph 8 above, or the
expiration of the Option Term, all remaining TINTA Tandem SARs shall be deemed
to have been exercised by the Grantee.
10. NONTRANSFERABILITY OF TINTA OPTION AND TINTA TANDEM SARS. During
Grantee's lifetime, the TINTA Option and TINTA Tandem SARs are not transferable
(voluntarily or involuntarily) other than pursuant to a domestic relations order
and, except as otherwise required pursuant to a domestic relations order, are
exercisable only by the Grantee or Grantee's court appointed legal
representative. The Grantee may designate a beneficiary or beneficiaries to whom
the TINTA Option and TINTA Tandem SARs shall pass upon Grantee's death and may
change such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on the form annexed hereto as
Exhibit B or such other form as may be prescribed by the Committee, provided
that no such designation shall be effective unless so filed prior to the death
of Grantee. If no such designation is made or if the designated beneficiary does
not survive the Grantee's death, the TINTA Option and TINTA Tandem SARs shall
pass by will or the laws of descent and distribution. Following Grantee's death,
the TINTA Option and any TINTA Tandem SARs, if otherwise exercisable, may be
exercised by the person to whom such option or right passes accordingly to the
foregoing and such person shall be deemed the Grantee for purposes of any
applicable provisions of this Agreement.
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<PAGE> 6
11. NO SHAREHOLDER RIGHTS. The Grantee shall not be deemed for any
purpose to be, or to have any of the rights of, a stockholder of the Company
with respect to any shares of TINTA as to which this Agreement relates until
such shares shall have been issued to Grantee by the Company. Furthermore, the
existence of this Agreement shall not affect in any way the right or power of
the Company or its stockholders to accomplish any corporate act, including,
without limitation, the acts referred to in Section 10.18 of the Plan.
12. ADJUSTMENTS.
(a) The TINTA Option and TINTA Tandem SARs shall be subject to
adjustment (including, without limitation, as to the number of TINTA
Option Shares and the TINTA Option Price per share) in the sole
discretion of the Committee and in such manner as the Committee may
deem equitable and appropriate in connection with the occurrence of any
of the events described in Section 4.2 of the Plan following the Grant
Date.
(b) In the event of any Approved Transaction, Board Change or
Control Purchase, the TINTA Option and all TINTA Tandem SARs shall
become exercisable in full without regard to paragraph 4(a); provided,
however, that to the extent not theretofore exercised the TINTA Option
and all TINTA Tandem SARs shall terminate upon the first to occur of
the consummation of the Approved Transaction, the expiration of the
TINTA Option Term or the earlier termination of the TINTA Option and
TINTA Tandem SARs pursuant to paragraph 8 hereof. Notwithstanding the
foregoing, the Committee may, in its discretion, determine that the
TINTA Option and TINTA Tandem SARs will not become exercisable on an
accelerated basis in connection with an Approved Transaction and/or
will not terminate if not exercised prior to consummation of the
Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall have taken or made effective
provision for the taking of such action as in the opinion of the
Committee is equitable and appropriate to substitute a new Award for
the Award evidenced by this Agreement or to assume this Agreement and
the Award evidenced hereby and in order to make such new or assumed
Award, as nearly as may be practicable, equivalent to the Award
evidenced by this Agreement as then in effect (but before giving effect
to any acceleration of the exercisability hereof unless otherwise
determined by the Committee), taking into account, to the extent
applicable, the kind and amount of securities, cash or other assets
into or for which the TINTA may be changed, converted or exchanged in
connection with the Approved Transaction.
13. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality of
Section 10.9 of the Plan, the Grantee agrees that Grantee will not exercise the
TINTA Option or any TINTA Tandem SAR and that the Company will not be obligated
to deliver any shares of TINTA or make any cash payment, if counsel to the
Company determines that such exercise, delivery or payment would violate any
applicable law or any rule or regulation of any governmental authority or any
rule or regulation of, or agreement of the Company with, any securities exchange
or association upon which the TINTA is listed or quoted. The Company shall in no
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<PAGE> 7
event be obligated to take any affirmative action in order to cause the exercise
of the TINTA Option or any TINTA Tandem SAR or the resulting delivery of shares
of TINTA or other payment to comply with any such law, rule, regulation or
agreement.
14. NOTICE. Unless the Company notifies the Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and addressed as
follows:
Tele-Communications International, Inc.
c/o General Counsel,
Tele-Communications International, Inc.
P. O. Box 5630
Denver, Colorado 80217
Any notice or other communication to the Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by first
class mail, postage prepaid, to Grantee's address as listed in the records of
the Company on the Grant Date, unless the Company has received written
notification from the Grantee of a change of address.
15. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 10.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of the Grantee,
(a) this Agreement may be amended or supplemented (i) to cure
any ambiguity or to correct or supplement any provision herein which
may be defective or inconsistent with any other provision herein, or
(ii) to add to the covenants and agreements of the Company for the
benefit of Grantee or surrender any right or power reserved to or
conferred upon the Company in this Agreement, subject, however, to any
required approval of the Company's stockholders and, provided, in each
case, that such changes or corrections shall not adversely affect the
rights of Grantee with respect to the Award evidenced hereby, or (iii)
to make such other changes as the Company, upon advice of counsel,
determines are necessary or advisable because of the adoption or
promulgation of, or change in or of the interpretation of, any law or
governmental rule or regulation, including any applicable federal or
state securities laws; and
-7-
<PAGE> 8
(b) subject to Section 10.8(b) of the Plan and any required
approval of the Company's stockholders, the Award evidenced by this
Agreement may be canceled by the Committee and a new Award made in
substitution therefor, provided that the Award so substituted shall
satisfy all of the requirements of the Plan as of the date such new
Award is made and no such action shall adversely affect the TINTA
Option or any TINTA Tandem SAR to the extent then exercisable.
16. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and no
action of the Company or the Committee with respect hereto, shall confer or be
construed to confer on the Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of the
Company or any employing Subsidiary to terminate the Grantee's employment at any
time, with or without cause; subject, however, to the provisions of any
employment agreement between the Grantee and the Company or any Subsidiary.
17. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
18. CONSTRUCTION. References in this Agreement to "this Agreement"
and the words "herein," "hereof," "hereunder" and similar terms include all
Exhibits and Schedules appended hereto, including the Plan. This Agreement is
entered into, and the Award evidenced hereby is granted, pursuant to the Plan
and shall be governed by and construed in accordance with the Plan and the
administrative interpretations adopted by the Committee thereunder. All
decisions of the Committee upon questions regarding the Plan or this Agreement
shall be conclusive. Unless otherwise expressly stated herein, in the event of
any inconsistency between the terms of the Plan and this Agreement, the terms of
the Plan shall control. The headings of the paragraphs of this Agreement have
been included for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
19. DUPLICATE ORIGINALS. The Company and the Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
20. RULES BY COMMITTEE. The rights of the Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Committee may adopt from time to time hereafter.
21. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee regarding the subject matter hereof. Grantee and the Company
hereby declare and represent that no promise or agreement not herein expressed
has been made and that this Agreement contains the entire agreement between the
parties hereto with respect to the TINTA Options and TINTA Tandem SARs and
replaces and makes null and void any prior agreements between Grantee and the
Company regarding the TINTA Options.
-8-
<PAGE> 9
22. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the terms
and conditions of this Agreement by signing in the space provided at the end
hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS
INTERNATIONAL, INC.
By:
-----------------------------
Name: Stephen M. Brett
Title: Vice President
ACCEPTED:
--------------------------------
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<PAGE> 10
Schedule 1 to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS INTERNATIONAL, INC. 1995 STOCK INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Option Price: $_____ per share
Option Shares: __________ shares of Series A Common Stock of
Tele-Communications International, Inc. ("TINTA"), $_____ par
value per share.
-10-
<PAGE> 11
Exhibit B to Non-Qualified Stock Option
and Stock Appreciation Rights Agreement
dated as of July 23, 1997
TELE-COMMUNICATIONS INTERNATIONAL, INC. 1995 STOCK INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ____________________________________ (the "Grantee"), hereby declare
that upon my death ______________________________________ (the "Beneficiary") of
Name
________________________________________________________________________________
Street Address City State Zip Code
who is my ___________________________________________, shall be entitled to the
Relationship to Grantee
TINTA Option, TINTA Tandem SARs and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the laws
of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ------------------------------- -------------------------------
Date Grantee
-11-
<PAGE> 1
EXHIBIT 10.48
1995 PLAN
TINTA RESTRICTED STOCK
7/23/97 GRANT
TELE-COMMUNICATIONS INTERNATIONAL, INC.
1995 STOCK INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 23th day of
July, 1997 (the "Grant Date"), by and between TELE-COMMUNICATIONS
INTERNATIONAL, INC., a Delaware corporation (the "Company"), and Grantee.
The Company has adopted the Tele-Communications International,
Inc. 1995 Stock Incentive Plan (the "Plan"), a copy of which is appended to
this Agreement as Exhibit A and by this reference made a part hereof, for the
benefit of eligible employees of the Company and its Subsidiaries. Capitalized
terms used and not otherwise defined herein shall have the meaning ascribed
thereto in the Plan.
Pursuant to the Plan, the Compensation Committee of the Board
(the "Committee"), which has been assigned responsibility for administering the
Plan, has determined that it would be in the interest of the Company and its
stockholders to award shares of common stock to Grantee, subject to the
conditions and restrictions set forth herein and in the Plan, in order to
provide Grantee with additional remuneration for services rendered, to
encourage Grantee to remain in the employ of the Company or its Subsidiaries
and to increase Grantee's personal interest in the continued success and
progress of the Company.
The Company and Grantee therefore agree as follows:
1. AWARD. Pursuant to the terms of the Plan and in consideration
of the covenants and promises of Grantee herein contained, the Company hereby
awards to Grantee as of the Grant Date, a total of 150,000 shares of Series A
Common Stock of the Company ("TINTA"), as set forth on Schedule 1 hereto,
subject to the conditions and restrictions set forth below and in the Plan (the
"Restricted Shares").
2. ISSUANCE OF RESTRICTED SHARES AT BEGINNING OF THE RESTRICTION
PERIOD. Upon issuance of the Restricted Shares the stock certificate or
certificates representing such Restricted Shares shall be registered in the
name of Grantee. During the Restriction Period, certificates representing the
Restricted Shares and any securities constituting Retained Distributions shall
bear a restrictive legend to the effect that ownership of the Restricted Shares
(and such Retained
-1-
<PAGE> 2
Distributions), and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms and conditions provided in the Plan and this
Agreement. Such certificates shall remain in the custody of the Company and
Grantee shall deposit with the Company stock powers or other instruments of
assignment, each endorsed in blank, so as to permit retransfer to the Company
of all or any portion of the Restricted Shares and any securities constituting
Retained Distributions that shall be forfeited or otherwise not become vested
in accordance with the Plan and this Agreement.
3. RESTRICTIONS. Restricted Shares shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. Grantee will
have the right to vote such Restricted Shares, to receive and retain such
dividends and distributions, as the Committee may in its sole discretion
designate, paid or distributed on such Restricted Shares and to exercise all
other rights, powers and privileges of a Holder of Common Stock with respect to
such Restricted Shares; except, that (a) Grantee will not be entitled to
delivery of the stock certificate or certificates representing such Restricted
Shares until the Restriction Period shall have expired and unless all other
vesting requirements with respect thereto shall have been fulfilled or waived;
(b) the Company will retain custody of the stock certificate or certificates
representing the Restricted Shares during the Restriction Period as provided in
Section 8.2 of the Plan; (c) other than such dividends and distributions as the
Committee may in its sole discretion designate, the Company will retain custody
of all distributions ("Retained Distributions") made or declared with respect
to the Restricted Shares (and such Retained Distributions will be subject to
the same restrictions, terms and vesting and other conditions as are applicable
to the Restricted Shares) until such time, if ever, as the Restricted Shares
with respect to which such Retained Distributions shall have been made, paid or
declared shall have become vested, and such Retained Distributions shall not
bear interest or be segregated in a separate account; (d) Grantee may not sell,
assign, transfer, pledge, exchange, encumber or dispose of the Restricted
Shares or any Retained Distributions or his interest in any of them during the
Restriction Period; and (e) a breach of any restrictions, terms or conditions
provided in the Plan or established by the Committee with respect to any
Restricted Shares or Retained Distributions will cause a forfeiture of such
Restricted Shares and any Retained Distributions with respect thereto.
4. VESTING AND FORFEITURE OF RESTRICTED STOCK: Subject to
earlier vesting in accordance with the provisions of Paragraph 7(b) below,
Grantee shall become vested as to 50% of the shares of Restricted Shares
subject to this Agreement as of four years following the Grant Date, and
Grantee shall become vested as to the remaining 50% of the shares of Restricted
Shares subject to this Agreement as of five years following the Grant Date,
each such date being a Vesting Date; provided, however, that Grantee shall not
vest, pursuant to this Paragraph 4, in shares of Restricted Shares as to which
Grantee would otherwise vest as of a given date if Grantee has not been
continuously employed by the Company or its Subsidiaries from the date of this
Agreement through such date (the vesting or forfeiture of such shares to be
governed instead by the provisions of Paragraph 5). Notwithstanding the
foregoing, in the event that any date on which vesting would otherwise occur is
a Saturday, Sunday or a holiday, such vesting shall instead occur on the
business day next following such date.
-2-
<PAGE> 3
5. EARLY TERMINATION OF AWARD. Unless otherwise determined by
the Committee in its sole discretion, the Award shall terminate, to the extent
not theretofore vested, prior to the expiration of the Restricted Period, at
the time specified below:
(a) If Grantee's employment with the Company and its
Subsidiaries terminates other than (i) by the Grantee with "good
reason" (as defined herein) or (ii) by reason of death or Disability,
then the Award, to the extent not theretofore vested, shall be
forfeited immediately;
(b) If Grantee's employment with the Company terminates
(i) by the Grantee with "good reason" or (ii) by reason of death or
Disability, then the Award, to the extent not theretofore vested,
shall immediately become fully vested.
"Good reason" for purposes of the Agreement shall be deemed to
have occurred upon the relocation of the office location as assigned to Grantee
by the Company, without Grantee's consent, to a location outside the Denver and
Boulder-Longmont Primary Metropolitan Statistical Areas (as so designated on
the Grant Date), but only if Grantee's office location on the date of grant is
in either such area.
6. COMPLETION OF THE RESTRICTION PERIOD. On the Vesting Date
with respect to each award of Restricted Shares, and the satisfaction of any
other applicable restrictions, terms and conditions (a) all or the applicable
portion of such Restricted Shares shall become vested, (b) any Retained
Distributions and any unpaid Dividend Equivalents with respect to such
Restricted Shares shall become vested to the extent that the Restricted Shares
related thereto shall have become vested and (c) any cash award to be received
by Grantee with respect to such Restricted Shares shall become payable, all in
accordance with the terms of this Agreement. Any such Restricted Shares,
Retained Distributions and any unpaid Dividend Equivalents that shall not
become vested shall be forfeited to the Company and Grantee shall not
thereafter have any rights (including dividend and voting rights) with respect
to such Restricted Shares, Retained Distributions and any unpaid Dividend
Equivalents that shall have been so forfeited. The Committee may, in its
discretion, provide that the delivery of any Restricted Shares, Retained
Distributions and unpaid Dividend Equivalents that shall have become vested,
and payment of any cash awards that shall have become payable, shall be
deferred until such date or dates as the recipient may elect. Any election of
a recipient pursuant to the preceding sentence shall be filed in writing with
the Committee in accordance with such rules and regulations, including any
deadline for the making of such an election, as the Committee may provide.
7. ADJUSTMENTS.
(a) The Restricted Shares shall be subject to adjustment
(including, without limitation, as to the number of Restricted Shares)
in the sole discretion of the Committee
-3-
<PAGE> 4
and in such manner as the Committee may deem equitable and appropriate
in connection with the occurrence of any of the events described in
Section 4.2 of the Plan following the Grant Date.
(b) In the event of any Approved Transaction, Board
Change or Control Purchase, the restrictions in Paragraph 3 shall
lapse. Notwithstanding the foregoing, the Committee may, in its
discretion, determine that the restrictions in Paragraph 3 will not
lapse on an accelerated basis in connection with an Approved
Transaction if the Board or the surviving or acquiring corporation, as
the case may be, shall have taken or made effective provision for the
taking of such action as in the opinion of the Committee is equitable
and appropriate to substitute a new Award for the Award evidenced by
this Agreement or to assume this Agreement and the Award evidenced
hereby and in order to make such new or assumed Award, as nearly as
may be practicable, equivalent to the Award evidenced by this
Agreement as then in effect (but before giving effect to any
acceleration of the exercisability hereof unless otherwise determined
by the Committee), taking into account, to the extent applicable, the
kind and amount of securities, cash or other assets into or for which
the TINTA Common Stock may be changed, converted or exchanged in
connection with the Approved Transaction.
8. MANDATORY WITHHOLDING FOR TAXES. Upon the expiration of the
Restriction Period, Grantee (or Beneficiary, as defined in Paragraph 10 below)
must remit to the Company the amount of all federal, state and other
governmental withholding tax requirements imposed upon the Company with respect
to the vesting of shares of Restricted Stock, unless provisions to so pay such
withholding requirements have been made to the satisfaction of the Committee.
Upon the payment of any cash dividends with respect to shares of Restricted
Stock during the Restriction Period, the amount of such dividends shall be
reduced to the extent necessary to satisfy any withholding tax requirements
applicable thereto prior to payment to Grantee.
9. DELIVERY BY THE COMPANY. As soon as practicable after vesting
in Restricted Shares pursuant to Paragraphs 4 or 5, and subject to the
withholding referred to in paragraph 8, the Company shall deliver to Grantee
certificates issued in Grantee's name for the number of Restricted Shares. If
delivery is by mail, delivery of shares of TINTA Common Stock shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to Grantee, and
any cash payment shall be deemed effected when a Company check, payable to
Grantee and in an amount equal to the amount of the cash payment, shall have
been deposited in the United States mail, addressed to Grantee.
10. NONTRANSFERABILITY OF RESTRICTED SHARES BEFORE VESTING.
Before vesting and during Grantee's lifetime, the Restricted Shares are not
transferable (voluntarily or involuntarily) other than pursuant to a domestic
relations order and, except as otherwise required pursuant to a domestic
relations order, are exercisable only by Grantee or Grantee's court appointed
legal representative. The Grantee may designate a beneficiary or beneficiaries
to whom the Restricted
-4-
<PAGE> 5
Shares shall pass upon Grantee's death and may change such designation from
time to time by filing a written designation of beneficiary or beneficiaries
with the Committee on the form annexed hereto as Exhibit B or such other form
as may be prescribed by the Committee, provided that no such designation shall
be effective unless so filed prior to the death of Grantee. If no such
designation is made or if the designated beneficiary does not survive the
Grantee's death, the Restricted Shares shall pass by will or the laws of
descent and distribution. Following Grantee's death, the Restricted Shares
shall pass accordingly to the designated beneficiary and such person shall be
deemed the Grantee for purposes of any applicable provisions of this Agreement.
11. COMPANY'S RIGHTS. The existence of this Agreement shall not
affect in any way the right or power of the Company or its stockholders to
accomplish any corporate act, including, without limitation, the acts referred
to in Section 10.18 of the Plan.
12. LIMITATION OF RIGHTS: Nothing in this Agreement or the Plan
shall be construed to:
(a) give Grantee any right to be awarded any further
restricted stock other than in the sole discretion of the Committee;
(b) give Grantee or any other person any interest in any
fund or in any specified asset or assets of the Company or any
subsidiary of the Company; or
(c) confer upon Grantee the right to continue in the
employment or service of the Company or any subsidiary of the Company,
or affect the right of the Company or any subsidiary of the Company to
terminate the employment or service of Grantee at any time or for any
reason.
13. PREREQUISITES TO BENEFITS: Neither Grantee nor any person
claiming through Grantee shall have any right or interest in the Restricted
Shares awarded hereunder, unless and until all the terms, conditions and
provisions of this Agreement and the Plan which affect the Grantee or such
other person shall have been complied with as specified herein.
14. RESTRICTIONS IMPOSED BY LAW. Without limiting the generality
of Section 10.9 of the Plan, Grantee agrees that Grantee will not require the
Company to deliver any Restricted Shares and that the Company will not be
obligated to deliver any Restricted Shares or make any cash payment, if counsel
to the Company determines that such exercise, delivery or payment would violate
any applicable law or any rule or regulation of any governmental authority or
any rule or regulation of, or agreement of the Company with, any securities
exchange or association upon which the TINTA Common Stock is listed or quoted.
The Company shall in no event be obligated to take any affirmative action in
order to cause the delivery of any Restricted Shares or other payment to comply
with any such law, rule, regulation or agreement.
-5-
<PAGE> 6
15. NOTICE. Unless the Company notifies Grantee in writing of a
different procedure, any notice or other communication to the Company with
respect to this Agreement shall be in writing and shall be:
(a) delivered personally to the following address:
Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
or
(b) sent by first class mail, postage prepaid and addressed as follows:
Tele-Communications International, Inc.
c/o General Counsel, Tele-Communications International, Inc.
P. O. Box 5630
Denver, Colorado 80217
Any notice or other communication to Grantee with respect to this Agreement
shall be in writing and shall be delivered personally, or shall be sent by
first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Grant Date, unless the Company has received
written notification from Grantee of a change of address.
16. AMENDMENT. Notwithstanding any other provisions hereof, this
Agreement may be supplemented or amended from time to time as approved by the
Committee as contemplated by Section 10.8(b) of the Plan. Without limiting the
generality of the foregoing, without the consent of Grantee,
(a) this Agreement may be amended or supplemented (i) to
cure any ambiguity or to correct or supplement any provision herein
which may be defective or inconsistent with any other provision
herein, or (ii) to add to the covenants and agreements of the Company
for the benefit of Grantee or surrender any right or power reserved to
or conferred upon the Company in this Agreement, subject, however, to
any required approval of the Company's stockholders and, provided, in
each case, that such changes or corrections shall not adversely affect
the rights of Grantee with respect to the Award evidenced hereby, or
(iii) to make such other changes as the Company, upon advice of
counsel, determines are necessary or advisable because of the adoption
or promulgation of, or change in or of the interpretation of, any law
or governmental rule or regulation, including any applicable federal
or state securities laws; and
(b) subject to Section 10.8(b) of the Plan and any
required approval of the Company's stockholders, the Award evidenced
by this Agreement may be canceled by the
-6-
<PAGE> 7
Committee and a new Award made in substitution therefor, provided that
the Award so substituted shall satisfy all of the requirements of the
Plan as of the date such new Award is made and no such action shall
adversely affect the Restricted Shares to the extent then vested.
17. GRANTEE EMPLOYMENT. Nothing contained in this Agreement, and
no action of the Company or the Committee with respect hereto, shall confer or
be construed to confer on Grantee any right to continue in the employ of the
Company or any of its Subsidiaries or interfere in any way with the right of
the Company or any employing Subsidiary to terminate Grantee's employment at
any time, with or without cause; subject, however, to the provisions of any
employment agreement between Grantee and the Company or any Subsidiary.
18. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
19. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
include all Exhibits and Schedules appended hereto, including the Plan. This
Agreement is entered into, and the Award evidenced hereby is granted, pursuant
to the Plan and shall be governed by and construed in accordance with the Plan
and the administrative interpretations adopted by the Committee thereunder.
All decisions of the Committee upon questions regarding the Plan or this
Agreement shall be conclusive. Unless otherwise expressly stated herein, in
the event of any inconsistency between the terms of the Plan and this
Agreement, the terms of the Plan shall control. The headings of the paragraphs
of this Agreement have been included for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms or provisions hereof.
20. DUPLICATE ORIGINALS. The Company and Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
21. RULES BY COMMITTEE. The rights of Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Committee may adopt from time to time hereafter.
22. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between the
Company and Grantee. Grantee and the Company hereby declare and represent that
no promise or agreement not herein expressed has been made and that this
Agreement contains the entire agreement between the parties hereto with respect
to the Restricted Shares and replaces and makes null and void any prior
agreements between Grantee and the Company regarding the Restricted Shares.
-7-
<PAGE> 8
23. GRANTEE ACCEPTANCE. Grantee shall signify acceptance of the
terms and conditions of this Agreement by signing in the space provided at the
end hereof and returning a signed copy to the Company.
TELE-COMMUNICATIONS
INTERNATIONAL, INC.
By:
--------------------------
Name:
Title:
ACCEPTED:
------------------------------
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<PAGE> 9
Schedule 1 to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS INTERNATIONAL, INC. 1995 STOCK INCENTIVE PLAN
Grantee:
Grant Date: July 23, 1997
Restricted Shares: shares of Series A Common Stock ("TINTA"),
$1.00 par value per share.
<PAGE> 10
Exhibit B to Restricted Stock Award
Agreement dated as of July 23, 1997
TELE-COMMUNICATIONS INTERNATIONAL, INC. 1995 STOCK INCENTIVE PLAN
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
_____________________________________________________________________________,
Street Address City State Zip Code
who is my _________________________________________________, shall be entitled
Relationship to Grantee
to the Restricted Shares and all other rights accorded the Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of the Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to the Grantee's will or the
laws of descent and distribution.
It is further understood that all prior designations of beneficiary
under the Agreement are hereby revoked and that this Designation of Beneficiary
may only be revoked in writing, signed by the Grantee, and filed with the
Company prior to the Grantee's death.
- ----------------------- -----------------------------
Date Grantee
-10-
<PAGE> 1
EXHIBIT 10.51
TCI WIRELESS HOLDINGS, INC.
STOCK APPRECIATION RIGHTS
THIS AGREEMENT ("AGREEMENT") is made as of the 1st day of
December, 1996, by and among TCI WIRELESS HOLDINGS, INC., a Delaware
corporation (the "COMPANY"), _____________________ ("GRANTEE") and, for
purposes of paragraphs 1(b), 14 and 15 only, TCI TELEPHONY SERVICES, INC., a
Delaware corporation ("TCITS), and, for purposes of paragraphs 5, 14 and 15
only, TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI").
On the date hereof, the Company and TCITS are Subsidiaries of
TCI and the Company is a Subsidiary of TCITS. Pursuant to that certain
agreement, dated as of December 1, 1996, among Grantee, TCITS and TCI (the
"TCITS SAR AGREEMENT"), TCITS had granted to Grantee stock appreciation rights
with respect to TCITS's common stock (the "TCITS SARS"). The Board of
Directors of the Company ("COMPANY BOARD"), the Board of Directors of TCITS,
and the Board of Directors of TCI have each determined that it is in the best
interests of the Company, TCITS and TCI to grant Grantee the stock appreciation
rights set forth herein, in substitution for and in cancellation of the TCITS
SARs, in order to provide Grantee with additional remuneration for services
rendered to the Company and its predecessors, to encourage Grantee to remain in
the employ of TCI and/or one or more of its Subsidiaries, including the
Company, and to provide additional incentive to Grantee by increasing Grantee's
proprietary interest in the continued success and progress of the Company.
Capitalized terms used herein and not otherwise defined are defined in
paragraph 17 below.
Accordingly, the Company, Grantee, and, for purposes of
paragraphs 1(b), 14 and 15 only, TCITS and, for purposes of paragraphs 5, 14
and 15 only, TCI hereby agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS; TERM. (a) The Company
hereby grants to Grantee stock appreciation rights ("SARS") with respect to ten
(10) (the "TOTAL NUMBER OF SARS") shares of Company Common Stock on the terms
and subject to the conditions set forth herein. The Total Number of SARs and
the Strike Price are subject to adjustment pursuant to paragraph 9 below.
Subject to paragraph 2, the SARs shall be exercisable in whole at any time and
in part from time to time during the period commencing on the date hereof and
expiring at 5:00 p.m., Denver, Colorado time ("CLOSE OF BUSINESS") on the tenth
anniversary of the Determination Date, or such earlier date as the SARs may be
terminated pursuant to paragraph 6 or paragraph 9(c) (the "TERM").
(b) The grant of the SARs hereunder, together with the
grant of the stock appreciation rights by TCI Teleport Holdings, Inc. ("TCI
TELEPORT"), shall be deemed to be in substitution for and replacement of the
TCITS SARs (which in turn replaced an option to purchase
<PAGE> 2
shares of common stock of TCITS, the parent corporation of the Company and TCI
Teleport). The parties acknowledge and agree that such prior grants of the
TCITS SARs and stock option are hereby terminated and shall cease to be of any
further force and effect.
2. CONDITIONS OF EXERCISE; VESTING. Except as otherwise provided
in the last sentence of this paragraph 2 or in paragraph 9(c), the SARs shall
not be exercisable until the first anniversary of the Determination Date, and,
from the first anniversary of the Determination Date to the fifth anniversary
of the Determination Date, the SARs shall vest and become exercisable in
accordance with the following schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Total Number
Determination Date of SARs Exercisable
------------------ --------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all then unexercised SARs (the
"REMAINING SARS") shall become exercisable if during the Term (i) Grantee's
employment with the TCI Group shall terminate by reason of (x) termination by
the TCI Group without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and the applicable
member(s) of the TCI Group which expressly permits Grantee to terminate such
employment upon the occurrence of specified events (other than the giving of
notice and passage of time) or (iii) Grantee dies while employed by the TCI
Group. A change of employment is not a termination of employment within the
meaning of this paragraph 2, provided that, after giving effect to such change,
Grantee is an employee of, or becomes or continues to be a consultant to, any
member of the TCI Group.
3. EXERCISE OF SARS; SUBSEQUENT RESCISSION. (a) The SARs granted
hereunder may be exercised by delivery to the Company of a written notice (the
"EXERCISE NOTICE") specifying the whole number of SARs being exercised. The
date upon which such notice is validly given to the Company shall be deemed to
be the date of exercise of the SARs specified therein (the "EXERCISE DATE").
Upon the valid exercise of SARs (which exercise is not subsequently rescinded
as provided herein), Grantee shall be entitled to receive from the Company,
with respect to each SAR then being exercised, the excess of (i) the Per Share
Value of a share of Company Common Stock as of the Exercise Date over (ii) the
Strike Price applicable as of such Exercise Date (such excess, the "CASH
VALUE").
(b) Grantee shall have the right to rescind an exercise
of SARs prior to the Close of Business on the fifteenth (15th) day following
the Exercise Date in the event that (i) Grantee has elected to determine the
Per Share Value through negotiation with the Company, (ii) Grantee and the
Company have not agreed upon a Per Share Value by such date and (iii) Grantee
has not made
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<PAGE> 3
a subsequent election to require that the Per Share Value be determined by
appraisal pursuant to paragraph 10(c) hereof. In addition, an exercise of SARs
shall be deemed rescinded under the circumstances set forth in paragraph 10(b)
hereof. In the event of any rescission of an exercise of SARs pursuant to this
paragraph 3(b), Grantee shall not be permitted to again exercise SARs for a
period of thirty (30) days following the date of such rescission.
(c) In the event Grantee elects to rescind his exercise
of SARs, such exercise shall be deemed rescinded ab initio and the future
exercisability and vesting of those SARs whose exercise has been rescinded
shall not be affected by such exercise and subsequent rescission, except as
provided in the last sentence of paragraph 3(b) above.
4. WITHHOLDING FOR TAXES. It shall be a condition precedent to
any exercise of a SAR that Grantee make provision acceptable to the Company for
the payment or withholding of any and all federal, state and local taxes
required to be withheld by the Company to satisfy the tax liability associated
with such exercise, as determined by the Company Board.
5. DELIVERY BY THE COMPANY. (a) Subject to the withholding
referred to in paragraph 4, the Company shall deliver or cause to be delivered
to Grantee the Cash Value of the SARs then being exercised, with such amount
being paid, at the Company's election, in (i) cash, (ii) provided that the
Company is then a Public Company and that the Company Common Stock is then
listed or traded on NASDAQ or a national securities exchange and is actively
traded, shares of Company Common Stock, (iii) shares of Tele-Communications,
Inc. Series A TCI Group Common Stock, $1.00 par value per share, or any
successor class or series of TCI's common stock, or if any class or series of
TCI's common stock is hereafter created that is intended to track the separate
performance of specified assets or businesses of TCI that include assets and
businesses of the Company, shares of such class or series (and if more than one
series of such "tracking stock" is created with different voting rights, the
series with the lower voting rights), provided that shares of the same class
and series of securities being so delivered are then listed or traded on NASDAQ
or a national securities exchange and are actively traded (collectively, the
"TCI STOCK"), or (iv) any combination of cash, Company Common Stock and TCI
Stock as the Company may elect. It shall be a condition to the Company's right
to deliver shares of Company Common Stock or TCI Stock in satisfaction of its
obligations hereunder that such shares have been registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), on Form S-8 (or
other available form) and if Grantee's sale of such shares in the public market
would be restricted (other than as to manner of sale) pursuant to Rule 144
under the Securities Act, then a resale prospectus shall be prepared by the
Company or TCI, as the case may be, and provided to Grantee for his use in
selling such shares. If the Company elects to pay all or any portion of the
Cash Value in shares of Company Common Stock or TCI Stock, said shares shall be
valued for such purpose at the most recent Closing Price thereof preceding the
date of delivery of such shares to Grantee. The payment of the Cash Value (in
cash or by delivery of Company Common Stock or TCI Stock) shall be made (i) if
the Company is a Public Company, on the 10th day following the Exercise Date
and (ii) if the Company is not a Public Company, on the 10th day following
either (x) the date Grantee and the Company mutually agree as to the Agreed Per
Share Value or (y) the receipt by Grantee and the Company of notice
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<PAGE> 4
pursuant to paragraph 10(c) of the final determination of the Appraised Per
Share Value (or on such other date as the parties may agree).
(b) TCI hereby covenants and undertakes to cause the
Company to comply with its covenants, agreements and obligations hereunder to
the same extent as if such covenants, agreements and obligations were binding
upon TCI; provided, that TCI's obligations hereunder shall terminate (to the
extent not fixed and accrued) at such time as the Company ceases to be a
Subsidiary of TCI.
6. EARLY TERMINATION OF SARS. Unless otherwise determined by the
Company Board in its sole discretion, the SARs shall terminate, prior to the
expiration of the ten-year period provided for in paragraph 1, as follows:
(a) If Grantee's employment with the TCI Group terminates
other than (i) by Grantee with Good Reason, (ii) by reason of
Grantee's death or Disability, (iii) with the written consent of the
applicable member(s) of the TCI Group, (iv) without such consent if
such termination is pursuant to provisions of a written employment
agreement, if any, between Grantee and the applicable member(s) of the
TCI Group which expressly permits Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of
notice and passage of time), or (v) by the TCI Group with or without
Cause, then the SARs shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the TCI Group, or
prior to the expiration of a relevant period of time during which the
SARs remain exercisable as provided in this paragraph 6, the SARs
shall terminate at the Close of Business on the first business day
following the expiration of the one-year period beginning on the date
of death;
(c) If Grantee's employment with the TCI Group terminates
by reason of Disability, then the SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the TCI Group is
terminated by the TCI Group for Cause, then the SARs shall terminate
immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with the TCI
Group (i) with Good Reason, (ii) with the written consent of the
applicable member(s) of the TCI Group or (iii) pursuant to provisions
of a written employment agreement, if any, between Grantee and the
applicable member(s) of the TCI Group which expressly permits Grantee
to terminate such employment upon the occurrence of specified events
(other than the giving of notice and
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<PAGE> 5
passage of time), or if the TCI Group terminates Grantee's employment
with the TCI Group without Cause, then the Term shall not terminate
prior to the end of the ten-year period provided for in paragraph 1,
except as otherwise provided for in paragraph 6(b) or 9(c).
In any event in which the SARs remain exercisable for a period of time
following the date of termination of Grantee's employment as provided above,
the SARs may be exercised during such period of time only to the extent they
were exercisable as provided in paragraph 2 or paragraph 9(c) on such date of
termination of Grantee's employment. A change of employment is not a
termination of employment within the meaning of this paragraph 6, provided
that, after giving effect to such change, Grantee is an employee of, or becomes
or continues to be a consultant to, any member of the TCI Group. Anything
contained herein to the contrary notwithstanding, the SARs shall in any event
terminate upon the expiration of the ten-year period provided for in paragraph
1, if not theretofore terminated.
7. NONTRANSFERABILITY OF SARS. During Grantee's lifetime, the
SARs are not and shall not be transferable (voluntarily or involuntarily) other
than pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, the SARs shall be exercisable only by
Grantee or Grantee's court appointed legal representative. Grantee may
designate a beneficiary or beneficiaries to whom the SARs shall pass upon
Grantee's death and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Company on the
form annexed hereto as Exhibit A or such other form as may be prescribed by the
Company Board, provided that no such designation shall be effective unless so
filed prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive Grantee's death, the SARs shall pass by
will or the laws of descent and distribution. Following Grantee's death, the
SARs, if otherwise exercisable, may be exercised by the person to whom the SARs
pass according to the foregoing, and such person shall be deemed to be Grantee
for purposes of any applicable provisions of this Agreement.
8. NO SHAREHOLDER RIGHTS; NO GUARANTEE OF EMPLOYMENT; UNSECURED
OBLIGATION. (a) Grantee shall not be deemed for any purpose to be, or to have
any of the rights of, a stockholder of the Company by virtue of this Agreement
or the grant of the SARs. The existence of this Agreement or the SARs shall not
affect in any way the right or power of the Company or its stockholders to
accomplish any corporate act.
(b) Nothing contained in this Agreement, and no action by
the Company or the Company Board with respect hereto, shall confer or be
construed to confer on Grantee any right to continue in the employ of the TCI
Group or any member thereof or interfere in any way with the right of TCI, the
Company or any employing member of the TCI Group to terminate Grantee's
employment at any time, with or without Cause, except as otherwise expressly
provided in any written employment agreement between the applicable member(s)
of the TCI Group and Grantee.
(c) The amount of cash payable at any time by the Company
upon the valid exercise of SARs granted hereunder shall not in any way be
reserved or held in trust by the Company
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<PAGE> 6
or TCI. Grantee shall not have any rights against the Company in respect of
payments of such amount of cash other than the rights of an unsecured general
creditor of the Company. The amount of cash payable upon the valid exercise of
SARs hereunder shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and shall not in any
manner be liable or subject to the debts, contracts, liabilities, engagements
or torts of Grantee or of any designated beneficiary or personal
representative.
9. ADJUSTMENTS; ACCELERATION; AUTOMATIC EXERCISE. (a) If, after
December 31, 1996, the Company (i) pays a dividend or makes a distribution on
the Company Common Stock in shares of Company Common Stock; (ii) subdivides the
outstanding shares of Company Common Stock into a greater number of shares or
(iii) combines the outstanding shares of Company Common Stock into a smaller
number of shares, then the number of Remaining SARs and the Strike Price in
effect immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision or
combination will be adjusted proportionately so that, after giving effect to
such adjustment, the number of SARs under this Agreement (the "ADJUSTED NUMBER
OF SARS") will be equal to the number of shares of Company Common Stock that
would be owned immediately after such dividend, distribution, subdivision or
combination by a stockholder that held immediately prior to the applicable
record date or effective date for such event a number of shares of Company
Common Stock equal to the number of shares of Company Common Stock to which
the Remaining SARs related immediately prior to such record date or effective
date. The aggregate number of shares of Company Common Stock to which the SARs
will relate after giving effect to such adjustment will be equal to the
Adjusted Number of SARs. Adjustments to the Strike Price shall be made on a
per SAR basis so that the aggregate Strike Price of all SARs under this
Agreement following such adjustment is unchanged. The adjustment contemplated
by the first sentence of this paragraph 9(a) shall be made successively
whenever any event listed above shall occur. For a dividend or distribution,
the adjustment shall become effective immediately after the record date for the
dividend or distribution. For a subdivision or combination, the adjustment
shall become effective immediately after the effective date of the subdivision
or combination.
(b) The SARs shall also be subject to adjustment
(including, without limitation, as to the number of shares of Company Common
Stock to which the SARs in the aggregate relate and the Strike Price) in the
sole discretion of the Company Board and in such manner as the Company Board
may deem equitable and appropriate in connection with the occurrence of any of
the following events after December 31, 1996 that affects the Company Common
Stock such that an adjustment would be required in order to preserve the
benefits or potential benefits intended to be made available under this
Agreement: any dividend or distribution on the Company Common Stock in shares
of the Company's capital stock (other than Company Common Stock); any
reclassification of the Company Common Stock into shares of the Company's
capital stock (other than a reclassification by way of an Approved
Transaction); any extraordinary cash dividend; any distribution of any rights,
warrants or options to holders of Company Common Stock; any distribution of any
assets or debt securities (other than cash dividends or distributions that are
not extraordinary cash dividends); any recapitalization, reorganization, split
up or spin off; and any merger, consolidation or binding share exchange that
reclassifies or changes the outstanding
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<PAGE> 7
Company Common Stock or other similar corporate event (other than those which
constitute Approved Transactions). Notwithstanding the foregoing, in the event
of any reclassification or recapitalization of the Company Common Stock into
two or more classes or series of common stock with different voting rights
(however the same may be effected), the SARs shall relate to the shares of the
class or series of common stock of the Company with the fewest number of votes
per share. Adjustments to the Strike Price shall be made on a per SAR basis so
that the aggregate Strike Price of all SARs under this Agreement following such
adjustment is unchanged.
(c) The Company Board may at any time in its sole
discretion determine that the SARs become exercisable in full, without regard
to paragraph 2, whether immediately, upon the occurrence of specified events,
or otherwise. Without limiting the generality of the foregoing, in the event
of any Board Change, Control Purchase or Approved Transaction that occurs with
respect to TCI following December 31, 1996 and prior to the earlier of such
time as the Company ceases to be a Subsidiary of TCI or such time as the
Company becomes a Public Company, the SARs shall become exercisable in full,
without regard to paragraph 2, effective upon the Board Change or Control
Purchase or immediately prior to consummation of the Approved Transaction, as
applicable (or at such earlier time as the Company Board in its sole discretion
may determine); provided, however, that to the extent not theretofore exercised
the SARs shall terminate upon the first to occur of the consummation of the
Approved Transaction or the expiration or early termination of the Term. In
the event that (i) at any time after December 31, 1996 while the Company is a
Subsidiary of TCI, an Approved Transaction occurs with respect to the Company
after giving effect to which the Company will cease to be a Subsidiary of TCI
or (ii) an Approved Transaction, Board Change or Control Purchase occurs with
respect to the Company at a time following December 31, 1996 that the Company
is no longer a Subsidiary of TCI, then, in any such case, the SARs shall become
exercisable in full, without regard to paragraph 2, effective upon the Board
Change or Control Purchase or immediately prior to consummation of the Approved
Transaction, as applicable (or at such earlier time as the Company Board in its
sole discretion may determine); provided, however, that to the extent not
theretofore exercised the SARs shall terminate upon the first to occur of the
consummation of the Approved Transaction or the expiration or early termination
of the Term. Notwithstanding the foregoing, the Company Board may, in its
discretion, determine that the SARs will not become exercisable on an
accelerated basis in connection with an Approved Transaction and/or will not
terminate if not exercised prior to consummation of the Approved Transaction,
if the Company Board or the surviving or acquiring corporation, as the case may
be, shall have taken or made effective provision for the taking of such action
as in the opinion of the Company Board is equitable and appropriate to
substitute new stock appreciation rights for the SARs evidenced by this
Agreement or to assume this Agreement and the SARs evidenced hereby and in
order to make such new or assumed stock appreciation rights, as nearly as may
be practicable, equivalent to the SARs evidenced by this Agreement as then in
effect (but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Company Board), taking into account,
to the extent applicable, the kind and amount of securities, cash or other
assets into or for which the Company Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
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<PAGE> 8
(d) All actions taken by the Company Board with respect
to the SARs pursuant to this paragraph 9 shall be consistent with any actions
taken by the Company Board with respect to the Other SARs.
(e) Immediately prior to the termination of the SARs as
provided in paragraph 6 above (other than pursuant to paragraph 6(d)), this
paragraph 9, or the expiration of the Term, all Remaining SARs shall be deemed
to have been exercised by Grantee and Grantee shall be deemed to have taken all
actions required by paragraph 3(a) for a valid exercise of SARs.
10. RESTRICTIONS IMPOSED BY LAW; AGREED PER SHARE VALUE; APPRAISAL
PROCEDURES. (a) Grantee acknowledges that neither the SARs nor the interests
evidenced thereby have been registered under the Securities Act and that
neither the SARs nor the interests evidenced thereby may be transferred in the
absence of such registration or the availability of an exemption therefrom
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. Neither the Company nor any other
person shall have any obligation to register the SARs or the interests
evidenced thereby or any transfer of the SARs or the interests evidenced
thereby under the Securities Act, the Exchange Act or any other state or
federal securities law.
(b) If the Company is not a Public Company as of the
Exercise Date, Grantee and the Company shall seek to negotiate a mutually
acceptable Per Share Value, provided that, subject to the last sentence of
paragraph 10(c), Grantee shall have the right, exercisable by written notice
given to the Company at any time prior to the first to occur of (i) agreement
on the Per Share Value having been reached by Grantee and the Company and (ii)
the Close of Business on the fifteenth (15th) day following the Exercise Date,
to require that the Per Share Value be determined by appraisal as provided
herein. If by the Close of Business on such fifteenth (15th) day Grantee and
the Company have not agreed upon the Per Share Value and Grantee has not given
notice requiring an appraisal, Grantee shall be deemed to have rescinded the
exercise of SARs pursuant to paragraph 3 hereof. Unless Grantee has elected an
appraisal, the Company and Grantee each agrees to conduct the negotiation with
respect to the Per Share Value in good faith and to use its or his commercially
reasonable efforts to agree upon the Agreed Per Share Value. The parties
acknowledge and agree that in connection with such negotiations the parties
shall give due consideration to the determination of the Fair Market Value of
the Company (as set forth in the definition thereof) and the number of shares
of Company Common Stock outstanding (based upon the principles set forth in
paragraph 10(c) hereof).
(c) In the event Grantee elects to require that the Per
Share Value be determined by appraisal, Grantee shall specify, in the Exercise
Notice or the subsequent written notice to the Company electing appraisal, the
identity of the Appraiser selected by Grantee to make the determination of the
Fair Market Value of the Company (the "FIRST APPRAISER"). Within three (3)
business days following receipt of such notice, the Company shall notify
Grantee in writing as to the identity of the Appraiser selected by the Company
(the "SECOND APPRAISER"). The First Appraiser
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<PAGE> 9
and the Second Appraiser shall each submit its determination of the Fair Market
Value of the Company to Grantee and the Company within thirty (30) days of the
date of selection of the Second Appraiser. If the respective determinations of
the Fair Market Value of the Company by such Appraisers vary by less than 10%
of the higher determination, then the Fair Market Value of the Company shall be
the average of the two determinations. If such determinations vary by 10% or
more of the higher determination, the two Appraisers shall promptly designate a
third Appraiser (the "THIRD APPRAISER"). Neither Grantee nor the Company shall
provide, and the First Appraiser and Second Appraiser shall be instructed not
to provide, any information to the Third Appraiser as to the determination of
the First Appraiser and Second Appraiser or otherwise influence such Third
Appraiser's determination. The Third Appraiser shall submit its determination
of the Fair Market Value of the Company to Grantee and the Company within
fifteen (15) days of the date of its selection. The Fair Market Value of the
Company shall be equal to the average of the two closest of the three
determinations, provided that, if the difference between the highest and middle
determinations is no more than 105% and no less than 95% of the difference
between the middle and lowest determinations, the Fair Market Value of the
Company shall be equal to the middle determination. Following the
determination of the Fair Market Value of the Company, the Appraisers whose
determinations were used in the calculation of the Fair Market Value of the
Company shall determine the number of shares of Company Common Stock
outstanding together with any further appropriate adjustments to the Fair
Market Value of the Company resulting from such determination. The number of
shares of Company Common Stock outstanding shall mean a number, as determined
by such Appraisers as of the applicable date, equal to the sum of the number of
shares of Company Common Stock outstanding and the number of shares of Company
Common Stock issuable upon the conversion, exercise or exchange of those
convertible securities the holders of which would derive an economic benefit
from the conversion, exercise of exchange of such convertible securities which
exceeds the economic benefits of not converting, exercising or exchanging such
convertible securities. The Appraisers shall then calculate the value per
share of Company Common Stock (the "APPRAISED PER SHARE VALUE"), which shall be
the quotient obtained by dividing the Fair Market Value of the Company by the
number of shares of Company Common Stock outstanding or deemed outstanding;
provided, that if such Appraisers do not agree on the number of shares of
Company Common Stock outstanding, each Appraiser whose determination of the
Fair Market Value of the Company is being used in the calculation of the
Appraised Per Share Value shall determine the Appraised Per Share Value based
upon its determination of the Fair Market Value of the Company and the number
of shares of Company Common Stock outstanding, and the Appraised Per Share
Value shall be the average of the quotients so obtained on the basis of the
respective determinations of such firms. The Appraisers shall jointly notify
the Company and Grantee in writing of their final determination of the
Appraised Per Share Value of the Company Common Stock within five (5) days
after the determination of the Fair Market Value of the Company. Grantee and
the Company shall each pay the fees and expenses of his or its own Appraiser
and one-half of the fees and expenses of the Third Appraiser, if any. Grantee
acknowledges and agrees that he shall not be entitled to require an appraisal
pursuant to this Agreement more than once in any 12 month period.
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<PAGE> 10
11. NOTICE. Unless the Company or TCI, as applicable, notifies
Grantee in writing of a change of address, any notice or other communication to
the Applicable Person with respect to this Agreement shall be in writing and
shall be delivered personally or sent by first class mail, postage prepaid and
addressed as follows:
If to the Company:
TCI Wireless Holdings, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Any notice or other communication by the Company or TCI to Grantee with respect
to this Agreement shall be in writing and shall be delivered personally, or
shall be sent by first class mail, postage prepaid, to Grantee's address as
listed in the records of TCI on the date hereof, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise specifically provided herein, all notices and other communications
hereunder, including without limitation any Exercise Notice, shall be effective
when actually received.
12. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
13. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
refer to this Agreement, including all Exhibits, as a whole, unless the context
otherwise requires. The headings of the paragraphs of this Agreement have been
included for convenience of reference only, are not to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
All decisions of the Company Board upon questions regarding this Agreement
shall be conclusive.
14. DUPLICATE ORIGINALS. The Company, TCI, TCITS and Grantee may
sign any number of copies of this Agreement. Each signed copy shall be an
original, but all of them together represent the same agreement.
15. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between or among
TCI, TCITS, the Company and Grantee, or any of them, with respect to the
subject matter hereof. Each of TCI, TCITS, the
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<PAGE> 11
Company and Grantee hereby declares and represents that no promise or agreement
not herein expressed has been made and that this Agreement contains the entire
agreement between and among the parties hereto with respect to the SARs and
supersedes and makes null and void any prior agreements between or among TCI,
TCITS, the Company and Grantee, or any of them, regarding the SARs, including,
without limitation, the TCITS SAR Agreement.
16. AMENDMENT. This Agreement may be amended, modified or
supplemented by the Company, without the consent of the Grantee, (i) to cure
any ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein or (ii) to make such
other changes as the Company, upon advice of counsel, determines are necessary
or advisable because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
17. DEFINITIONS. As used in this Agreement, the following terms
have the corresponding meanings:
"AGREED PER SHARE VALUE" means the fair market value of a
share of Company Common Stock as of the Exercise Date, as agreed by Grantee and
the Company pursuant to paragraph 10(b) hereof.
"APPLICABLE PERSON" means TCI or the Company, as applicable.
"APPRAISER" means, as of any date of selection, an investment
banking firm of national reputation that is not affiliated with TCI, the
Company or Grantee.
"APPROVED TRANSACTION", when used with respect to TCI or the
Company, as applicable, means any transaction in which the Relevant Board (or,
if approval of the Relevant Board is not required as a matter of law, the
stockholders of the Applicable Person) shall approve (i) any consolidation or
merger of the Applicable Person, or binding share exchange, pursuant to which
shares of common stock of the Applicable Person would be changed or converted
into or exchanged for cash, securities or other property, other than any such
transaction in which the common stockholders of the Applicable Person
immediately prior to such transaction have the same proportionate ownership of
the common stock of, and voting power with respect to, the surviving
corporation immediately after such transaction, (ii) any merger, consolidation
or binding share exchange to which the Applicable Person is a party as a result
of which the persons who are common stockholders of the Applicable Person
immediately prior thereto have less than a majority of the combined voting
power of the outstanding capital stock of the Applicable Person ordinarily (and
apart from the rights accruing under special circumstances) having the right to
vote in the election of directors immediately following such merger,
consolidation or binding share exchange, (iii) the adoption of any plan or
proposal for the liquidation or dissolution of the Applicable Person, or (iv)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of
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<PAGE> 12
all, or substantially all, of the assets of the Applicable Person.
Notwithstanding the foregoing, none of such transactions that occur with
respect to the Company while the Company is a Subsidiary of TCI and that are
effected in connection with a spin off of the Company or rights offering of
Company Common Stock to TCI's stockholders or equivalent transaction shall
constitute an Approved Transaction.
"BOARD CHANGE" means, during any period of two consecutive
years, individuals who at the beginning of such period constituted the entire
Relevant Board cease for any reason to constitute a majority thereof unless the
election, or the nomination for election, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"CAUSE" has the meaning ascribed thereto in any employment
agreement between Grantee and the applicable member of the TCI Group, and in
the absence of any such employment agreement shall include, but not be limited
to, insubordination, dishonesty, incompetence, moral turpitude, other
misconduct of any kind or the refusal to perform one's duties and
responsibilities for any reason other than illness or incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined in good faith by
the Company Board; provided, however, that if such termination occurs within
twelve (12) months after (i) an Approved Transaction, Control Purchase or Board
Change occurs (x) with respect to TCI following December 31, 1996 and prior to
the earlier of such time as the Company ceases to be a Subsidiary of TCI or
such time as the Company becomes a Public Company or (y) with respect to the
Company at any time following December 31, 1996 that the Company is no longer a
Subsidiary of TCI, or (ii) an Approved Transaction occurs with respect to the
Company at any time after December 31, 1996 and while the Company is a
Subsidiary of TCI and after giving effect to such Approved Transaction the
Company will cease to be a Subsidiary of TCI, then "Cause" shall mean only a
felony conviction for fraud, misappropriation or embezzlement.
"CLOSING PRICE" of a share of any class or series of capital
stock on any day means the last sale price (or, if no last sale is reported,
the average of the high bid and low asked prices) for a share of such class or
series of capital stock on such day (or, if such day is not a trading day, on
the next preceding trading day) as reported on NASDAQ or, if not reported on
NASDAQ, as quoted by the National Quotation Bureau Incorporated, or if such
class or series of capital stock is listed on an exchange, on the principal
exchange on which the shares are listed. If for any day the Closing Price of a
share of such class or series of capital stock is not determinable by any of
the foregoing means, then the Closing Price for such day shall be determined in
good faith by the issuer's Board of Directors on the basis of such quotations
and other considerations as such Board may deems appropriate.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes thereto. Reference to
any specific Code section shall include any successor section.
12
<PAGE> 13
"COMPANY COMMON STOCK" means the Common Stock, $1.00 par value
per share, of the Company.
"CONTROL PURCHASE" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other
than the Applicable Person, any Subsidiary of the Applicable Person or any
employee benefit plan sponsored by the Applicable Person or any Subsidiary of
the Applicable Person) shall purchase any common stock of the Applicable Person
(or securities convertible into common stock of the Applicable Person) for
cash, securities or any other consideration pursuant to a tender offer or
exchange offer, without the prior consent of the Relevant Board, or (ii) any
person (as such term is so defined), corporation or other entity (other than
the Applicable Person, any Subsidiary of the Applicable Person, any employee
benefit plan sponsored by the Applicable Person or any Subsidiary of the
Applicable Person, or any Controlling Person (as defined below)) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Applicable Person
representing 20% or more of the combined voting power of the then outstanding
securities of the Applicable Person ordinarily (and apart from the rights
accruing under special circumstances) having the right to vote in the election
of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in
the case of rights to acquire the Applicable Person's securities), other than
in a transaction (or series of related transactions) approved by the Relevant
Board. For purposes of this definition, "Controlling Person" means each of (a)
the Chairman of the Board, the President and each of the directors of the
Applicable Person as of December 31, 1996, (b) the respective family members,
estates and heirs of (i) Bob Magness and (ii) each of the persons referred to
in clause (a) above and any trust or other investment vehicle for the primary
benefit of any of such persons or their respective family members or heirs and
(c) Kearns-Tribune Corporation, a Delaware corporation. As used with respect
to any person, the term "family member" means the spouse, siblings and lineal
descendants of such person.
"DETERMINATION DATE" means February 1, 1996.
"DISABILITY" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to result in death or (b) has lasted or can
be expected to last for a continuous period of not less than 12 months.
"DOMESTIC RELATIONS ORDER" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto, and
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
13
<PAGE> 14
"FAIR MARKET VALUE OF THE COMPANY" means the fair market value
of the Company as a going concern based upon the estimated market
capitalization of the Company as if it were a Public Company and the Company
Common Stock were publicly traded and widely held. In determining the Fair
Market Value of the Company, the Company and Grantee shall, and each Appraiser
shall be instructed to, value the assets held directly or indirectly by the
Company in the following manner (but without duplication): (i) with respect to
any shares of capital stock as to which there is a public trading market, at
the Closing Price of such shares on the Exercise Date, (ii) with respect to any
shares of capital stock which are not publicly traded, based on a widely
distributed public trading market value for such shares and as if such shares
of capital stock were liquid and freely tradeable on a major public trading
market and (iii) with respect to any assets of the Company which are not shares
of capital stock, at the fair market value thereof. In addition, the Company
and Grantee shall, and such Appraisers shall be instructed to, deduct from such
value all indebtedness of the Company (including preferred stock except to the
extent such preferred stock is deemed converted to Company Common Stock in
connection with the calculation of the Per Share Value); provided, however,
that no such deduction shall be made with respect to (i) the Company's
obligations with respect to the Remaining SARs held by Grantee and the Other
SARs or (ii) any indebtedness of the Company incurred in connection with the
Company's satisfaction of its obligations with respect to any prior exercise of
SARs or Other SARs.
"GOOD REASON" means the occurrence of any of the following
prior to any termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary
(other than a reduction to which Grantee consents);
(ii) a failure by TCI or the Company to continue in effect
any employee benefit plan in which Grantee was participating, or the
taking of any action by TCI or the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the
corporate management of TCI or the Company (as applicable) generally;
(iii) the assignment to Grantee of duties and
responsibilities that are materially more oppressive or onerous than
those attendant to Grantee's position on the date hereof;
(iv) the relocation of the office location assigned to
Grantee by the Company to a location more than 20 miles from Grantee's
current location without Grantee's consent, unless the new location is
within the Denver/Boulder metropolitan area; or
(v) the failure of the Company to obtain, prior to the
time of any reorganization, merger, consolidation, disposition of all
or substantially all of the
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<PAGE> 15
assets of the Company or similar transaction effective after the date
hereof, in which the Company is not the surviving person, the
unconditional assumption in writing or by operation of law of the
Company's obligations to Grantee under this Agreement by each direct
successor to the Company in any such transaction.
"NASDAQ" means The Nasdaq Stock Market.
"OTHER SARS" means the stock appreciation rights relating to
the shares of Company Common Stock granted pursuant to those certain other
Stock Appreciation Rights Agreements dated as of the date hereof among the
Company, TCI and the grantees named therein, respectively.
"PER SHARE VALUE" means (x) if the Company is a Public Company
as of the Exercise Date, the Closing Price of a share of Company Common Stock
as of such date, and (y) if the Company is not a Public Company as of the
Exercise Date, the Agreed Per Share Value or the Appraised Per Share Value, as
applicable, of a share of Company Common Stock as of such date.
"PUBLIC COMPANY" means a person the common equity securities
of which are registered under Section 12(b) or 12(g) of the Exchange Act and
which common equity securities are listed for trading on the New York Stock
Exchange or the NASDAQ National Market.
"RELEVANT BOARD", when used with respect to TCI, means the
Board of Directors of TCI and, when used with respect to the Company, means the
Company Board.
"STRIKE PRICE" means $925,361 per SAR, plus an interest factor
of 6% per annum on such amount from the date hereof to the date of exercise
(calculated on the basis of a 365-day year and actual days elapsed), as such
amount per SAR may be adjusted from time to time pursuant to paragraph 9.
"SUBSIDIARY", when used with respect to TCI or the Company, as
applicable, means any present or future subsidiary (as defined in Section
424(f) of the Code) of the Applicable Person or any business entity in which
the Applicable Person owns, directly or indirectly, 50% or more of the voting,
capital or profits interests. An entity shall be deemed a Subsidiary of the
Applicable Person for purposes of this definition only for such periods as the
requisite ownership or control relationship is maintained.
"TCI GROUP" means TCI and its Subsidiaries, collectively, or
the applicable of TCI or a Subsidiary of TCI, as the context may require. If
the Company ceases to be a Subsidiary of TCI, the Company and its Subsidiaries
shall, notwithstanding the last sentence of the definition of Subsidiary above,
be deemed for purposes of this definition only to continue to be Subsidiaries
of TCI and, accordingly, members of the TCI Group.
15
<PAGE> 16
18. RULES BY COMPANY BOARD. The rights of Grantee and
obligations of the Company hereunder shall be subject to such reasonable rules
and regulations as the Company Board may adopt from time to time hereafter.
IN WITNESS WHEREOF, the Company, Grantee and, for purposes of
paragraph 5 only, TCI have caused this Agreement to be duly executed and
delivered as of the date first written above.
ATTEST: TCI WIRELESS HOLDINGS, INC.
By:
- ------------------------- ---------------------------
Assistant Secretary Name:
Title:
--------------------------------
-------------------
TCI TELEPHONY SERVICES, INC.
By:
---------------------------
Name:
Title:
TELE-COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
16
<PAGE> 17
Exhibit A to Agreement
dated as of December 1, 1996
TCI WIRELESS HOLDINGS, INC.
STOCK APPRECIATION RIGHTS
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
_____________________________________________________________________________,
Street Address City State Zip Code
who is my ___________________________________________, shall be entitled to the
Relationship to Grantee
stock appreciation rights and all other rights accorded Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing,
signed by Grantee, and filed with Tele-Communications, Inc. and TCI Wireless
Holdings, Inc., prior to Grantee's death.
- ------------------- ---------------------------
Date Grantee
<PAGE> 1
EXHIBIT 10.52
TCI TELEPORT HOLDINGS, INC.
STOCK APPRECIATION RIGHTS
THIS AGREEMENT ("AGREEMENT") is made as of the 1st day of
December, 1996, by and among TCI TELEPORT HOLDINGS, INC., a Delaware corporation
(the "COMPANY"), _____________________ ("GRANTEE"), and, for purposes of
paragraphs 1(b), 14 and 15 only, TCI TELEPHONY SERVICES, INC., a Delaware
corporation ("TCITS"), and, for purposes of paragraphs 5, 14 and 15 only,
TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI").
On the date hereof, the Company and TCITS Subsidiaries of TCI and
the Company is a Subsidiary of TCITS. Pursuant to that certain agreement, dated
as of December 1, 1996, among Grantee, TCITS and TCI (the "TCITS SAR
AGREEMENT"), TCITS had granted to Grantee stock appreciation rights with respect
to TCITS's common stock (the "TCITS SARS"). The Board of Directors of the
Company ("COMPANY BOARD"), the Board of Directors of TCITS, and the Board of
Directors of TCI have each determined that it is in the best interests of the
Company, TCITS and TCI to grant Grantee the stock appreciation rights set forth
herein, in substitution for and cancellation of the TCITS SARs, in order to
provide Grantee with additional remuneration for services rendered to the
Company and its predecessors, to encourage Grantee to remain in the employ of
TCI and/or one or more of its Subsidiaries, including the Company, and to
provide additional incentive to Grantee by increasing Grantee's proprietary
interest in the continued success and progress of the Company. Capitalized terms
used herein and not otherwise defined are defined in paragraph 17 below.
Accordingly, the Company, Grantee, and, for purposes of
paragraphs 1(b), 14 and 15 only, TCITS and, for purposes of paragraphs 5, 14 and
15 only, TCI hereby agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS; TERM. (a) The Company hereby
grants to Grantee stock appreciation rights ("SARS") with respect to ten (10)
(the "TOTAL NUMBER OF SARS") shares of Company Common Stock on the terms and
subject to the conditions set forth herein. The Total Number of SARs and the
Strike Price are subject to adjustment pursuant to paragraph 9 below. Subject to
paragraph 2, the SARs shall be exercisable in whole at any time and in part from
time to time during the period commencing on the date hereof and expiring at
5:00 p.m., Denver, Colorado time ("CLOSE OF BUSINESS") on the tenth anniversary
of the Determination Date, or such earlier date as the SARs may be terminated
pursuant to paragraph 6 or paragraph 9(c) (the "TERM").
(b) The grant of the SARs hereunder, together with the grant of
stock appreciation rights by TCI Wireless Holdings, Inc. ("TCI WIRELESS"), shall
be deemed to be in substitution for and replacement of the TCITS SARs (which in
turn replaced an option to purchase shares of
1
<PAGE> 2
common stock of TCITS, the parent corporation of the Company and TCI Wireless).
The parties acknowledge and agree that such prior grants of the TCITS SARs and
stock option are hereby terminated and shall cease to be of any further force
and effect.
2. CONDITIONS OF EXERCISE; VESTING. Except as otherwise provided in
the last sentence of this paragraph 2 or in paragraph 9(c), the SARs shall not
be exercisable until the first anniversary of the Determination Date, and, from
the first anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the SARs shall vest and become exercisable in accordance
with the following schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Total Number
Determination Date of SARs Exercisable
------------------ --------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all then unexercised SARs (the
"REMAINING SARS") shall become exercisable if during the Term (i) Grantee's
employment with the TCI Group shall terminate by reason of (x) termination by
the TCI Group without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and the applicable
member(s) of the TCI Group which expressly permits Grantee to terminate such
employment upon the occurrence of specified events (other than the giving of
notice and passage of time) or (iii) Grantee dies while employed by the TCI
Group. A change of employment is not a termination of employment within the
meaning of this paragraph 2, provided that, after giving effect to such change,
Grantee is an employee of, or becomes or continues to be a consultant to, any
member of the TCI Group.
3. EXERCISE OF SARS; SUBSEQUENT RESCISSION. (a) The SARs granted
hereunder may be exercised by delivery to the Company of a written notice (the
"EXERCISE NOTICE") specifying the whole number of SARs being exercised. So long
as the Company and TCI Wireline, Inc. ("TCI WIRELINE") are both Subsidiaries of
the same company, it shall be a condition to a valid exercise of SARs that such
notice also contain evidence satisfactory to the Company Board that Grantee is
validly and simultaneously exercising the same proportion of the stock option
(the "OPTION") granted by TCI Wireline to Grantee pursuant to that certain stock
option agreement, dated as of the date hereof, among TCI Wireline, Grantee and
TCI as the same may hereafter be amended, modified or supplemented, from time to
time. The date upon which such notice is validly given to the Company shall be
deemed to be the date of exercise of the SARs specified therein (the "EXERCISE
DATE"). Upon the valid exercise of SARs (which exercise is not subsequently
rescinded as provided herein), Grantee shall be entitled to receive from the
Company, with respect to each SAR then being exercised, the excess of (i) the
Per Share Value of a share of Company Common Stock as of the
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<PAGE> 3
Exercise Date over (ii) the Strike Price applicable as of such Exercise Date
(such excess, the "CASH VALUE").
(b) Grantee shall have the right to rescind an exercise of SARs
(which rescission will also constitute a rescission of the corresponding
exercise of the Option) prior to the Close of Business on the fifteenth (15th)
day following the Exercise Date in the event that (i) Grantee has elected to
determine the Per Share Value through negotiation with the Company, (ii) Grantee
and the Company have not agreed upon a Per Share Value by such date and (iii)
Grantee has not made a subsequent election to require that the Per Share Value
be determined by appraisal pursuant to paragraph 10(c) hereof. In addition, an
exercise of SARs shall be deemed rescinded under the circumstances set forth in
paragraph 10(b) hereof. In the event of any rescission of an exercise of SARs
pursuant to this paragraph 3(b), Grantee shall not be permitted to again
exercise SARs for a period of thirty (30) days following the date of such
rescission.
(c) In the event Grantee elects to rescind his exercise of SARs,
such exercise shall be deemed rescinded ab initio and the future exercisability
and vesting of those SARs whose exercise has been rescinded shall not be
affected by such exercise and subsequent rescission, except as provided in the
last sentence of paragraph 3(b) above.
4. WITHHOLDING FOR TAXES. It shall be a condition precedent to any
exercise of a SAR that Grantee make provision acceptable to the Company for the
payment or withholding of any and all federal, state and local taxes required to
be withheld by the Company to satisfy the tax liability associated with such
exercise, as determined by the Company Board.
5. DELIVERY BY THE COMPANY. (a) Subject to the withholding referred
to in paragraph 4, the Company shall deliver or cause to be delivered to Grantee
the Cash Value of the SARs then being exercised, with such amount being paid, at
the Company's election, in (i) cash, (ii) provided that the Company is then a
Public Company and that the Company Common Stock is then listed or traded on
NASDAQ or a national securities exchange and is actively traded, shares of
Company Common Stock, (iii) shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, $1.00 par value per share, or any successor class or series
of TCI's common stock, or if any class or series of TCI's common stock is
hereafter created that is intended to track the separate performance of
specified assets or businesses of TCI that include assets and businesses of the
Company, shares of such class or series (and if more than one series of such
"tracking stock" is created with different voting rights, the series with the
lower voting rights), provided that shares of the same class and series of
securities being so delivered are then listed or traded on NASDAQ or a national
securities exchange and are actively traded (collectively, the "TCI STOCK"), or
(iv) any combination of cash, Company Common Stock and TCI Stock as the Company
may elect. It shall be a condition to the Company's right to deliver shares of
Company Common Stock or TCI Stock in satisfaction of its obligations hereunder
that such shares have been registered under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), on Form S-8 (or other available form) and if
Grantee's sale of such shares in the public market would be restricted (other
than as to manner of sale) pursuant to Rule 144 under the Securities Act, then a
resale prospectus shall be prepared by the
3
<PAGE> 4
Company or TCI, as the case may be, and provided to Grantee for his use in
selling such shares. If the Company elects to pay all or any portion of the Cash
Value in shares of Company Common Stock or TCI Stock, said shares shall be
valued for such purpose at the most recent Closing Price thereof preceding the
date of delivery of such shares to Grantee. The payment of the Cash Value (in
cash or by delivery of Company Common Stock or TCI Stock) shall be made (i) if
the Company is a Public Company, on the 10th day following the Exercise Date and
(ii) if the Company is not a Public Company, on the 10th day following either
(x) the date Grantee and the Company mutually agree as to the Agreed Per Share
Value or (y) the receipt by Grantee and the Company of notice pursuant to
paragraph 10(c) of the final determination of the Appraised Per Share Value (or
on such other date as the parties may agree).
(b) To the extent Grantee so requests in the Exercise Notice, the
Company agrees that it will pay in cash to TCI Wireline on behalf of Grantee, a
specified amount of the Cash Value payable to Grantee upon exercise of SARs in
payment of the applicable exercise price of the portion of the Option then being
exercised by Grantee.
(c) TCI hereby covenants and undertakes to cause the Company to
comply with its covenants, agreements and obligations hereunder to the same
extent as if such covenants, agreements and obligations were binding upon TCI;
provided, that TCI's obligations hereunder shall terminate (to the extent not
fixed and accrued) at such time as the Company ceases to be a Subsidiary of TCI.
6. EARLY TERMINATION OF SARS. Unless otherwise determined by the
Company Board in its sole discretion, the SARs shall terminate, prior to the
expiration of the ten-year period provided for in paragraph 1, as follows:
(a) If Grantee's employment with the TCI Group terminates other
than (i) by Grantee with Good Reason, (ii) by reason of Grantee's
death or Disability, (iii) with the written consent of the applicable
member(s) of the TCI Group, (iv) without such consent if such
termination is pursuant to provisions of a written employment
agreement, if any, between Grantee and the applicable member(s) of the
TCI Group which expressly permits Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of
notice and passage of time), or (v) by the TCI Group with or without
Cause, then the SARs shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the TCI Group, or prior to
the expiration of a relevant period of time during which the SARs
remain exercisable as provided in this paragraph 6, the SARs shall
terminate at the Close of Business on the first business day following
the expiration of the one-year period beginning on the date of death;
4
<PAGE> 5
(c) If Grantee's employment with the TCI Group terminates by
reason of Disability, then the SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the TCI Group is terminated by
the TCI Group for Cause, then the SARs shall terminate immediately upon
such termination of Grantee's employment; and
(e) If Grantee terminates his employment with the TCI Group (i)
with Good Reason, (ii) with the written consent of the applicable
member(s) of the TCI Group or (iii) pursuant to provisions of a written
employment agreement, if any, between Grantee and the applicable
member(s) of the TCI Group which expressly permits Grantee to terminate
such employment upon the occurrence of specified events (other than the
giving of notice and passage of time), or if the TCI Group terminates
Grantee's employment with the TCI Group without Cause, then the Term
shall not terminate prior to the end of the ten-year period provided
for in paragraph 1, except as otherwise provided for in paragraph 6(b)
or 9(c).
In any event in which the SARs remain exercisable for a period of time
following the date of termination of Grantee's employment as provided above, the
SARs may be exercised during such period of time only to the extent they were
exercisable as provided in paragraph 2 or paragraph 9(c) on such date of
termination of Grantee's employment. A change of employment is not a termination
of employment within the meaning of this paragraph 6, provided that, after
giving effect to such change, Grantee is an employee of, or becomes or continues
to be a consultant to, any member of the TCI Group. Anything contained herein to
the contrary notwithstanding, the SARs shall in any event terminate upon the
expiration of the ten-year period provided for in paragraph 1, if not
theretofore terminated.
7. NONTRANSFERABILITY OF SARS. During Grantee's lifetime, the SARs
are not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, the SARs shall be exercisable only by
Grantee or Grantee's court appointed legal representative. Grantee may designate
a beneficiary or beneficiaries to whom the SARs shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company
Board, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive Grantee's death, the SARs shall pass by
will or the laws of descent and distribution. Following Grantee's death, the
SARs, if otherwise exercisable, may be exercised by the person to whom the SARs
pass according to the foregoing, and such person shall be deemed to be Grantee
for purposes of any applicable provisions of this Agreement.
5
<PAGE> 6
8. NO SHAREHOLDER RIGHTS; NO GUARANTEE OF EMPLOYMENT; UNSECURED
OBLIGATION. (a) Grantee shall not be deemed for any purpose to be, or to have
any of the rights of, a stockholder of the Company by virtue of this Agreement
or the grant of the SARs. The existence of this Agreement or the SARs shall not
affect in any way the right or power of the Company or its stockholders to
accomplish any corporate act.
(b) Nothing contained in this Agreement, and no action by the
Company or the Company Board with respect hereto, shall confer or be construed
to confer on Grantee any right to continue in the employ of the TCI Group or any
member thereof or interfere in any way with the right of TCI, the Company or any
employing member of the TCI Group to terminate Grantee's employment at any time,
with or without Cause, except as otherwise expressly provided in any written
employment agreement between the applicable member(s) of the TCI Group and
Grantee.
(c) The amount of cash payable at any time by the Company upon
the valid exercise of SARs granted hereunder shall not in any way be reserved or
held in trust by the Company or TCI. Grantee shall not have any rights against
the Company in respect of payments of such amount of cash other than the rights
of an unsecured general creditor of the Company. The amount of cash payable upon
the valid exercise of SARs hereunder shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and shall not in any manner be liable or subject to the debts,
contracts, liabilities, engagements or torts of Grantee or of any designated
beneficiary or personal representative.
9. ADJUSTMENTS; ACCELERATION; AUTOMATIC EXERCISE. (a) If, after
December 31, 1996, the Company (i) pays a dividend or makes a distribution on
the Company Common Stock in shares of Company Common Stock; (ii) subdivides the
outstanding shares of Company Common Stock into a greater number of shares or
(iii) combines the outstanding shares of Company Common Stock into a smaller
number of shares, then the number of Remaining SARs and the Strike Price in
effect immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision or
combination will be adjusted proportionately so that, after giving effect to
such adjustment, the number of SARs under this Agreement (the "ADJUSTED NUMBER
OF SARS") will be equal to the number of shares of Company Common Stock that
would be owned immediately after such dividend, distribution, subdivision or
combination by a stockholder that held immediately prior to the applicable
record date or effective date for such event a number of shares of Company
Common Stock equal to the number of shares of Company Common Stock to which the
Remaining SARs related immediately prior to such record date or effective date.
The aggregate number of shares of Company Common Stock to which the SARs will
relate after giving effect to such adjustment will be equal to the Adjusted
Number of SARs. Adjustments to the Strike Price shall be made on a per SAR basis
so that the aggregate Strike Price of all SARs under this Agreement following
such adjustment is unchanged. The adjustment contemplated by the first sentence
of this paragraph 9(a) shall be made successively whenever any event listed
above shall occur. For a dividend or distribution, the adjustment shall become
effective immediately after the record date for the dividend or distribution.
For a subdivision or combination, the adjustment shall become effective
immediately after the effective date of the subdivision or combination.
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<PAGE> 7
(b) The SARs shall also be subject to adjustment (including,
without limitation, as to the number of shares of Company Common Stock to which
the SARs in the aggregate relate and the Strike Price) in the sole discretion of
the Company Board and in such manner as the Company Board may deem equitable and
appropriate in connection with the occurrence of any of the following events
after December 31, 1996 that affects the Company Common Stock such that an
adjustment would be required in order to preserve the benefits or potential
benefits intended to be made available under this Agreement: any dividend or
distribution on the Company Common Stock in shares of the Company's capital
stock (other than Company Common Stock); any reclassification of the Company
Common Stock into shares of the Company's capital stock (other than a
reclassification by way of an Approved Transaction); any extraordinary cash
dividend; any distribution of any rights, warrants or options to holders of
Company Common Stock; any distribution of any assets or debt securities (other
than cash dividends or distributions that are not extraordinary cash dividends);
any recapitalization, reorganization, split up or spin off; and any merger,
consolidation or binding share exchange that reclassifies or changes the
outstanding Company Common Stock or other similar corporate event (other than
those which constitute Approved Transactions). Notwithstanding the foregoing, in
the event of any reclassification or recapitalization of the Company Common
Stock into two or more classes or series of common stock with different voting
rights (however the same may be effected), the SARs shall relate to the shares
of the class or series of common stock of the Company with the fewest number of
votes per share. Adjustments to the Strike Price shall be made on a per SAR
basis so that the aggregate Strike Price of all SARs under this Agreement
following such adjustment is unchanged.
(c) The Company Board may at any time in its sole discretion
determine that the SARs become exercisable in full, without regard to paragraph
2, whether immediately, upon the occurrence of specified events, or otherwise.
Without limiting the generality of the foregoing, in the event of any Board
Change, Control Purchase or Approved Transaction that occurs with respect to TCI
following December 31, 1996 and prior to the earlier of such time as the Company
ceases to be a Subsidiary of TCI or such time as the Company becomes a Public
Company, the SARs shall become exercisable in full, without regard to paragraph
2, effective upon the Board Change or Control Purchase or immediately prior to
consummation of the Approved Transaction, as applicable (or at such earlier time
as the Company Board in its sole discretion may determine); provided, however,
that to the extent not theretofore exercised the SARs shall terminate upon the
first to occur of the consummation of the Approved Transaction or the expiration
or early termination of the Term. In the event that (i) at any time after
December 31, 1996 while the Company is a Subsidiary of TCI, an Approved
Transaction occurs with respect to the Company after giving effect to which the
Company will cease to be a Subsidiary of TCI or (ii) an Approved Transaction,
Board Change or Control Purchase occurs with respect to the Company at a time
following December 31, 1996 that the Company is no longer a Subsidiary of TCI,
then, in any such case, the SARs shall become exercisable in full, without
regard to paragraph 2, effective upon the Board Change or Control Purchase or
immediately prior to consummation of the Approved Transaction, as applicable (or
at such earlier time as the Company Board in its sole discretion may determine);
provided, however, that to the extent not theretofore exercised the SARs shall
terminate upon the first to occur of the consummation of the Approved
Transaction or the expiration or early termination of the Term.
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<PAGE> 8
Notwithstanding the foregoing, the Company Board may, in its discretion,
determine that the SARs will not become exercisable on an accelerated basis in
connection with an Approved Transaction and/or will not terminate if not
exercised prior to consummation of the Approved Transaction, if the Company
Board or the surviving or acquiring corporation, as the case may be, shall have
taken or made effective provision for the taking of such action as in the
opinion of the Company Board is equitable and appropriate to substitute new
stock appreciation rights for the SARs evidenced by this Agreement or to assume
this Agreement and the SARs evidenced hereby and in order to make such new or
assumed stock appreciation rights, as nearly as may be practicable, equivalent
to the SARs evidenced by this Agreement as then in effect (but before giving
effect to any acceleration of the exercisability hereof unless otherwise
determined by the Company Board), taking into account, to the extent applicable,
the kind and amount of securities, cash or other assets into or for which the
Company Common Stock may be changed, converted or exchanged in connection with
the Approved Transaction.
(d) All actions taken by the Company Board with respect to the
SARs pursuant to this paragraph 9 shall be consistent with any actions taken by
the Company Board with respect to the Other SARs.
(e) Immediately prior to the termination of the SARs as provided
in paragraph 6 above (other than pursuant to paragraph 6(d)), this paragraph 9,
or the expiration of the Term, all Remaining SARs shall be deemed to have been
exercised by Grantee and Grantee shall be deemed to have taken all actions
required by paragraph 3(a) for a valid exercise of SARs (and, to the extent that
a corresponding exercise of the Option is required pursuant to paragraph 3(a),
Grantee shall be deemed to have instructed the Company to pay the exercise price
of the Option to TCI Wireline from the proceeds of the exercise of the SARs).
10. RESTRICTIONS IMPOSED BY LAW; AGREED PER SHARE VALUE; APPRAISAL
PROCEDURES. (a) Grantee acknowledges that neither the SARs nor the interests
evidenced thereby have been registered under the Securities Act and that neither
the SARs nor the interests evidenced thereby may be transferred in the absence
of such registration or the availability of an exemption therefrom under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. Neither the Company nor any other person
shall have any obligation to register the SARs or the interests evidenced
thereby or any transfer of the SARs or the interests evidenced thereby under the
Securities Act, the Exchange Act or any other state or federal securities law.
(b) If the Company is not a Public Company as of the Exercise
Date, Grantee and the Company shall seek to negotiate a mutually acceptable Per
Share Value, provided that, subject to the last sentence of paragraph 10(c),
Grantee shall have the right, exercisable by written notice given to the Company
at any time prior to the first to occur of (i) agreement on the Per Share Value
having been reached by Grantee and the Company and (ii) the Close of Business on
the fifteenth (15th) day following the Exercise Date, to require that the Per
Share Value be determined by appraisal as provided herein. If by the Close of
Business on such fifteenth (15th) day Grantee and
8
<PAGE> 9
the Company have not agreed upon the Per Share Value and Grantee has not given
notice requiring an appraisal, Grantee shall be deemed to have rescinded the
exercise of SARs pursuant to paragraph 3 hereof. Unless Grantee has elected an
appraisal, the Company and Grantee each agrees to conduct the negotiation with
respect to the Per Share Value in good faith and to use its or his commercially
reasonable efforts to agree upon the Agreed Per Share Value. The parties
acknowledge and agree that in connection with such negotiations the parties
shall give due consideration to the determination of the Fair Market Value of
the Company (as set forth in the definition thereof) and the number of shares of
Company Common Stock outstanding (based upon the principles set forth in
paragraph 10(c) hereof).
(c) In the event Grantee elects to require that the Per Share
Value be determined by appraisal, Grantee shall specify, in the Exercise Notice
or the subsequent written notice to the Company electing appraisal, the identity
of the Appraiser selected by Grantee to make the determination of the Fair
Market Value of the Company (the "FIRST APPRAISER"). Within three (3) business
days following receipt of such notice, the Company shall notify Grantee in
writing as to the identity of the Appraiser selected by the Company (the "SECOND
APPRAISER"). The First Appraiser and the Second Appraiser shall each submit its
determination of the Fair Market Value of the Company to Grantee and the Company
within thirty (30) days of the date of selection of the Second Appraiser. If the
respective determinations of the Fair Market Value of the Company by such
Appraisers vary by less than 10% of the higher determination, then the Fair
Market Value of the Company shall be the average of the two determinations. If
such determinations vary by 10% or more of the higher determination, the two
Appraisers shall promptly designate a third Appraiser (the "THIRD APPRAISER").
Neither Grantee nor the Company shall provide, and the First Appraiser and
Second Appraiser shall be instructed not to provide, any information to the
Third Appraiser as to the determination of the First Appraiser and Second
Appraiser or otherwise influence such Third Appraiser's determination. The Third
Appraiser shall submit its determination of the Fair Market Value of the Company
to Grantee and the Company within fifteen (15) days of the date of its
selection. The Fair Market Value of the Company shall be equal to the average of
the two closest of the three determinations, provided that, if the difference
between the highest and middle determinations is no more than 105% and no less
than 95% of the difference between the middle and lowest determinations, the
Fair Market Value of the Company shall be equal to the middle determination.
Following the determination of the Fair Market Value of the Company, the
Appraisers whose determinations were used in the calculation of the Fair Market
Value of the Company shall determine the number of shares of Company Common
Stock outstanding together with any further appropriate adjustments to the Fair
Market Value of the Company resulting from such determination. The number of
shares of Company Common Stock outstanding shall mean a number, as determined by
such Appraisers as of the applicable date, equal to the sum of the number of
shares of Company Common Stock outstanding and the number of shares of Company
Common Stock issuable upon the conversion, exercise or exchange of those
convertible securities the holders of which would derive an economic benefit
from the conversion, exercise of exchange of such convertible securities which
exceeds the economic benefits of not converting, exercising or exchanging such
convertible securities. The Appraisers shall then calculate the value per share
of Company Common Stock (the "APPRAISED PER SHARE VALUE"), which shall be the
quotient obtained
9
<PAGE> 10
by dividing the Fair Market Value of the Company by the number of shares of
Company Common Stock outstanding or deemed outstanding; provided, that if such
Appraisers do not agree on the number of shares of Company Common Stock
outstanding, each Appraiser whose determination of the Fair Market Value of the
Company is being used in the calculation of the Appraised Per Share Value shall
determine the Appraised Per Share Value based upon its determination of the Fair
Market Value of the Company and the number of shares of Company Common Stock
outstanding, and the Appraised Per Share Value shall be the average of the
quotients so obtained on the basis of the respective determinations of such
firms. The Appraisers shall jointly notify the Company and Grantee in writing of
their final determination of the Appraised Per Share Value of the Company Common
Stock within five (5) days after the determination of the Fair Market Value of
the Company. Grantee and the Company shall each pay the fees and expenses of his
or its own Appraiser and one-half of the fees and expenses of the Third
Appraiser, if any. Grantee acknowledges and agrees that he shall not be entitled
to require an appraisal pursuant to this Agreement more than once in any 12
month period.
11. NOTICE. Unless the Company or TCI, as applicable, notifies
Grantee in writing of a change of address, any notice or other communication to
the Applicable Person with respect to this Agreement shall be in writing and
shall be delivered personally or sent by first class mail, postage prepaid and
addressed as follows:
If to the Company:
TCI Teleport Holdings, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Any notice or other communication by the Company or TCI to Grantee with respect
to this Agreement shall be in writing and shall be delivered personally, or
shall be sent by first class mail, postage prepaid, to Grantee's address as
listed in the records of TCI on the date hereof, unless the Company has received
written notification from Grantee of a change of address. Except as otherwise
specifically provided herein, all notices and other communications hereunder,
including without limitation any Exercise Notice, shall be effective when
actually received.
12. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware.
10
<PAGE> 11
13. CONSTRUCTION. References in this Agreement to "this Agreement"
and the words "herein," "hereof," "hereunder" and similar terms refer to this
Agreement, including all Exhibits, as a whole, unless the context otherwise
requires. The headings of the paragraphs of this Agreement have been included
for convenience of reference only, are not to be considered a part hereof and
shall not modify or restrict any of the terms or provisions hereof. All
decisions of the Company Board upon questions regarding this Agreement shall be
conclusive.
14. DUPLICATE ORIGINALS. The Company, TCI, TCITS and Grantee may sign
any number of copies of this Agreement. Each signed copy shall be an original,
but all of them together represent the same agreement.
15. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between or among
TCI, TCITS, the Company and Grantee, or any of them, with respect to the subject
matter hereof. Each of TCI, TCITS, the Company and Grantee hereby declares and
represents that no promise or agreement not herein expressed has been made and
that this Agreement contains the entire agreement between and among the parties
hereto with respect to the SARs and supersedes and makes null and void any prior
agreements between or among TCI, TCITS, the Company and Grantee, or any of them,
regarding the SARs, including without limitation, the TCITS SAR Agreement.
16. AMENDMENT. This Agreement may be amended, modified or
supplemented by the Company, without the consent of the Grantee, (i) to cure any
ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein or (ii) to make such
other changes as the Company, upon advice of counsel, determines are necessary
or advisable because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
17. DEFINITIONS. As used in this Agreement, the following terms have
the corresponding meanings:
"AGREED PER SHARE VALUE" means the fair market value of a share
of Company Common Stock as of the Exercise Date, as agreed by Grantee and the
Company pursuant to paragraph 10(b) hereof.
"APPLICABLE PERSON" means TCI or the Company, as applicable.
"APPRAISER" means, as of any date of selection, an investment
banking firm of national reputation that is not affiliated with TCI, the Company
or Grantee.
"APPROVED TRANSACTION", when used with respect to TCI or the
Company, as applicable, means any transaction in which the Relevant Board (or,
if approval of the Relevant Board
11
<PAGE> 12
is not required as a matter of law, the stockholders of the Applicable Person)
shall approve (i) any consolidation or merger of the Applicable Person, or
binding share exchange, pursuant to which shares of common stock of the
Applicable Person would be changed or converted into or exchanged for cash,
securities or other property, other than any such transaction in which the
common stockholders of the Applicable Person immediately prior to such
transaction have the same proportionate ownership of the common stock of, and
voting power with respect to, the surviving corporation immediately after such
transaction, (ii) any merger, consolidation or binding share exchange to which
the Applicable Person is a party as a result of which the persons who are common
stockholders of the Applicable Person immediately prior thereto have less than a
majority of the combined voting power of the outstanding capital stock of the
Applicable Person ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors immediately
following such merger, consolidation or binding share exchange, (iii) the
adoption of any plan or proposal for the liquidation or dissolution of the
Applicable Person, or (iv) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Applicable Person. Notwithstanding the foregoing, none of
such transactions that occur with respect to the Company while the Company is a
Subsidiary of TCI and that are effected in connection with a spin off of the
Company or rights offering of Company Common Stock to TCI's stockholders or
equivalent transaction shall constitute an Approved Transaction.
"BOARD CHANGE" means, during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire Relevant
Board cease for any reason to constitute a majority thereof unless the election,
or the nomination for election, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of the period.
"CAUSE" has the meaning ascribed thereto in any employment
agreement between Grantee and the applicable member of the TCI Group, and in the
absence of any such employment agreement shall include, but not be limited to,
insubordination, dishonesty, incompetence, moral turpitude, other misconduct of
any kind or the refusal to perform one's duties and responsibilities for any
reason other than illness or incapacity, or negligence in the performance of any
of one's material duties or responsibilities that continues after written notice
from the Company, as determined in good faith by the Company Board; provided,
however, that if such termination occurs within twelve (12) months after (i) an
Approved Transaction, Control Purchase or Board Change occurs (x) with respect
to TCI following December 31, 1996 and prior to the earlier of such time as the
Company ceases to be a Subsidiary of TCI or such time as the Company becomes a
Public Company or (y) with respect to the Company at any time following December
31, 1996 that the Company is no longer a Subsidiary of TCI, or (ii) an Approved
Transaction occurs with respect to the Company at any time after December 31,
1996 and while the Company is a Subsidiary of TCI and after giving effect to
such Approved Transaction the Company will cease to be a Subsidiary of TCI, then
"Cause" shall mean only a felony conviction for fraud, misappropriation or
embezzlement.
12
<PAGE> 13
"CLOSING PRICE" of a share of any class or series of capital
stock on any day means the last sale price (or, if no last sale is reported, the
average of the high bid and low asked prices) for a share of such class or
series of capital stock on such day (or, if such day is not a trading day, on
the next preceding trading day) as reported on NASDAQ or, if not reported on
NASDAQ, as quoted by the National Quotation Bureau Incorporated, or if such
class or series of capital stock is listed on an exchange, on the principal
exchange on which the shares are listed. If for any day the Closing Price of a
share of such class or series of capital stock is not determinable by any of the
foregoing means, then the Closing Price for such day shall be determined in good
faith by the issuer's Board of Directors on the basis of such quotations and
other considerations as such Board may deems appropriate.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
"COMPANY COMMON STOCK" means the Common Stock, $1.00 par value
per share, of the Company.
"CONTROL PURCHASE" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other
than the Applicable Person, any Subsidiary of the Applicable Person or any
employee benefit plan sponsored by the Applicable Person or any Subsidiary of
the Applicable Person) shall purchase any common stock of the Applicable Person
(or securities convertible into common stock of the Applicable Person) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Relevant Board, or (ii) any person (as
such term is so defined), corporation or other entity (other than the Applicable
Person, any Subsidiary of the Applicable Person, any employee benefit plan
sponsored by the Applicable Person or any Subsidiary of the Applicable Person,
or any Controlling Person (as defined below)) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Applicable Person representing 20% or more
of the combined voting power of the then outstanding securities of the
Applicable Person ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors (calculated
as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to
acquire the Applicable Person's securities), other than in a transaction (or
series of related transactions) approved by the Relevant Board. For purposes of
this definition, "Controlling Person" means each of (a) the Chairman of the
Board, the President and each of the directors of the Applicable Person as of
December 31, 1996, (b) the respective family members, estates and heirs of (i)
Bob Magness and (ii) each of the persons referred to in clause (a) above and any
trust or other investment vehicle for the primary benefit of any of such persons
or their respective family members or heirs and (c) Kearns-Tribune Corporation,
a Delaware corporation. As used with respect to any person, the term "family
member" means the spouse, siblings and lineal descendants of such person.
"DETERMINATION DATE" means February 1, 1996.
13
<PAGE> 14
"DISABILITY" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to result in death or (b) has lasted or can
be expected to last for a continuous period of not less than 12 months.
"DOMESTIC RELATIONS ORDER" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
"FAIR MARKET VALUE OF THE COMPANY" means the fair market value of
the Company as a going concern based upon the estimated market capitalization of
the Company as if it were a Public Company and the Company Common Stock were
publicly traded and widely held. In determining the Fair Market Value of the
Company, the Company and Grantee shall, and each Appraiser shall be instructed
to, value the assets held directly or indirectly by the Company in the following
manner (but without duplication): (i) with respect to any shares of capital
stock as to which there is a public trading market, at the Closing Price of such
shares on the Exercise Date, (ii) with respect to any shares of capital stock
which are not publicly traded, based on a widely distributed public trading
market value for such shares and as if such shares of capital stock were liquid
and freely tradeable on a major public trading market and (iii) with respect to
any assets of the Company which are not shares of capital stock, at the fair
market value thereof. In addition, the Company and Grantee shall, and such
Appraisers shall be instructed to, deduct from such value all indebtedness of
the Company (including preferred stock except to the extent such preferred stock
is deemed converted to Company Common Stock in connection with the calculation
of the Per Share Value); provided, however, that no such deduction shall be made
with respect to (i) the Company's obligations with respect to the Remaining SARs
held by Grantee and the Other SARs or (ii) any indebtedness of the Company
incurred in connection with the Company's satisfaction of its obligations with
respect to any prior exercise of SARs or Other SARs.
"GOOD REASON" means the occurrence of any of the following prior
to any termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary (other than
a reduction to which Grantee consents);
(ii) a failure by TCI or the Company to continue in effect any
employee benefit plan in which Grantee was participating, or the taking
of any action by TCI or the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure
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<PAGE> 15
or such taking of any action adversely affects the senior members of
the corporate management of TCI or the Company (as applicable)
generally;
(iii) the assignment to Grantee of duties and responsibilities
that are materially more oppressive or onerous than those attendant to
Grantee's position on the date hereof;
(iv) the relocation of the office location assigned to Grantee by
the Company to a location more than 20 miles from Grantee's current
location without Grantee's consent, unless the new location is within
the Denver/Boulder metropolitan area; or
(v) the failure of the Company to obtain, prior to the time of
any reorganization, merger, consolidation, disposition of all or
substantially all of the assets of the Company or similar transaction
effective after the date hereof, in which the Company is not the
surviving person, the unconditional assumption in writing or by
operation of law of the Company's obligations to Grantee under this
Agreement by each direct successor to the Company in any such
transaction.
"NASDAQ" means The Nasdaq Stock Market.
"OTHER SARS" means the stock appreciation rights relating to the
shares of Company Common Stock granted pursuant to those certain other Stock
Appreciation Rights Agreements dated as of the date hereof among the Company,
TCI and the grantees named therein, respectively.
"PER SHARE VALUE" means (x) if the Company is a Public Company as
of the Exercise Date, the Closing Price of a share of Company Common Stock as of
such date, and (y) if the Company is not a Public Company as of the Exercise
Date, the Agreed Per Share Value or the Appraised Per Share Value, as
applicable, of a share of Company Common Stock as of such date.
"PUBLIC COMPANY" means a person the common equity securities of
which are registered under Section 12(b) or 12(g) of the Exchange Act and which
common equity securities are listed for trading on the New York Stock Exchange
or the NASDAQ National Market.
"RELEVANT BOARD", when used with respect to TCI, means the Board
of Directors of TCI and, when used with respect to the Company, means the
Company Board.
"STRIKE PRICE" means $424,668 per SAR, plus an interest factor of
6% per annum on such amount from the date hereof to the date of exercise
(calculated on the basis of a 365-day year and actual days elapsed), as such
amount per SAR may be adjusted from time to time pursuant to paragraph 9.
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<PAGE> 16
"SUBSIDIARY", when used with respect to TCI or the Company, as
applicable, means any present or future subsidiary (as defined in Section 424(f)
of the Code) of the Applicable Person or any business entity in which the
Applicable Person owns, directly or indirectly, 50% or more of the voting,
capital or profits interests. An entity shall be deemed a Subsidiary of the
Applicable Person for purposes of this definition only for such periods as the
requisite ownership or control relationship is maintained.
"TCI GROUP" means TCI and its Subsidiaries, collectively, or the
applicable of TCI or a Subsidiary of TCI, as the context may require. If the
Company ceases to be a Subsidiary of TCI, the Company and its Subsidiaries
shall, notwithstanding the last sentence of the definition of Subsidiary above,
be deemed for purposes of this definition only to continue to be Subsidiaries of
TCI and, accordingly, members of the TCI Group.
18. RULES BY COMPANY BOARD. The rights of Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Company Board may adopt from time to time hereafter.
16
<PAGE> 17
IN WITNESS WHEREOF, the Company, TCITS, Grantee and, for purposes
of paragraph 5 only, TCI have caused this Agreement to be duly executed and
delivered as of the date first written above.
ATTEST: TCI TELEPORT HOLDINGS, INC.
- ----------------------------- By:
Assistant Secretary ------------------------
Name:
Title:
---------------------------
---------------------
TCI TELEPHONY SERVICES, INC.
By:
-------------------------
Name:
Title
TELE-COMMUNICATIONS, INC.
By:
-------------------------
Name:
Title
17
<PAGE> 18
Exhibit A to Agreement
dated as of December 1, 1996
TCI TELEPORT HOLDINGS, INC.
STOCK APPRECIATION RIGHTS
DESIGNATION OF BENEFICIARY
I, ____________________________________ (the "Grantee"), hereby declare
that upon my death ______________________________________ (the "Beneficiary") of
Name
_______________________________________________________________________________,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
stock appreciation rights and all other rights accorded Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with TeleCommunications, Inc. and TCI Teleport Holdings,
Inc., prior to Grantee's death.
- ------------------------------- -------------------------
Date Grantee
<PAGE> 1
EXHIBIT 10.53
TCI WIRELINE, INC.
AMENDED AND RESTATED
OPTION AGREEMENT
THIS AMENDED AND RESTATED OPTION AGREEMENT ("AGREEMENT") is
made as of the 1st day of December, 1996, by and among TCI WIRELINE, INC., a
Delaware corporation (the "COMPANY"), _____________________ ("GRANTEE") and,
for purposes of paragraphs 11(b) and 11(c) only, TELE-COMMUNICATIONS, INC., a
Delaware corporation ("TCI"). This Agreement amends and restates in its
entirety the option agreement, dated as of December 1, 1996, among the parties
hereto..
The Company is on the date hereof a Subsidiary of TCI. The
Board of Directors of the Company ("COMPANY BOARD") and the Board of Directors
of TCI have each determined that it is in the best interests of the Company and
TCI to grant Grantee the rights and option set forth herein in order to provide
Grantee with additional remuneration for services rendered to the Company and
its predecessors, to encourage Grantee to remain in the employ of TCI and/or
one or more of its Subsidiaries, including the Company, and to provide
additional incentive to Grantee by increasing Grantee's proprietary interest in
the continued success and progress of the Company. Capitalized terms used
herein and not otherwise defined are defined in paragraph 19 below.
Accordingly, the Company, Grantee and, for purposes of
paragraphs 11(b) and 11(c) only, TCI hereby agree as follows:
1. GRANT OF OPTION; OPTION TERM. (a) The Company
hereby grants to Grantee the right and option (the "OPTION"), on the terms and
subject to the conditions set forth herein, to purchase the Option Shares from
the Company for a price per Option Share equal to the Option Price. The Option
Price and Option Shares are subject to adjustment pursuant to paragraph 9
below. Subject to paragraph 2, the Option shall be exercisable in whole at any
time and in part from time to time during the period commencing on the date
hereof and expiring at 5:00 p.m., Denver, Colorado time ("CLOSE OF BUSINESS")
on the tenth anniversary of the Determination Date, or such earlier date as the
Option may be terminated pursuant to paragraph 6 or paragraph 9(c) (the "OPTION
TERM").
(b) The grant of the Option hereunder, together with the
grant of stock appreciation rights ("CLEC SARS") by TCI Teleport Holdings, Inc.
("TCI TELEPORT") and the grant of stock appreciation rights by TCI Wireless
Holdings, Inc. ("TCI WIRELESS"), shall be deemed to be in substitution for and
replacement of (i) the option to purchase shares of common stock of TCI
Telephony Services, Inc. ("TCI TELEPHONY"), the parent corporation of TCI
Teleport and TCI
<PAGE> 2
Wireless, (ii) the stock appreciation rights with respect to shares of common
stock of TCI Telephony, and (iii) the option to purchase shares of common
stock of the Company which were previously granted by TCI Telephony and the
Company to Grantee. The parties acknowledge and agree that such prior grants
of options and stock appreciation rights are hereby terminated and shall cease
to be of any further force and effect.
2. CONDITIONS OF EXERCISE; VESTING. Except as otherwise provided
in the last sentence of this paragraph 2 or in paragraph 9(c), the Option shall
not be exercisable until the first anniversary of the Determination Date, and,
from the first anniversary of the Determination Date to the fifth anniversary
of the Determination Date, the Option shall be exercisable only to the extent
the Option Shares have become available for purchase in accordance with the
following schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
------------------ ---------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all Option Shares shall become
available for purchase if during the Option Term (i) Grantee's employment with
the TCI Group shall terminate by reason of (x) termination by the TCI Group
without Cause, (y) termination by Grantee for Good Reason or (z) Disability,
(ii) Grantee's employment shall terminate pursuant to provisions of a written
employment agreement, if any, between Grantee and the applicable member(s) of
the TCI Group which expressly permits Grantee to terminate such employment upon
the occurrence of specified events (other than the giving of notice and passage
of time) or (iii) Grantee dies while employed by the TCI Group. A change of
employment is not a termination of employment within the meaning of this
paragraph 2, provided that, after giving effect to such change, Grantee is an
employee of, or becomes or continues to be a consultant to, any member of the
TCI Group.
3. MANNER OF EXERCISE. The Option may be exercised only by
delivering to the Company all of the following and shall be considered
exercised (as to the number of shares specified in the notice referred to in
clause (a) below)) on the later of (i) the first business day on which the
Company has received all of the following deliveries and (ii) the date of
exercise designated in the written notice referred to in clause (a) below (or
if such date is not a business day, the first business day thereafter);
provided that, in the event Grantee's written notice pursuant to clause (a)
below specifies a method of payment of the Option Price which would require an
appraisal pursuant to paragraph 11(c), such Option shall be deemed exercised as
of the later of the date designated in such notice and the date on which all
deliveries specified below (other than the payment of the Option Price) have
been received by the Company (subject in each case to the receipt by the
Company of the appraisal report pursuant to paragraph 11(c) and of the Option
Price):
2
<PAGE> 3
(a) written notice, in such form as the Company Board may
reasonably require, stating that Grantee is exercising the Option and
setting forth the date (on or after the date of such written notice)
as of which the Option is being exercised, the number of Option Shares
to be purchased, the aggregate Option Price to be paid for such Option
Shares in accordance with this Agreement and the manner in which such
payment is being made ("OPTION EXERCISE NOTICE");
(b) payment of the Option Price for each Option Share to
be purchased upon such exercise, in cash or in such other form or
combination of forms of payment contemplated by paragraph 10, together
with payment of, or other provision acceptable to the Company Board
for, any and all withholding taxes required to be withheld by the
Company upon such exercise, in accordance with paragraph 4;
(c) any other documentation that the Company Board may
reasonably require (including, without limitation, proof satisfactory
to the Company Board that the Option is then exercisable for the
number of Option Shares set forth in such notice); and
(d) for so long as the Company and TCI Teleport are
Subsidiaries of the same company, evidence satisfactory to the Company
Board that Grantee is validly and simultaneously exercising the same
proportion of the CLEC SARs granted to him by TCI Teleport, pursuant
to that certain stock appreciation rights agreement, dated as of the
date hereof, among TCI Teleport, Grantee, TCI Telephony Services, Inc.
and TCI, as the same may hereafter be amended, modified or
supplemented from time to time (the "CLEC SAR AGREEMENT").
4. WITHHOLDING FOR TAXES. It shall be a condition precedent to
any exercise of the Option that Grantee make provision acceptable to the
Company for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company to satisfy the tax liability
associated with such exercise, as determined by the Company Board.
5. DELIVERY BY THE COMPANY. As soon as practicable after receipt
of all the items required by paragraph 3 and, if applicable, paragraph 11(c),
with respect to any exercise of the Option, and subject to the withholding
referred to in paragraph 4, the Company shall deliver or cause to be delivered
to Grantee certificates issued in Grantee's name for the number of whole Option
Shares purchased upon such exercise. If delivery is by mail, delivery of
Option Shares shall be deemed effected for all purposes when the Company or a
stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to Grantee, and any cash payment (for
fractional shares or otherwise) shall be deemed effected when a Company check,
payable to Grantee and in an amount equal to the amount of the cash payment,
shall have been deposited in the United States mail, addressed to Grantee, in
each case in accordance with paragraph 12.
3
<PAGE> 4
6. EARLY TERMINATION OF OPTION. Unless otherwise
determined by the Company Board in its sole discretion, the Option shall
terminate, prior to the expiration of the ten-year period provided for in
paragraph 1, as follows:
(a) If Grantee's employment with the TCI Group terminates
other than (i) by Grantee with Good Reason, (ii) by reason of
Grantee's death or Disability, (iii) with the written consent of the
applicable member(s) of the TCI Group, (iv) without such consent if
such termination is pursuant to provisions of a written employment
agreement, if any, between Grantee and the applicable member(s) of the
TCI Group which expressly permits Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of
notice and passage of time), or (v) by the TCI Group with or without
Cause, then the Option shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the TCI Group, or
prior to the expiration of a relevant period of time during which the
Option remains exercisable as provided in this paragraph 6, the Option
shall terminate at the Close of Business on the first business day
following the expiration of the one-year period beginning on the date
of death;
(c) If Grantee's employment with the TCI Group terminates
by reason of Disability, then the Option shall terminate at the Close
of Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the TCI Group is
terminated by the TCI Group for Cause, then the Option shall terminate
immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with the TCI
Group (i) with Good Reason, (ii) with the written consent of the
applicable member(s) of the TCI Group or (iii) pursuant to provisions
of a written employment agreement, if any, between Grantee and the
applicable member(s) of the TCI Group which expressly permits Grantee
to terminate such employment upon the occurrence of specified events
(other than the giving of notice and passage of time), or if the TCI
Group terminates Grantee's employment with the TCI Group without
Cause, then the Option Term shall not terminate prior to the end of
the ten-year period provided for in paragraph 1, except as otherwise
provided for in paragraph 6(b) or 9(c).
In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the
extent it was exercisable as provided in paragraph 2 or paragraph 9(c) on such
date of termination of Grantee's employment. A change of employment is not a
termination
4
<PAGE> 5
of employment within the meaning of this paragraph 6, provided that, after
giving effect to such change, Grantee is an employee of, or becomes or
continues to be a consultant to, any member of the TCI Group. Anything
contained herein to the contrary notwithstanding, the Option shall in any event
terminate upon the expiration of the ten-year period provided for in paragraph
1, if not theretofore terminated.
7. NONTRANSFERABILITY OF OPTION. During Grantee's lifetime, the
Option is not and shall not be transferable (voluntarily or involuntarily)
other than pursuant to a Domestic Relations Order and, except as otherwise
required pursuant to a Domestic Relations Order, is exercisable only by Grantee
or Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form
annexed hereto as Exhibit A or such other form as may be prescribed by the
Company Board, provided that no such designation shall be effective unless so
filed prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive Grantee's death, the Option shall pass
by will or the laws of descent and distribution. Following Grantee's death,
the Option, if otherwise exercisable, may be exercised by the person to whom
the Option passes according to the foregoing, and such person shall be deemed
to be Grantee for purposes of any applicable provisions of this Agreement.
8. NO SHAREHOLDER RIGHTS; NO GUARANTEE OF EMPLOYMENT. (a)
Grantee shall not be deemed for any purpose to be, or to have any of the rights
of, a stockholder of the Company with respect to any Option Shares unless and
until such Option Shares have been issued to Grantee by the Company. The
existence of this Agreement or the Option shall not affect in any way the right
or power of the Company or its stockholders to accomplish any corporate act.
(b) Nothing contained in this Agreement, and no action by
the Company or the Company Board with respect hereto, shall confer or be
construed to confer on Grantee any right to continue in the employ of the TCI
Group or any member thereof or interfere in any way with the right of TCI, the
Company or any employing member of the TCI Group to terminate Grantee's
employment at any time, with or without Cause, except as otherwise expressly
provided in any written employment agreement between the applicable member(s)
of the TCI Group and Grantee.
9. ADJUSTMENTS; ACCELERATION. (a) If, after December 31, 1996,
the Company (i) pays a dividend or makes a distribution on the Company Common
Stock in shares of Company Common Stock; (ii) subdivides the outstanding shares
of Company Common Stock into a greater number of shares or (iii) combines the
outstanding shares of Company Common Stock into a smaller number of shares,
then this Option and the number of Option Shares and the Option Price per share
in effect immediately prior to the opening of business on the record date for
such dividend or distribution or the effective date of such subdivision or
combination shall be adjusted so that Grantee upon exercise thereafter of the
Option may receive the number of shares of Company Common Stock that Grantee
would have owned immediately following such event if Grantee had exercised the
Option immediately prior to the record date for, or effective date of, as the
case may be, such event. The
5
<PAGE> 6
adjustment contemplated by the preceding sentence shall be made successively
whenever any event listed above shall occur. For a dividend or distribution,
the adjustment shall become effective immediately after the record date for the
dividend or distribution. For a subdivision or combination, the adjustment
shall become effective immediately after the effective date of the subdivision
or combination. Adjustments to the Option Price shall be made on a per share
basis so that the aggregate Option Price of all remaining Option Shares
following such adjustment is unchanged.
(b) The Option shall also be subject to adjustment
(including, without limitation, as to the number of Option Shares and the
Option Price per share) in the sole discretion of the Company Board and in such
manner as the Company Board may deem equitable and appropriate in connection
with the occurrence of any of the following events after December 31, 1996 that
affects the Company Common Stock such that an adjustment would be required in
order to preserve the benefits or potential benefits intended to be made
available under this Agreement: any dividend or distribution on the Company
Common Stock in shares of the Company's capital stock (other than Company
Common Stock); any reclassification of the Company Common Stock into shares of
the Company's capital stock (other than a reclassification by way of an
Approved Transaction); any extraordinary cash dividend; any distribution of any
rights, warrants or options to holders of Company Common Stock; any
distribution of any assets or debt securities (other than cash dividends or
distributions that are not extraordinary cash dividends); any recapitalization,
reorganization, split up or spin off; and any merger, consolidation or binding
share exchange that reclassifies or changes the outstanding Company Common
Stock or other similar corporate event (other than those which constitute
Approved Transactions). Notwithstanding the foregoing, in the event of any
reclassification or recapitalization of the Company Common Stock into two or
more classes or series of common stock with different voting rights (however
the same may be effected), no adjustment to the Option shall be required that
would entitle Grantee to receive shares of any class or series of common stock
of the Company other than the class or series with the fewest number of votes
per share. Adjustments to the Option Price shall be made on a per share basis
so that the aggregate Option Price of all remaining Option Shares following
such adjustment is unchanged.
(c) The Company Board may at any time in its sole
discretion determine that the Option shall become exercisable in full, without
regard to paragraph 2, whether immediately, upon the occurrence of specified
events, or otherwise. Without limiting the generality of the foregoing, in the
event of any Board Change, Control Purchase or Approved Transaction that occurs
with respect to TCI following December 31, 1996 and prior to the earlier of
such time as the Company ceases to be a Subsidiary of TCI or such time as the
Company becomes a Public Company, the Option shall become exercisable in full,
without regard to paragraph 2, effective upon the Board Change or Control
Purchase or immediately prior to consummation of the Approved Transaction, as
applicable (or at such earlier time as the Company Board in its sole discretion
may determine); provided, however, that to the extent not theretofore exercised
the Option shall terminate upon the first to occur of the consummation of the
Approved Transaction or the expiration or early termination of the Option Term.
In the event that (i) at any time after December 31, 1996 while the Company is
a Subsidiary of TCI, an Approved Transaction occurs with respect to the Company
after giving effect to which the Company will cease to be a Subsidiary of TCI
or (ii) an Approved
6
<PAGE> 7
Transaction, Board Change or Control Purchase occurs with respect to the
Company at a time following December 31, 1996 that the Company is no longer a
Subsidiary of TCI, then, in any such case, the Option shall become exercisable
in full, without regard to paragraph 2, effective upon the Board Change or
Control Purchase or immediately prior to consummation of the Approved
Transaction, as applicable (or at such earlier time as the Company Board in its
sole discretion may determine); provided, however, that to the extent not
theretofore exercised the Option shall terminate upon the first to occur of the
consummation of the Approved Transaction or the expiration or early termination
of the Option Term. Notwithstanding the foregoing, the Company Board may, in
its discretion, determine that the Option will not become exercisable on an
accelerated basis in connection with an Approved Transaction and/or will not
terminate if not exercised prior to consummation of the Approved Transaction,
if the Board or the surviving or acquiring corporation, as the case may be,
shall have taken or made effective provision for the taking of such action as
in the opinion of the Company Board is equitable and appropriate to substitute
a new stock option for the Option evidenced by this Agreement or to assume this
Agreement and the Option evidenced hereby and in order to make such new or
assumed stock option, as nearly as may be practicable, equivalent to the Option
evidenced by this Agreement as then in effect (but before giving effect to any
acceleration of the exercisability hereof unless otherwise determined by the
Company Board), taking into account, to the extent applicable, the kind and
amount of securities, cash or other assets into or for which the Company Common
Stock may be changed, converted or exchanged in connection with the Approved
Transaction.
(d) All actions taken by the Company Board with respect
to the Option pursuant to this paragraph 9 shall be consistent with any actions
taken by the Company Board with respect to the Other Options. When an
adjustment to the Option pursuant to paragraph 9(a) or 9(b) becomes effective
immediately after the record date for an event, the Company may defer until the
occurrence of such event issuing to Grantee the additional shares of Company
Common Stock (or cash, securities or other property) issuable or deliverable
upon any exercise of the Option after such record date and before the
occurrence of such event by reason of the adjustment required by such event
over and above the shares of Company Common Stock that would have been issuable
upon such exercise absent such adjustment.
10. MANNER OF PAYMENT. The method or methods of payment of the
Option Price for the shares of Company Common Stock to be purchased upon
exercise of the Option and any amounts required by paragraph 4 shall consist of
(i) cash, (ii) check, (iii) promissory note in such form and with such security
as shall be acceptable to the Company Board in its sole discretion (except that
this method of payment will not be available for amounts required by paragraph
4), (iv) whole shares of Company Common Stock already owned by Grantee, (v) the
withholding of shares of Company Common Stock issuable upon exercise of the
Option, (vi) the delivery, together with a properly executed exercise notice,
of irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the purchase price (except that
this method of payment will not be available until the Company is a Public
Company), (vii) the delivery, together with a copy of a properly executed CLEC
SAR exercise notice, of instructions by Grantee to TCI Teleport instructing it
to pay to the Company all or a portion of the aggregate Option Price
7
<PAGE> 8
payable in respect of such exercise of the Option from the proceeds payable to
Grantee pursuant to his exercise of CLEC SARs required in accordance with
paragraph 3(d) hereof, or (viii) any combination of the foregoing methods of
payment, as Grantee may elect and shall designate in the Option Exercise
Notice. Any shares of Company Common Stock delivered or withheld in payment
of any amount due hereunder shall be valued for such purposes (i) if the Option
is exercised prior to such time as the Company is a Public Company, at the
Appraised Public Trading Value of such shares on the applicable date of
exercise of the Option, determined as provided in paragraph 11(c), and (ii) if
the Option is exercised when the Company is a Public Company, at the Fair
Market Value of such shares on the applicable date of exercise of the Option.
11. RESTRICTIONS IMPOSED BY LAW; CERTAIN PUT RIGHTS; APPRAISAL
PROCEDURES. (a) Grantee acknowledges that neither the Option nor any of the
Option Shares has been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT") and that the Option Shares may not be transferred in the
absence of such registration or the availability of an exemption therefrom
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. Neither the Company nor any other
person shall have any obligation to register any Option Shares, or any transfer
of Option Shares, under the Securities Act, the Exchange Act or any other state
or federal securities law. Certificates representing Option Shares purchased
by Grantee hereunder may bear such restrictive and other legends as counsel for
the Company shall require in order to insure compliance with any such law or
any rule or regulation promulgated thereunder. Grantee agrees that Grantee
will not exercise the Option (and that the Company shall not be obligated to
deliver any Option Shares upon any exercise of the Option) if counsel for the
Company determines that such exercise or delivery would violate any applicable
law or any rule or regulation of any governmental authority, or any rule or
regulation of, or agreement of the Company with, any securities exchange or
association upon which the Company Common Stock is listed or quoted. The
Company shall in no event be obligated to take any affirmative action in order
to cause the exercise of the Option or the resulting delivery of the shares of
Company Common Stock to comply with any such law, rule, regulation or
agreement. Without limiting the generality of the foregoing, but subject to
paragraph 11(b), Grantee acknowledges and agrees that unless and until the
Company becomes a Public Company or, if earlier, ceases to be a Subsidiary of
TCI, the Option Shares may not be transferred to any person (other than to
Grantee's designated beneficiary pursuant to paragraph 7 upon Grantee's death)
without the prior written consent of TCI.
(b) In the event that the Company has not become a Public
Company on or before February 1, 2001, Grantee shall have the right, by written
notice given to TCI at any time thereafter, to require TCI to purchase all, and
not less than all, the Option Shares for a purchase price equal to the
Appraised Public Trading Value of the Option Shares determined as provided in
paragraph 11(c) (the "PUT RIGHT"); provided, however, that the Put Right shall
expire upon the first to occur of the Company's becoming a Public Company and
the Company's ceasing to be a Subsidiary of TCI; and, provided, further, that
if Grantee dies prior to February 1, 2001, the Put Right shall become
exercisable by his beneficiary or beneficiaries pursuant to paragraph 7 or his
heirs, devisees or distributees, as applicable, from and after the date of
Grantee's death. Grantee's notice of the exercise of his Put Right (the "PUT
EXERCISE NOTICE") shall set forth the number of Option Shares
8
<PAGE> 9
then owned by Grantee and/or that remain subject to the Option and shall
contain the information required by paragraph 11(c). In the event that any
Option Shares remain subject to the Option, Grantee shall exercise the balance
of the Option in full prior to the closing of the purchase pursuant to the Put
Right. If the Put Right is exercised, TCI shall have the right to pay the
purchase price for the Option Shares in cash, shares of Tele-Communications,
Inc. Series A TCI Group Common Stock, $1.00 par value per share, or any
successor class or series of TCI's common stock, or if any class or series of
TCI's common stock is hereafter created that is intended to track the separate
performance of specified assets or businesses of TCI that include assets and
businesses of the Company, shares of such class or series (and if more than one
series of such "tracking stock" is created with different voting rights, the
series with the lower voting rights), provided that shares of the same class or
series of securities being so delivered are then listed or traded on NASDAQ or
a national securities exchange and are actively traded (collectively the "TCI
STOCK"), or any combination of cash and shares of TCI Stock as TCI may elect.
It shall be a condition to TCI's right to deliver shares of TCI Stock in
satisfaction of its obligations hereunder that the shares so delivered have
been registered under the Securities Act on Form S-8 (or other available form)
and if Grantee's sale of such shares in the public market would be restricted
(other than as to manner of sale) pursuant to Rule 144 under the Securities Act
then a resale prospectus shall be prepared by TCI and provided to Grantee for
his use in selling such shares. If TCI elects to pay all or any portion of the
purchase price for the Option Shares in shares of TCI Stock, said shares shall
be valued for such purpose at the most recent Closing Price thereof preceding
the date of delivery of such shares to Grantee. The closing of the purchase of
the Option Shares pursuant to this paragraph 11(b) shall occur on the 10th day
following the receipt by Grantee and TCI of notice pursuant to paragraph 11(c)
of the final determination of the Appraised Public Trading Value of the Option
Shares (or on such other date as the parties may agree).
(c) Grantee's Put Exercise Notice and any Option Exercise
Notice that provides for the delivery or withholding of shares of Company
Common Stock as a manner of payment of the Option Price or of amounts required
under paragraph 4 shall identify the Public Appraiser selected by Grantee to
make the determination of Appraised Public Trading Value (the "FIRST
APPRAISER"). Within 10 days after receipt of the Put Exercise Notice or Option
Exercise Notice, as applicable, TCI or the Company, as applicable, shall notify
Grantee in writing of the Applicable Person's selection of a Public Appraiser
(the "SECOND APPRAISER"). The First Appraiser and the Second Appraiser shall
each submit its determination of the Appraised Public Trading Value of the
Option Shares to Grantee and the Applicable Person within 30 days of the date
of its selection. If the respective determinations of Appraised Public Trading
Value by such Public Appraisers vary by less than 10% of the higher
determination, then the Appraised Public Trading Value shall be the average of
the two determinations. If such determinations vary by ten percent (10%) or
more of the higher determination, the two Public Appraisers shall promptly
designate a third Public Appraiser (the "THIRD APPRAISER"). Neither Grantee
nor the Applicable Person shall provide, and the First Appraiser and Second
Appraiser shall be instructed not to provide, any information to the Third
Appraiser as to the determination of the First Appraiser and Second Appraiser
or otherwise influence such Third Appraiser's determination. The Third
Appraiser shall submit its determination of the Appraised Public Trading Value
to Grantee and the Applicable Person within 30 days of the date of
9
<PAGE> 10
its selection. The Appraised Public Trading Value shall be equal to the
average of the two closest of the three determinations, provided that, if the
difference between the highest and middle determinations is no more than 105%
and no less than 95% of the difference between the middle and lowest
determinations, the Appraised Public Trading Value shall be equal to the middle
determination. The Public Appraisers shall jointly notify the Applicable
Person and Grantee in writing of their final determination of the Appraised
Public Trading Value of the Option Shares within five (5) days thereafter.
Grantee and the Applicable Person shall each pay the fees and expenses of his
or its own Public Appraiser and one-half of the fees and expenses of the Third
Appraiser, if any.
12. RESCISSION OF OPTION EXERCISE. In the event that Grantee's
exercise of a CLEC SAR is rescinded pursuant to the terms of the CLEC SAR
Agreement, the corresponding exercise of the Option by Grantee hereunder shall
likewise be deemed rescinded and void ab initio, and the Option Shares which
were the subject of such Option Exercise Notice shall not be issued and shall
continue to be subject to future exercise in accordance with the terms of this
Agreement.
13. NOTICE. Unless the Company or TCI, as applicable, notifies
Grantee in writing of a change of address, any notice or other communication to
the Applicable Person with respect to this Agreement shall be in writing and
shall be delivered personally or sent by first class mail, postage prepaid and
addressed as follows:
If to the Company:
TCI Wireline, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Any notice or other communication by the Company or TCI to Grantee with respect
to this Agreement shall be in writing and shall be delivered personally, or
shall be sent by first class mail, postage prepaid, to Grantee's address as
listed in the records of TCI on the date hereof, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any Option Exercise Notice or Put
Exercise Notice, shall be effective when actually received.
10
<PAGE> 11
14. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
15. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
refer to this Agreement, including all Exhibits, as a whole, unless the context
otherwise requires. The headings of the paragraphs of this Agreement have been
included for convenience of reference only, are not to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
All decisions of the Company Board upon questions regarding this Agreement
shall be conclusive.
16. DUPLICATE ORIGINALS. The Company, TCI and Grantee may sign
any number of copies of this Agreement. Each signed copy shall be an original,
but all of them together represent the same agreement.
17. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between or among
TCI, the Company and Grantee, or any of them, with respect to the subject
matter hereof. Each of TCI, the Company and Grantee hereby declares and
represents that no promise or agreement not herein expressed has been made and
that this Agreement contains the entire agreement between and among the parties
hereto with respect to the Option and supersedes and makes null and void any
prior agreements between or among TCI, the Company and Grantee, or any of them,
regarding the Option.
18. AMENDMENT. This Agreement may be amended, modified or
supplemented by the Company, without the consent of the Grantee, (i) to cure
any ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein or (ii) to make such
other changes as the Company, upon advice of counsel, determines are necessary
or advisable because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
19. DEFINITIONS. As used in this Agreement, the following terms
have the corresponding meanings:
"APPLICABLE PERSON" means TCI or the Company, as applicable.
"APPRAISED PUBLIC TRADING VALUE" means the price at which a
share of Company Common Stock would trade assuming that the Company is a Public
Company and the Company Common Stock is publicly traded and widely held.
"APPROVED TRANSACTION", when used with respect to TCI or the
Company, as applicable, means any transaction in which the Relevant Board (or,
if approval of the Relevant Board is not required as a matter of law, the
stockholders of the Applicable Person) shall approve (i) any
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<PAGE> 12
consolidation or merger of the Applicable Person, or binding share exchange,
pursuant to which shares of common stock of the Applicable Person would be
changed or converted into or exchanged for cash, securities or other property,
other than any such transaction in which the common stockholders of the
Applicable Person immediately prior to such transaction have the same
proportionate ownership of the common stock of, and voting power with respect
to, the surviving corporation immediately after such transaction, (ii) any
merger, consolidation or binding share exchange to which the Applicable Person
is a party as a result of which the persons who are common stockholders of the
Applicable Person immediately prior thereto have less than a majority of the
combined voting power of the outstanding capital stock of the Applicable Person
ordinarily (and apart from the rights accruing under special circumstances)
having the right to vote in the election of directors immediately following
such merger, consolidation or binding share exchange, (iii) the adoption of any
plan or proposal for the liquidation or dissolution of the Applicable Person,
or (iv) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Applicable Person. Notwithstanding the foregoing, none of such
transactions that occur with respect to the Company while the Company is a
Subsidiary of TCI and that are effected in connection with a spin off of the
Company or rights offering of Company Common Stock to TCI's stockholders or
equivalent transaction shall constitute an Approved Transaction.
"BOARD CHANGE" means, during any period of two consecutive
years, individuals who at the beginning of such period constituted the entire
Relevant Board cease for any reason to constitute a majority thereof unless the
election, or the nomination for election, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"CAUSE" has the meaning ascribed thereto in any employment
agreement between Grantee and the applicable member of the TCI Group, and in
the absence of any such employment agreement shall include, but not be limited
to, insubordination, dishonesty, incompetence, moral turpitude, other
misconduct of any kind or the refusal to perform one's duties and
responsibilities for any reason other than illness or incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined in good faith by
the Company Board; provided, however, that if such termination occurs within
twelve (12) months after (i) an Approved Transaction, Control Purchase or Board
Change occurs (x) with respect to TCI following December 31, 1996 and prior to
the earlier of such time as the Company ceases to be a Subsidiary of TCI or
such time as the Company becomes a Public Company or (y) with respect to the
Company at any time following December 31, 1996 that the Company is no longer a
Subsidiary of TCI, or (ii) an Approved Transaction occurs with respect to the
Company at any time after December 31, 1996 and while the Company is a
Subsidiary of TCI and after giving effect to such Approved Transaction the
Company will cease to be a Subsidiary of TCI, then "Cause" shall mean only a
felony conviction for fraud, misappropriation or embezzlement.
"CLOSING PRICE" of a share of TCI Stock on any day means the
last sale price (or, if no last sale is reported, the average of the high bid
and low asked prices) for a share of TCI Stock
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<PAGE> 13
on such day (or, if such day is not a trading day, on the next preceding
trading day) as reported on NASDAQ or, if not reported on NASDAQ, as quoted by
the National Quotation Bureau Incorporated, or if the TCI Stock is listed on an
exchange, on the principal exchange on which the TCI Stock is listed. If for
any day the Closing Price of a share of TCI Stock is not determinable by any of
the foregoing means, then the Closing Price for such day shall be determined in
good faith by TCI on the basis of such quotations and other considerations as
TCI may deem appropriate.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes thereto. Reference to
any specific Code section shall include any successor section.
"COMPANY COMMON STOCK" means the Common Stock, $1.00 par value
per share, of the Company.
"CONTROL PURCHASE" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other
than the Applicable Person, any Subsidiary of the Applicable Person or any
employee benefit plan sponsored by the Applicable Person or any Subsidiary of
the Applicable Person) shall purchase any common stock of the Applicable Person
(or securities convertible into common stock of the Applicable Person) for
cash, securities or any other consideration pursuant to a tender offer or
exchange offer, without the prior consent of the Relevant Board, or (ii) any
person (as such term is so defined), corporation or other entity (other than
the Applicable Person, any Subsidiary of the Applicable Person, any employee
benefit plan sponsored by the Applicable Person or any Subsidiary of the
Applicable Person, or any Controlling Person (as defined below)) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Applicable Person
representing 20% or more of the combined voting power of the then outstanding
securities of the Applicable Person ordinarily (and apart from the rights
accruing under special circumstances) having the right to vote in the election
of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in
the case of rights to acquire the Applicable Person's securities), other than
in a transaction (or series of related transactions) approved by the Relevant
Board. For purposes of this definition, "Controlling Person" means each of (a)
the Chairman of the Board, the President and each of the directors of the
Applicable Person as of December 31, 1996, (b) the respective family members,
estates and heirs of (i) Bob Magness and (ii) each of the persons referred to
in clause (a) above and any trust or other investment vehicle for the primary
benefit of any of such persons or their respective family members or heirs and
(c) Kearns-Tribune Corporation, a Delaware corporation. As used with respect
to any person, the term "family member" means the spouse, siblings and lineal
descendants of such person.
"DETERMINATION DATE" means February 1, 1996.
"DISABILITY" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to
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<PAGE> 14
result in death or (b) has lasted or can be expected to last for a continuous
period of not less than 12 months.
"DOMESTIC RELATIONS ORDER" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto, and
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
"FAIR MARKET VALUE" of a share of Company Common Stock on any
day means the last sale price (or, if no last sale price is reported, the
average of the high bid and low asked prices) for a share of Company Common
Stock on such day (or, if such day is not a trading day, on the next preceding
trading day) as reported on NASDAQ or, if not reported on NASDAQ, as quoted by
the National Quotation Bureau Incorporated, or if the Company Common Stock is
listed on an exchange, on the principal exchange on which the Company Common
Stock is listed. If for any day the Fair Market Value of a share of Company
Common Stock is not determinable by any of the foregoing means, then the Fair
Market Value for such day shall be determined in good faith by the Company
Board on the basis of such quotations and other considerations as the Company
Board deems appropriate.
"GOOD REASON" means the occurrence of any of the following
prior to any termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary
(other than a reduction to which Grantee consents);
(ii) a failure by TCI or the Company to continue in effect
any employee benefit plan in which Grantee was participating, or the
taking of any action by TCI or the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the
corporate management of TCI or the Company (as applicable) generally;
(iii) the assignment to Grantee of duties and
responsibilities that are materially more oppressive or onerous than
those attendant to Grantee's position on the date hereof;
(iv) the relocation of the office location assigned to
Grantee by the Company to a location more than 20 miles from Grantee's
current location without
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<PAGE> 15
Grantee's consent, unless the new location is within the Denver/Boulder
metropolitan area; or
(v) the failure of the Company to obtain, prior to the
time of any reorganization, merger, consolidation, disposition of all
or substantially all of the assets of the Company or similar
transaction effective after the date hereof, in which the Company is
not the surviving person, the unconditional assumption in writing or
by operation of law of the Company's obligations to Grantee under this
Agreement by each direct successor to the Company in any such
transaction.
"NASDAQ" means The Nasdaq Stock Market.
"OPTION PRICE" means $12,502 per Option Share, plus an
interest factor of 6% per annum on such amount from the date hereof to the date
of exercise (calculated on the basis of a 365-day year and actual days
elapsed), as such amount per Option Share may be adjusted from time to time
pursuant to paragraph 9.
"OPTION SHARES" means an aggregate number of shares of Company
Common Stock equal to 10 (which number represents 1% of the number of shares of
Company Common Stock issued and outstanding on the date hereof), as such number
of shares may be adjusted from time to time pursuant to paragraph 9.
"OTHER OPTIONS" means the options to purchase shares of
Company Common Stock granted pursuant to those other Option Agreements dated as
of the date hereof among the Company, TCI and the grantees named therein,
respectively.
"PUBLIC APPRAISER" means, as of any date of selection, an
investment banking firm of national reputation that is not affiliated with TCI,
the Company or Grantee.
"PUBLIC COMPANY" means a person the common equity securities
of which are registered under Section 12(b) or 12(g) of the Exchange Act and
which common equity securities are listed for trading on the New York Stock
Exchange or the NASDAQ National Market.
"RELEVANT BOARD", when used with respect to TCI, means the
Board of Directors of TCI and, when used with respect to the Company, means the
Company Board.
"SUBSIDIARY", when used with respect to TCI or the Company, as
applicable, means any present or future subsidiary (as defined in Section
424(f) of the Code) of the Applicable Person or any business entity in which
the Applicable Person owns, directly or indirectly, 50% or more of the voting,
capital or profits interests. An entity shall be deemed a Subsidiary of the
Applicable Person for purposes of this definition only for such periods as the
requisite ownership or control relationship is maintained.
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<PAGE> 16
"TCI GROUP" means TCI and its Subsidiaries, collectively, or
the applicable of TCI or a Subsidiary of TCI, as the context may require. If
the Company ceases to be a Subsidiary of TCI, the Company and its Subsidiaries
shall, notwithstanding the last sentence of the definition of Subsidiary above,
be deemed for purposes of this definition only to continue to be Subsidiaries
of TCI and, accordingly, members of the TCI Group.
20. RULES BY COMPANY BOARD. The rights of Grantee and
obligations of the Company hereunder shall be subject to such reasonable rules
and regulations as the Company Board may adopt from time to time hereafter.
IN WITNESS WHEREOF, the Company, Grantee and, for purposes of
paragraphs 11(b) and 11(c) only, TCI have caused this Agreement to be duly
executed and delivered as of the date first written above.
ATTEST: TCI WIRELINE, INC.
By:
- ------------------------- --------------------------------
Assistant Secretary Name:
Title:
---------------------------------
----------------------
TELE-COMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title:
16
<PAGE> 17
Exhibit A to Agreement
dated as of December 1, 1996
TCI WIRELINE, INC.
OPTION TO PURCHASE COMMON STOCK
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
______________________________________________________________________________ ,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
Option and all other rights accorded Grantee by the above-referenced grant
agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing,
signed by Grantee, and filed with Tele-Communications, Inc. and TCI Wireline,
Inc., prior to Grantee's death.
- ------------------------- -----------------------------
Date Grantee
<PAGE> 1
EXHIBIT 10.54
[Form of Agreement]
TCI.NET, INC.
OPTION TO PURCHASE COMMON STOCK
THIS AGREEMENT ("AGREEMENT") is made as of the 1st day of
December, 1996, by and among TCI.NET, INC., a Delaware corporation (the
"COMPANY"), [______________________] ("GRANTEE") and, for purposes of
paragraphs 11(b) and (c) only, TELE-COMMUNICATIONS, INC., a Delaware
corporation ("TCI").
The Company is on the date hereof a Subsidiary of TCI. The
Board of Directors of the Company ("COMPANY BOARD") and the Board of Directors
of TCI have each determined that it is in the best interests of the Company and
TCI to grant Grantee the rights and option set forth herein in order to provide
Grantee with additional remuneration for services rendered to the Company and
its predecessors, to encourage Grantee to remain in the employ of TCI and/or
one or more of its Subsidiaries, including the Company, and to provide
additional incentive to Grantee by increasing Grantee's proprietary interest in
the continued success and progress of the Company. Capitalized terms used
herein and not otherwise defined are defined in paragraph 19 below.
Accordingly, the Company, Grantee and, for purposes of
paragraphs 11(b) and 11(c) only, TCI hereby agree as follows:
1. GRANT OF OPTION; OPTION TERM. (a) The Company hereby grants
to Grantee the right and option (the "OPTION"), on the terms and subject to the
conditions set forth herein, to purchase the Option Shares from the Company for
a price per Option Share equal to the Option Price. The Option Price and
Option Shares are subject to adjustment pursuant to paragraph 9 below. Subject
to paragraph 2, the Option shall be exercisable in whole at any time and in
part from time to time during the period commencing on the date hereof and
expiring at 5:00 p.m., Denver, Colorado time ("CLOSE OF BUSINESS") on the tenth
anniversary of the Determination Date, or such earlier date as the Option may
be terminated pursuant to paragraph 6 or paragraph 9(c) (the "OPTION TERM").
(b) The grant of the Option hereunder, together with the
grant of SARs by TCI Internet Services (each as defined below), shall be deemed
to be in substitution for and replacement of the option to purchase TCI
Internet Services Common Stock which was previously granted by TCI Internet
Services to Grantee, and the parties acknowledge and agree that such prior
option grant is hereby terminated and shall cease to be of any further force
and effect.
2. CONDITIONS OF EXERCISE; VESTING. Except as otherwise provided
in the last sentence of this paragraph 2 or in paragraph 9(c), the Option shall
not be exercisable until the first anniversary of the Determination Date, and,
from the first anniversary of the Determination Date to the fifth anniversary
of the Determination Date, the Option shall be exercisable only to the extent
the Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE> 2
<TABLE>
<CAPTION>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
------------------ ----------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all Option Shares shall become
available for purchase if during the Option Term (i) Grantee's employment with
the TCI Group shall terminate by reason of (x) termination by the TCI Group
without Cause, (y) termination by Grantee for Good Reason or (z) Disability,
(ii) Grantee's employment shall terminate pursuant to provisions of a written
employment agreement, if any, between Grantee and the applicable member(s) of
the TCI Group which expressly permits Grantee to terminate such employment upon
the occurrence of specified events (other than the giving of notice and passage
of time) or (iii) Grantee dies while employed by the TCI Group. A change of
employment is not a termination of employment within the meaning of this
paragraph 2, provided that, after giving effect to such change, Grantee is an
employee of, or becomes or continues to be a consultant to, any member of the
TCI Group.
3. MANNER OF EXERCISE. The Option may be exercised only by
delivering to the Company all of the following and shall be considered
exercised (as to the number of shares specified in the notice referred to in
clause (a) below)) on the later of (i) the first business day on which the
Company has received all of the following deliveries (provided, that in the
event Grantee's Option Exercise Notice specifies a method of payment of the
Option Price which would require an appraisal pursuant to paragraph 11(c), such
Option shall be deemed exercised (subject to receipt of the appraisal report
pursuant to paragraph 11(c)) as of the date designated in the Option Exercise
Notice) and (ii) the date of exercise designated in the written notice referred
to in clause (a) below (or if such date is not a business day, the first
business day thereafter):
(a) written notice, in such form as the Company Board may
reasonably require, stating that Grantee is exercising the Option and
setting forth the date of such exercise, the number of Option Shares
to be purchased, the aggregate Option Price to be paid for such Option
Shares in accordance with this Agreement and the manner in which such
payment is being made ("OPTION EXERCISE NOTICE");
(b) payment of the Option Price for each Option Share to
be purchased upon such exercise, in cash or in such other form or
combination of forms of payment contemplated by paragraph 10, together
with payment of, or other provision acceptable to the Company Board
for, any and all withholding taxes required to be withheld by the
Company upon such exercise, in accordance with paragraph 4;
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<PAGE> 3
(c) any other documentation that the Company Board may
reasonably require (including, without limitation, proof satisfactory
to the Company Board that the Option is then exercisable for the
number of Option Shares set forth in such notice); and
(d) for so long as the Company and TCI Internet Services,
Inc. ("TCI INTERNET SERVICES") are Subsidiaries of the Company,
evidence satisfactory to the Company Board that Grantee is validly and
simultaneously exercising the same proportion of the stock
appreciation rights (the "SARS") granted to him by TCI Internet
Services pursuant to that certain stock appreciation rights agreement,
dated as of the date hereof, among TCI Internet Services, Grantee and
TCI, as the same may thereafter be amended, modified or supplemented
from time to time (the "SAR AGREEMENT").
4. WITHHOLDING FOR TAXES. It shall be a condition precedent to
any exercise of the Option that Grantee make provision acceptable to the
Company for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company to satisfy the tax liability
associated with such exercise, as determined by the Company Board.
5. DELIVERY BY THE COMPANY. As soon as practicable after receipt
of all the items required by paragraph 3 and, if applicable, paragraph 11(c),
with respect to any exercise of the Option, and subject to the withholding
referred to in paragraph 4, the Company shall deliver or cause to be delivered
to Grantee certificates issued in Grantee's name for the number of whole Option
Shares purchased upon such exercise. If delivery is by mail, delivery of
Option Shares shall be deemed effected for all purposes when the Company or a
stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to Grantee, and any cash payment (for
fractional shares or otherwise) shall be deemed effected when a Company check,
payable to Grantee and in an amount equal to the amount of the cash payment,
shall have been deposited in the United States mail, addressed to Grantee, in
each case in accordance with paragraph 12.
6. EARLY TERMINATION OF OPTION. Unless otherwise determined by
the Company Board in its sole discretion, the Option shall terminate, prior to
the expiration of the ten-year period provided for in paragraph 1, as follows:
(a) If Grantee's employment with the TCI Group terminates
other than (i) by Grantee with Good Reason, (ii) by reason of
Grantee's death or Disability, (iii) with the written consent of the
applicable member(s) of the TCI Group, (iv) without such consent if
such termination is pursuant to provisions of a written employment
agreement, if any, between Grantee and the applicable member(s) of the
TCI Group which expressly permits Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of
notice and passage of time), or (v) by the TCI Group with or without
Cause, then the Option shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
3
<PAGE> 4
(b) If Grantee dies (i) while employed by the TCI Group
or (ii) prior to the expiration of a relevant period of time during
which the Option remains exercisable as provided in this paragraph 6,
the Option shall terminate at the Close of Business on the first
business day following the expiration of the one-year period
beginning on the date of death;
(c) If Grantee's employment with the TCI Group terminates
by reason of Disability, then the Option shall terminate at the Close
of Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the TCI Group is
terminated by the TCI Group for Cause, then the Option shall terminate
immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with the TCI
Group (i) with Good Reason, (ii) with the written consent of the
applicable member(s) of the TCI Group or (iii) pursuant to provisions
of a written employment agreement, if any, between Grantee and the
applicable member(s) of the TCI Group which expressly permits Grantee
to terminate such employment upon the occurrence of specified events
(other than the giving of notice and passage of time), or if the TCI
Group terminates Grantee's employment with the TCI Group without
Cause, then the Option Term shall not terminate prior to the end of
the ten-year period provided for in paragraph 1, except as otherwise
provided for in paragraph 6(b) or 9(c).
In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the
extent it was exercisable as provided in paragraph 2 or paragraph 9(c) on such
date of termination of Grantee's employment. A change of employment is not a
termination of employment within the meaning of this paragraph 6, provided
that, after giving effect to such change, Grantee is an employee of, or becomes
or continues to be a consultant to, any member of the TCI Group. Anything
contained herein to the contrary notwithstanding, the Option shall in any event
terminate upon the expiration of the ten-year period provided for in paragraph
1, if not theretofore terminated.
7. NONTRANSFERABILITY OF OPTION. During Grantee's lifetime, the
Option is not and shall not be transferable (voluntarily or involuntarily)
other than pursuant to a Domestic Relations Order and, except as otherwise
required pursuant to a Domestic Relations Order, is exercisable only by Grantee
or Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form
annexed hereto as Exhibit A or such other form as may be prescribed by the
Company Board, provided that no such designation shall be effective unless so
filed prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive Grantee's
4
<PAGE> 5
death, the Option shall pass by will or the laws of descent and distribution.
Following Grantee's death, the Option, if otherwise exercisable, may be
exercised by the person to whom the Option passes according to the foregoing,
and such person shall be deemed to be Grantee for purposes of any applicable
provisions of this Agreement.
8. NO SHAREHOLDER RIGHTS; NO GUARANTEE OF EMPLOYMENT. (a)
Grantee shall not be deemed for any purpose to be, or to have any of the rights
of, a stockholder of the Company with respect to any Option Shares unless and
until such Option Shares have been issued to Grantee by the Company. The
existence of this Agreement or the Option shall not affect in any way the right
or power of the Company or its stockholders to accomplish any corporate act.
(b) Nothing contained in this Agreement, and no action by
the Company or the Company Board with respect hereto, shall confer or be
construed to confer on Grantee any right to continue in the employ of the TCI
Group or any member thereof or interfere in any way with the right of TCI, the
Company or any employing member of the TCI Group to terminate Grantee's
employment at any time, with or without Cause, except as otherwise expressly
provided in any written employment agreement between the applicable member(s)
of the TCI Group and Grantee.
9. ADJUSTMENTS; ACCELERATION; AUTOMATIC EXERCISE. (a) If, after
December 31, 1996, the Company (i) pays a dividend or makes a distribution on
the Company Common Stock in shares of Company Common Stock; (ii) subdivides the
outstanding shares of Company Common Stock into a greater number of shares or
(iii) combines the outstanding shares of Company Common Stock into a smaller
number of shares, then this Option and the number of Option Shares and the
Option Price per share in effect immediately prior to the opening of business
on the record date for such dividend or distribution or the effective date of
such subdivision or combination shall be adjusted so that Grantee upon exercise
thereafter of the Option may receive the number of shares of Company Common
Stock that Grantee would have owned immediately following such event if Grantee
had exercised the Option immediately prior to the record date for, or effective
date of, as the case may be, such event. The adjustment contemplated by the
preceding sentence shall be made successively whenever any event listed above
shall occur. For a dividend or distribution, the adjustment shall become
effective immediately after the record date for the dividend or distribution.
For a subdivision or combination, the adjustment shall become effective
immediately after the effective date of the subdivision or combination.
Adjustments to the Option Price shall be made on a per share basis so that the
aggregate Option Price of all remaining Option Shares following such adjustment
is unchanged.
(b) The Option shall also be subject to adjustment
(including, without limitation, as to the number of Option Shares and the
Option Price per share) in the sole discretion of the Company Board and in such
manner as the Company Board may deem equitable and appropriate in connection
with the occurrence of any of the following events after December 31, 1996 that
affects the Company Common Stock such that an adjustment would be required in
order to preserve the benefits or potential benefits intended to be made
available under this Agreement: any dividend or distribution on the Company
Common Stock in shares of the Company's capital stock (other than
5
<PAGE> 6
Company Common Stock); any reclassification of the Company Common Stock into
shares of the Company's capital stock (other than a reclassification by way of
an Approved Transaction); any extraordinary cash dividend; any distribution of
any rights, warrants or options to holders of Company Common Stock; any
distribution of any assets or debt securities (other than cash dividends or
distributions that are not extraordinary cash dividends); any recapitalization,
reorganization, split up or spin off; and any merger, consolidation or binding
share exchange that reclassifies or changes the outstanding Company Common
Stock or other similar corporate event (other than those which constitute
Approved Transactions). Notwithstanding the foregoing, in the event of any
reclassification or recapitalization of the Company Common Stock into two or
more classes or series of common stock with different voting rights (however
the same may be effected), no adjustment to the Option shall be required that
would entitle Grantee to receive shares of any class or series of common stock
of the Company other than the class or series with the fewest number of votes
per share. Adjustments to the Option Price shall be made on a per share basis
so that the aggregate Option Price of all remaining Option Shares following
such adjustment is unchanged.
(c) The Company Board may at any time in its sole
discretion determine that the Option shall become exercisable in full, without
regard to paragraph 2, whether immediately, upon the occurrence of specified
events, or otherwise. Without limiting the generality of the foregoing, in the
event of any Board Change, Control Purchase or Approved Transaction that occurs
with respect to TCI following December 31, 1996 and prior to the earlier of
such time as the Company ceases to be a Subsidiary of TCI or such time as the
Company becomes a Public Company, the Option shall become exercisable in full,
without regard to paragraph 2, effective upon the Board Change or Control
Purchase or immediately prior to consummation of the Approved Transaction, as
applicable (or at such earlier time as the Company Board in its sole discretion
may determine); provided, however, that to the extent not theretofore exercised
the Option shall terminate upon the first to occur of the consummation of the
Approved Transaction or the expiration or early termination of the Option Term.
In the event that (i) at any time after December 31, 1996 while the Company is
a Subsidiary of TCI, an Approved Transaction occurs with respect to the Company
after giving effect to which the Company will cease to be a Subsidiary of TCI
or (ii) an Approved Transaction, Board Change or Control Purchase occurs with
respect to the Company at a time following December 31, 1996 that the Company
is no longer a Subsidiary of TCI, then, in any such case, the Option shall
become exercisable in full, without regard to paragraph 2, effective upon the
Board Change or Control Purchase or immediately prior to consummation of the
Approved Transaction, as applicable (or at such earlier time as the Company
Board in its sole discretion may determine); provided, however, that to the
extent not theretofore exercised the Option shall terminate upon the first to
occur of the consummation of the Approved Transaction or the expiration or
early termination of the Option Term. Notwithstanding the foregoing, the
Company Board may, in its discretion, determine that the Option will not become
exercisable on an accelerated basis in connection with an Approved Transaction
and/or will not terminate if not exercised prior to consummation of the
Approved Transaction, if the Board or the surviving or acquiring corporation,
as the case may be, shall have taken or made effective provision for the taking
of such action as in the opinion of the Company Board is equitable and
appropriate to substitute a new stock option for the Option evidenced by this
Agreement or to assume this Agreement and the Option evidenced
6
<PAGE> 7
hereby and in order to make such new or assumed stock option, as nearly as may
be practicable, equivalent to the Option evidenced by this Agreement as then in
effect (but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Company Board), taking into account,
to the extent applicable, the kind and amount of securities, cash or other
assets into or for which the Company Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
(d) All actions taken by the Company Board with respect
to the Option pursuant to this paragraph 9 shall be consistent with any actions
taken by the Company Board with respect to the Other Options. When an
adjustment to the Option pursuant to paragraph 9(a) or 9(b) becomes effective
immediately after the record date for an event, the Company may defer until the
occurrence of such event issuing to Grantee the additional shares of Company
Common Stock (or cash, securities or other property) issuable or deliverable
upon any exercise of the Option after such record date and before the
occurrence of such event by reason of the adjustment required by such event
over and above the shares of Company Common Stock that would have been issuable
upon such exercise absent such adjustment.
10. MANNER OF PAYMENT. The method or methods of payment of the
Option Price for the shares of Company Common Stock to be purchased upon
exercise of the Option and any amounts required by paragraph 4 shall consist of
(i) cash, (ii) check, (iii) promissory note in such form and with such security
as shall be acceptable to the Company Board in its sole discretion (except that
this method of payment will not be available for amounts required by paragraph
4), (iv) whole shares of Company Common Stock already owned by Grantee, (v) the
withholding of shares of Company Common Stock issuable upon exercise of the
Option, (vi) the delivery, together with a properly executed exercise notice,
of irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the purchase price (except that
this method of payment will not be available until the Company is a Public
Company), (vii) the delivery, together with a copy of a properly executed SAR
exercise notice, of instructions by the Grantee to TCI Internet Services
instructing it to pay to the Company all or a portion of the aggregate Option
Price payable in respect of such exercise of the Option from the proceeds
payable to Grantee pursuant to his exercise of SARs required in accordance with
paragraph 3(d) hereof, or (viii) any combination of the foregoing methods of
payment, as Grantee may elect and shall designate in the Option Exercise
Notice. Any shares of Company Common Stock delivered or withheld in payment of
any amount due hereunder shall be valued for such purposes (i) if the Option is
exercised prior to such time as the Company is a Public Company, at the
Appraised Public Trading Value of such shares on the applicable date of
exercise of the Option, determined as provided in paragraph 11(c), and (ii) if
the Option is exercised when the Company is a Public Company, at the Fair
Market Value of such shares on the applicable date of exercise of the Option.
11. RESTRICTIONS IMPOSED BY LAW; CERTAIN PUT RIGHTS; APPRAISAL
PROCEDURES. (a) Grantee acknowledges that neither the Option nor any of the
Option Shares has been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and that the Option Shares may not be transferred in
the absence of such registration or the availability of an exemption therefrom
under
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<PAGE> 8
the Securities Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. Neither the Company nor any other person
shall have any obligation to register any Option Shares, or any transfer of
Option Shares, under the Securities Act, the Exchange Act or any other state or
federal securities law. Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for
the Company shall require in order to insure compliance with any such law or
any rule or regulation promulgated thereunder. Grantee agrees that Grantee
will not exercise the Option (and that the Company shall not be obligated to
deliver any Option Shares upon any exercise of the Option) if counsel for the
Company determines that such exercise or delivery would violate any applicable
law or any rule or regulation of any governmental authority, or any rule or
regulation of, or agreement of the Company with, any securities exchange or
association upon which the Company Common Stock is listed or quoted. The
Company shall in no event be obligated to take any affirmative action in order
to cause the exercise of the Option or the resulting delivery of the shares of
Company Common Stock to comply with any such law, rule, regulation or
agreement. Without limiting the generality of the foregoing, but subject to
paragraph 11(b), Grantee acknowledges and agrees that unless and until the
Company becomes a Public Company or, if earlier, ceases to be a Subsidiary of
TCI, the Option Shares may not be transferred to any person (other than to
Grantee's designated beneficiary pursuant to paragraph 7 upon Grantee's death)
without the prior written consent of TCI.
(b) In the event that the Company has not become a Public
Company on or before February 1, 2001, Grantee shall have the right, by written
notice given to TCI at any time thereafter, to require TCI to purchase all, and
not less than all, the Option Shares for a purchase price equal to the
Appraised Public Trading Value of the Option Shares determined as provided in
paragraph 11(c) (the "PUT RIGHT"); provided, however, that the Put Right shall
expire upon the first to occur of the Company's becoming a Public Company and
the Company's ceasing to be a Subsidiary of TCI; and, provided, further, that
if Grantee dies prior to February 1, 2001, the Put Right shall become
exercisable by his beneficiary or beneficiaries pursuant to paragraph 7 or his
heirs, devisees or distributees, as applicable, from and after the date of
Grantee's death. Grantee's notice of the exercise of his Put Right (the "PUT
EXERCISE NOTICE") shall set forth the number of Option Shares then owned by
Grantee and/or that remain subject to the Option and shall contain the
information required by paragraph 11(c). In the event that any Option Shares
remain subject to the Option, Grantee shall exercise the balance of the Option
in full prior to the closing of the purchase pursuant to the Put Right. If the
Put Right is exercised, TCI shall have the right to pay the purchase price for
the Option Shares in cash, shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, $1.00 par value per share, or any successor class or series
of TCI's common stock, or if any class or series of TCI's common stock is
hereafter created that is intended to track the separate performance of
specified assets or businesses of TCI that include assets and businesses of the
Company, shares of such class or series (and if more than one series of such
"tracking stock" is created with different voting rights, the series with the
lower voting rights), provided that shares of the same class or series of
securities being so delivered are then listed or traded on NASDAQ or a national
securities exchange and are actively traded (collectively, the "TCI STOCK"), or
any combination of cash and shares of TCI Stock as TCI may elect. It shall be
a condition to TCI's right to deliver shares of TCI Stock in satisfaction of
its obligations hereunder that (i) the issuance of such
8
<PAGE> 9
shares to Grantee shall have been registered under the Securities Act on Form
S-8 (or other appropriate form) and (ii) such shares may be immediately sold in
the market by Grantee (either pursuant to Rule 144 or a resale prospectus
prepared by TCI). If TCI elects to pay all or any portion of the purchase
price for the Option Shares in shares of TCI Stock, said shares shall be valued
for such purpose at the most recent Closing Price thereof preceding the date of
delivery of such shares. The closing of the purchase of the Option Shares
pursuant to this paragraph 11(b) shall occur on the 10th day following the
receipt by Grantee and TCI of notice pursuant to paragraph 11(c) of the final
determination of the Appraised Public Trading Value of the Option Shares (or on
such other date as the parties may agree). At the closing, if TCI has elected
to pay all or a portion of the purchase price in shares of TCI Stock, it shall
enter into a registration rights agreement with Grantee, providing Grantee
registration rights with respect to the shares so delivered on the terms and
subject to the conditions contained in TCI's standard form of such agreement
with such variations as the parties agree.
(c) Grantee's Put Exercise Notice and any Option Exercise
Notice that provides for the delivery or withholding of shares of Company
Common Stock as a manner of payment of the Option Price or of amounts required
under paragraph 4 shall identify the Public Appraiser selected by Grantee to
make the determination of Appraised Public Trading Value (the "FIRST
APPRAISER"). Within 10 days after receipt of the Put Exercise Notice or Option
Exercise Notice, as applicable, TCI or the Company, as applicable, shall notify
Grantee in writing of the Applicable Person's selection of a Public Appraiser
(the "SECOND APPRAISER"). The First Appraiser and the Second Appraiser shall
each submit its determination of the Appraised Public Trading Value of the
Option Shares to Grantee and the Applicable Person within 30 days of the date
of its selection. If the respective determinations of Appraised Public Trading
Value by such Public Appraisers vary by less than 10% of the higher
determination, then the Appraised Public Trading Value shall be the average of
the two determinations. If such determinations vary by 10% or more of the
higher determination, the two Public Appraisers shall promptly designate a
third Public Appraiser (the "THIRD APPRAISER"). Neither Grantee nor the
Applicable Person shall provide, and the First Appraiser and Second Appraiser
shall be instructed not to provide, any information to the Third Appraiser as
to the determination of the First Appraiser and Second Appraiser or otherwise
influence such Third Appraiser's determination. The Third Appraiser shall
submit its determination of the Appraised Public Trading Value to Grantee and
the Applicable Person within 30 days of the date of its selection. The
Appraised Public Trading Value shall be equal to the average of the two closest
of the three determinations, provided that, if the difference between the
highest and middle determinations is no more than 105% and no less than 95% of
the difference between the middle and lowest determinations, the Appraised
Public Trading Value shall be equal to the middle determination. The Public
Appraisers shall jointly notify the Applicable Person and Grantee in writing of
their final determination of the Appraised Public Trading Value of the Option
Shares within five (5) days thereafter. Grantee and the Applicable Person
shall each pay the fees and expenses of his or its own Public Appraiser and
one-half of the fees and expenses of the Third Appraiser, if any.
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<PAGE> 10
12. RESCISSION OF OPTION EXERCISE. In the event that Grantee's
exercise of a SAR is rescinded pursuant to the terms of the SAR Agreement, the
corresponding exercise of the Option by Grantee hereunder shall likewise be
deemed rescinded and void ab initio, and the Option Shares which were the
subject of such Option Exercise Notice shall not be issued and shall continue
to be subject to future exercise in accordance with the terms of this
Agreement.
13. NOTICE. Unless the Company or TCI, as applicable, notifies
Grantee in writing of a change of address, any notice or other communication to
the Applicable Person with respect to this Agreement shall be in writing and
shall be delivered personally or sent by first class mail, postage prepaid and
addressed as follows:
If to the Company:
TCI Internet Services, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Any notice or other communication by the Company or TCI to Grantee with respect
to this Agreement shall be in writing and shall be delivered personally, or
shall be sent by first class mail, postage prepaid, to Grantee's address as
listed in the records of TCI on the date hereof, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any Option Exercise Notice or Put
Exercise Notice, shall be effective when actually received.
14. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
15. CONSTRUCTION. References in this Agreement to "this
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
refer to this Agreement, including all Exhibits, as a whole, unless the context
otherwise requires. The headings of the paragraphs of this Agreement have been
included for convenience of reference only, are not to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
All decisions of the Company Board upon questions regarding this Agreement
shall be conclusive.
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<PAGE> 11
16. DUPLICATE ORIGINALS. The Company, TCI and Grantee may sign
any number of copies of this Agreement. Each signed copy shall be an original,
but all of them together represent the same agreement.
17. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between or among
TCI, the Company and Grantee, or any of them, with respect to the subject
matter hereof. Each of TCI, the Company and Grantee hereby declares and
represents that no promise or agreement not herein expressed has been made and
that this Agreement contains the entire agreement between and among the parties
hereto with respect to the Option and supersedes and makes null and void any
prior agreements between or among TCI, the Company and Grantee, or any of them,
regarding the Option.
18. AMENDMENT. This Agreement may be amended, modified or
supplemented by the Company, without the consent of the Grantee, (i) to cure
any ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein or (ii) to make such
other changes as the Company, upon advice of counsel, determines are necessary
or advisable because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
19. DEFINITIONS. As used in this Agreement, the following terms
have the corresponding meanings:
"APPLICABLE PERSON" means TCI or the Company, as applicable.
"APPRAISED PUBLIC TRADING VALUE" means the price at which a
share of Company Common Stock would trade assuming that the Company is a Public
Company and the Company Common Stock is publicly traded and widely held.
"APPROVED TRANSACTION", when used with respect to TCI or the
Company, as applicable, means any transaction in which the Relevant Board (or,
if approval of the Relevant Board is not required as a matter of law, the
stockholders of the Applicable Person) shall approve (i) any consolidation or
merger of the Applicable Person, or binding share exchange, pursuant to which
shares of common stock of the Applicable Person would be changed or converted
into or exchanged for cash, securities or other property, other than any such
transaction in which the common stockholders of the Applicable Person
immediately prior to such transaction have the same proportionate ownership of
the common stock of, and voting power with respect to, the surviving
corporation immediately after such transaction, (ii) any merger, consolidation
or binding share exchange to which the Applicable Person is a party as a result
of which the persons who are common stockholders of the Applicable Person
immediately prior thereto have less than a majority of the combined voting
power of the outstanding capital stock of the Applicable Person ordinarily (and
apart from the rights accruing under special circumstances) having the right to
vote in the election
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<PAGE> 12
of directors immediately following such merger, consolidation or binding share
exchange, (iii) the adoption of any plan or proposal for the liquidation or
dissolution of the Applicable Person, or (iv) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Applicable Person. Notwithstanding
the foregoing, none of such transactions that occur with respect to the Company
while the Company is a Subsidiary of TCI and that are effected in connection
with a spin off of the Company or rights offering of Company Common Stock to
TCI's stockholders or equivalent transaction shall constitute an Approved
Transaction.
"BOARD CHANGE" means, during any period of two consecutive
years, individuals who at the beginning of such period constituted the entire
Relevant Board cease for any reason to constitute a majority thereof unless the
election, or the nomination for election, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"CAUSE" has the meaning ascribed thereto in any employment
agreement between Grantee and the applicable member of the TCI Group, and in
the absence of any such employment agreement shall include but not be limited
to, insubordination, dishonesty, incompetence, moral turpitude, other
misconduct of any kind or the refusal to perform one's duties and
responsibilities for any reason other than illness or incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined in good faith by
the Company Board; provided, however, that if such termination occurs within
twelve (12) months after (i) an Approved Transaction, Control Purchase or Board
Change occurs (x) with respect to TCI following December 31, 1996 and prior to
the earlier of such time as the Company ceases to be a Subsidiary of TCI or
such time as the Company becomes a Public Company or (y) with respect to the
Company at any time following December 31, 1996 that the Company is no longer a
Subsidiary of TCI, or (ii) an Approved Transaction occurs with respect to the
Company at any time after December 31, 1996 and while the Company is a
Subsidiary of TCI and after giving effect to such Approved Transaction the
Company will cease to be a Subsidiary of TCI, then "Cause" shall mean only a
felony conviction for fraud, misappropriation or embezzlement.
"CLOSING PRICE" of a share of TCI Stock on any day means the
last sale price (or, if no last sale is reported, the average of the high bid
and low asked prices) for a share of TCI Stock on such day (or, if such day is
not a trading day, on the next preceding trading day) as reported on NASDAQ or,
if not reported on NASDAQ, as quoted by the National Quotation Bureau
Incorporated, or if the TCI Stock is listed on an exchange, on the principal
exchange on which the TCI Stock is listed. If for any day the Closing Price of
a share of TCI Stock is not determinable by any of the foregoing means, then
the Closing Price for such day shall be determined in good faith by TCI on the
basis of such quotations and other considerations as TCI may deem appropriate.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes thereto. Reference to
any specific Code section shall include any successor section.
12
<PAGE> 13
"COMPANY COMMON STOCK" means the Common Stock, $1.00 par value
per share, of the Company.
"CONTROL PURCHASE" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other
than the Applicable Person, any Subsidiary of the Applicable Person or any
employee benefit plan sponsored by the Applicable Person or any Subsidiary of
the Applicable Person) shall purchase any common stock of the Applicable Person
(or securities convertible into common stock of the Applicable Person) for
cash, securities or any other consideration pursuant to a tender offer or
exchange offer, without the prior consent of the Relevant Board, or (ii) any
person (as such term is so defined), corporation or other entity (other than
the Applicable Person, any Subsidiary of the Applicable Person, any employee
benefit plan sponsored by the Applicable Person or any Subsidiary of the
Applicable Person, or any Controlling Person (as defined below)) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Applicable Person
representing 20% or more of the combined voting power of the then outstanding
securities of the Applicable Person ordinarily (and apart from the rights
accruing under special circumstances) having the right to vote in the election
of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in
the case of rights to acquire the Applicable Person's securities), other than
in a transaction (or series of related transactions) approved by the Relevant
Board. For purposes of this definition, "Controlling Person" means each of (a)
the Chairman of the Board, the President and each of the directors of the
Applicable Person as of December 31, 1996, (b) the respective family members,
estates and heirs of (i) Bob Magness and (ii) each of the persons referred to
in clause (a) above, and any trust or other investment vehicle for the primary
benefit of any of such persons or their respective family members or heirs and
(c) Kearns-Tribune Corporation, a Delaware corporation. As used with respect
to any person, the term "family member" means the spouse, siblings and lineal
descendants of such person.
"DETERMINATION DATE" means February 1, 1996.
"DISABILITY" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to result in death or (b) has lasted or can
be expected to last for a continuous period of not less than 12 months.
"DOMESTIC RELATIONS ORDER" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto, and
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
13
<PAGE> 14
"FAIR MARKET VALUE" of a share of Company Common Stock on any
day means the last sale price (or, if no last sale price is reported, the
average of the high bid and low asked prices) for a share of Company Common
Stock on such day (or, if such day is not a trading day, on the next preceding
trading day) as reported on NASDAQ or, if not reported on NASDAQ, as quoted by
the National Quotation Bureau Incorporated, or if the Company Common Stock is
listed on an exchange, on the principal exchange on which the Company Common
Stock is listed. If for any day the Fair Market Value of a share of Company
Common Stock is not determinable by any of the foregoing means, then the Fair
Market Value for such day shall be determined in good faith by the Company
Board on the basis of such quotations and other considerations as the Company
Board deems appropriate.
"GOOD REASON" means the occurrence of any of the following
prior to any termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary
(other than a reduction to which Grantee consents);
(ii) a failure by TCI or the Company to continue in effect
any employee benefit plan in which Grantee was participating, or the
taking of any action by TCI or the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the
corporate management of TCI or the Company (as applicable) generally;
(iii) the assignment to Grantee of duties and
responsibilities that are materially more oppressive or onerous than
those attendant to Grantee's position on the date hereof;
(iv) the relocation of the office location as assigned to
Grantee by the Company to a location more than 20 miles from Grantee's
current location without Grantee's consent; or
(v) the failure of the Company to obtain, prior to the
time of any reorganization, merger, consolidation, disposition of all
or substantially all of the assets of the Company or similar
transaction effective after the date hereof, in which the Company is
not the surviving person, the unconditional assumption in writing or
by operation of law of the Company's obligations to Grantee under this
Agreement by each direct successor to the Company in any such
transaction.
"NASDAQ" means the Nasdaq Stock Market.
"OPTION PRICE" means $20,682 per Option Share, plus an
interest factor of 6% per annum on such amount from the date hereof to the date
of exercise (calculated on the basis of a 365-
14
<PAGE> 15
day year and actual days elapsed), as such amount per Option Share may be
adjusted from time to time pursuant to paragraph 9.
"OPTION SHARES" means an aggregate number of shares of Company
Common Stock equal to 10 (which number represents 1% of the number of shares of
Company Common Stock issued and outstanding on the date hereof), as such number
of shares may be adjusted from time to time pursuant to paragraph 9.
"OTHER OPTIONS" means the options to purchase shares of
Company Common Stock granted pursuant to those other Option Agreements dated as
of the date hereof among the Company, TCI and the grantees named therein,
respectively.
"PUBLIC APPRAISER" means, as of any date of selection, an
investment banking firm of national reputation that is not affiliated with TCI,
the Company or Grantee.
"PUBLIC COMPANY" means a person the common equity securities
of which are registered under Section 12(b) or 12(g) of the Exchange Act and
which common equity securities are listed for trading on the New York Stock
Exchange or the NASDAQ National Market.
"RELEVANT BOARD", when used with respect to TCI, means the
Board of Directors of TCI and, when used with respect to the Company, means the
Company Board.
"SUBSIDIARY", when used with respect to TCI or the Company, as
applicable, means any present or future subsidiary (as defined in Section
424(f) of the Code) of the Applicable Person or any business entity in which
the Applicable Person owns, directly or indirectly, 50% or more of the voting,
capital or profits interests. An entity shall be deemed a Subsidiary of the
Applicable Person for purposes of this definition only for such periods as the
requisite ownership or control relationship is maintained.
"TCI GROUP" means TCI and its Subsidiaries, collectively, or
the applicable of TCI or a Subsidiary of TCI, as the context may require. If
the Company ceases to be a Subsidiary of TCI, the Company and its Subsidiaries
shall, notwithstanding the last sentence of the definition of Subsidiary above,
be deemed for purposes of this definition only to continue to be Subsidiaries
of TCI and, accordingly, members of the TCI Group.
20. RULES BY COMPANY BOARD. The rights of Grantee and
obligations of the Company hereunder shall be subject to such reasonable rules
and regulations as the Company Board may adopt from time to time hereafter.
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<PAGE> 16
IN WITNESS WHEREOF, the Company, Grantee and, for purposes of
paragraphs 11(b) and (c) only, TCI have caused this Agreement to be duly
executed and delivered as of the date first written above.
ATTEST: TCI.NET, INC.
- ------------------------- By:
Assistant Secretary -------------------------------
Name:
Title:
TELE-COMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
[Grantee]
<PAGE> 17
Exhibit A to Agreement
dated as of December 1, 1996
TCI.NET, INC.
OPTION TO PURCHASE COMMON STOCK
DESIGNATION OF BENEFICIARY
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
_____________________________________________________________________________,
Street Address City State Zip Code
who is my _______________________________________, shall be entitled to the
Relationship to Grantee
Option and all other rights accorded Grantee by the above-referenced grant
agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing,
signed by Grantee, and filed with Tele-Communications, Inc. and TCI.NET, Inc.,
prior to Grantee's death.
- ----------------------- -----------------------------
Date Grantee
<PAGE> 1
EXHIBIT 10.55
[Form of Agreement]
TCI INTERNET SERVICES, INC.
STOCK APPRECIATION RIGHT
THIS AGREEMENT ("AGREEMENT") is made as of the 1ST DAY OF
DECEMBER, 1996, by and among TCI INTERNET SERVICES, INC., a Colorado corporation
(the "COMPANY"), and TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI"),
and [ ] ("GRANTEE").
The Company is on the date hereof a Subsidiary of TCI. The Board
of Directors of the Company ("COMPANY BOARD") and the Board of Directors of TCI
have each determined that it is in the best interests of the Company and TCI to
grant Grantee the stock appreciation rights set forth herein in order to provide
Grantee with additional remuneration for services rendered to the Company and
its predecessors, to encourage Grantee to remain in the employ of TCI and/or one
or more of its Subsidiaries, including the Company, and to provide additional
incentive to Grantee by increasing Grantee's proprietary interest in the
continued success and progress of the Company. Capitalized terms used herein and
not otherwise defined are defined in paragraph 18 below.
Accordingly, the Company, Grantee and, for purposes of paragraph
5 only, TCI hereby agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS; TERM. (a) The Company hereby
grants to Grantee stock appreciation rights ("SARS") with respect to ten (10)
(the "TOTAL NUMBER OF SARS") shares of Company Common Stock on the terms and
subject to the conditions set forth herein. The Total Number of SARs and the
Strike Price are subject to adjustment pursuant to paragraph 9 below. Subject to
paragraph 2, the SARs shall be exercisable in whole at any time and in part from
time to time during the period commencing on the date hereof and expiring at
5:00 p.m., Denver, Colorado time ("CLOSE OF BUSINESS") on the tenth anniversary
of the Determination Date, or such earlier date as the SARs may be terminated
pursuant to paragraph 6 or paragraph 9(c) (the "TERM").
(b) The grant of SARs hereunder, together with the grant of the
TCI.NET Option (as defined below), shall be deemed to be in substitution for and
replacement of the options to purchase Company Common Stock which were
previously granted by the Company to Grantee, and the parties acknowledge and
agree that such prior option grant is hereby terminated and shall cease to be of
any further force and effect.
2. CONDITIONS OF EXERCISE; VESTING. Except as otherwise provided in
the last sentence of this paragraph 2 or in paragraph 9(c), the SARs shall not
be exercisable until the first anniversary of the Determination Date, and, from
the first anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the SARs shall vest and become exercisable in accordance
with the following schedule:
<PAGE> 2
<TABLE>
<CAPTION>
Anniversary of Percentage of Total Number
Determination Date of SARs Exercisable
------------------ --------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all then unexercised SARs (the
"REMAINING SARS") shall become exercisable if during the Term (i) Grantee's
employment with the TCI Group shall terminate by reason of (x) termination by
the TCI Group without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and the applicable
member(s) of the TCI Group which expressly permits Grantee to terminate such
employment upon the occurrence of specified events (other than the giving of
notice and passage of time) or (iii) Grantee dies while employed by the TCI
Group. A change of employment is not a termination of employment within the
meaning of this paragraph 2, provided that, after giving effect to such change,
Grantee is an employee of, or becomes or continues to be a consultant to, any
member of the TCI Group.
3. EXERCISE OF SARS; SUBSEQUENT RESCISSION. (a) SARs granted
hereunder may be exercised by delivery to the Company of a written notice (the
"EXERCISE NOTICE") specifying the whole number of SARs being exercised. So long
as the Company and TCI.NET, Inc. ("TCI.NET") are both Subsidiaries of TCI, it
shall be a condition to a valid exercise of SARs that such notice also contain
evidence satisfactory to the Company Board that Grantee is validly and
simultaneously exercising the same proportion of the stock option (the "TCI.NET
OPTION") granted to him by TCI.NET pursuant to that certain option agreement,
dated as of the date hereof, among TCI.NET, Grantee and TCI, as the same may
hereafter be amended, modified or supplemented from time to time. The date upon
which such notice is validly delivered to the Company shall be deemed to be the
date of exercise of the SARs specified therein (the "EXERCISE DATE"). Upon the
valid exercise of SARs (which exercise is not subsequently rescinded as provided
herein) Grantee shall be entitled to receive from the Company, with respect to
each SAR then being exercised, the excess of (i) the Per Share Value of a share
of Company Common Stock as of the Exercise Date over (ii) the Strike Price
applicable as of such Exercise Date (such excess, the "CASH VALUE").
(b) Grantee shall have the right to rescind an exercise of SARs
(which rescission will also constitute a rescission of the corresponding
exercise of the TCI.NET Option) prior to the Close of Business on the fifteenth
(15th) day following the Exercise Date in the event that (i) Grantee has elected
to determine the Per Share Value through negotiation with the Company, (ii)
Grantee and the Company have not agreed upon a Per Share Value by such date and
(iii) Grantee has not made a subsequent election to require that the Per Share
Value be determined by appraisal pursuant to paragraph 10(c) hereof. In
addition, an exercise of SARs shall be deemed rescinded under the circumstances
set forth in paragraph 10(b) hereof. In the event of any rescission of an
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<PAGE> 3
exercise of SARs pursuant to this paragraph 3(b), Grantee shall not be permitted
to again exercise SARs for a period of thirty (30) days following the date of
such rescission.
(c) In the event the Grantee elects to rescind his exercise of
SARs, such exercise shall be deemed rescinded ab initio and the future
exercisability and vesting of those SARs whose exercise has been rescinded shall
not be affected by such exercise and subsequent rescission, except as provided
in the last sentence of paragraph 3(b) above.
4. WITHHOLDING FOR TAXES. It shall be a condition precedent to any
exercise of a SAR that Grantee make provision acceptable to the Company for the
payment or withholding of any and all federal, state and local taxes required to
be withheld by the Company to satisfy the tax liability associated with such
exercise, as determined by the Company Board.
5. DELIVERY BY THE COMPANY. (a) Subject to the withholding referred
to in paragraph 4, the Company shall deliver or cause to be delivered to Grantee
the Cash Value of the SARs then being exercised, with such amount being paid, at
the Company's election, in (i) cash, (ii) provided that the Company is then a
Public Company and that the Company Common Stock is then listed or traded on
NASDAQ or a national securities exchange and is actively traded, shares of
Company Common Stock, (iii) shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, $1.00 par value per share, or any successor class or series
of TCI's common stock, or if any class or series of TCI's common stock is
hereafter created that is intended to track the separate performance of
specified assets or businesses of TCI that include assets and businesses of the
Company, shares of such class or series (and if more than one series of such
"tracking stock" is created with different voting rights, the series with the
lower voting rights), provided that shares of the same class and series of
securities being so delivered are then listed or traded on NASDAQ or a national
securities exchange and are actively traded (collectively, the "TCI STOCK"), or
(iv) any combination of cash, Company Common Stock and TCI Stock as the Company
may elect. It shall be a condition to the Company's right to deliver shares of
Company Common Stock or TCI Stock in satisfaction of its obligations hereunder
that (i) the issuance of such shares to Grantee shall have been registered under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), on Form S-8 (or
other appropriate form) and (ii) such shares may be immediately sold in the
market by Grantee (either pursuant to Rule 144 or a resale prospectus prepared
by the Company or TCI, as the case may be). If the Company elects to pay all or
any portion of the Cash Value in shares of Company Common Stock or TCI Stock,
said shares shall be valued for such purpose at the most recent Closing Price
thereof as of the date of delivery of such shares to Grantee. The payment of the
Cash Value (in cash or by delivery of Company Common Stock or TCI Stock) shall
be made (i) if the Company is a Public Company, on the 10th day following the
Exercise Date and (ii) if the Company is not a Public Company, on the 10th day
following either (x) the date Grantee and the Company mutually agree as to the
Agreed Per Share Value or (y) the receipt by Grantee and the Company of notice
pursuant to paragraph 10(c) of the final determination of the Appraised Per
Share Value (or on such other date as the parties may agree). Upon an election
to pay all or a portion of the Cash Value in shares of Company Common Stock or
TCI Stock, the Company or TCI, as applicable, shall enter into a registration
rights agreement with Grantee, providing Grantee registration rights with
respect
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<PAGE> 4
to the shares so delivered on the terms and subject to the conditions contained
in the Company's or TCI's standard form of such agreement and with such
variations as the parties agree.
(b) To the extent Grantee so requests in the Exercise Notice, the
Company agrees that it will pay in cash to TCI.NET, on behalf of Grantee, a
specified amount of the Cash Value payable to Grantee upon exercise of SARs in
payment of the applicable exercise price of the TCI.NET Options then being
exercised by Grantee.
(c) TCI hereby covenants and undertakes to cause the Company to
comply with its covenants, agreements and obligations hereunder to the same
extent as if such covenants, agreements and obligations were binding upon TCI;
provided, that TCI's obligations hereunder shall terminate (to the extent not
fixed and accrued) at such time as the Company ceases to be a Subsidiary of TCI.
6. EARLY TERMINATION OF SARS. Unless otherwise determined by the
Company Board in its sole discretion, the SARs shall terminate prior to the
expiration of the ten-year period provided for in paragraph 1, as follows:
(a) If Grantee's employment with the TCI Group terminates other
than (i) by Grantee with Good Reason, (ii) by reason of Grantee's death
or Disability, (iii) with the written consent of the applicable
member(s) of the TCI Group, (iv) without such consent if such
termination is pursuant to provisions of a written employment
agreement, if any, between Grantee and the applicable member(s) of the
TCI Group which expressly permits Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of
notice and passage of time), or (v) by the TCI Group with or without
Cause, then the SARs shall terminate at the Close of Business on the
first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
(b) If Grantee dies (i) while employed by the TCI Group or (ii)
prior to the expiration of a relevant period of time following
termination of employment during which the SARs remain exercisable as
provided in this paragraph 6, the SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period beginning on the date of death;
(c) If Grantee's employment with the TCI Group terminates by
reason of Disability, then the SARs shall terminate at the Close of
Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's
employment;
(d) If Grantee's employment with the TCI Group is terminated by
the TCI Group for Cause, then the SARs shall terminate immediately upon
such termination of Grantee's employment; and
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<PAGE> 5
(e) If Grantee terminates his employment with the TCI Group (i)
with Good Reason, (ii) with the written consent of the applicable
member(s) of the TCI Group or (iii) pursuant to provisions of a written
employment agreement, if any, between Grantee and the applicable
member(s) of the TCI Group which expressly permits Grantee to terminate
such employment upon the occurrence of specified events (other than the
giving of notice and passage of time), or if the TCI Group terminates
Grantee's employment with the TCI Group without Cause, then the Term
shall not terminate prior to the end of the ten-year period provided
for in paragraph 1, except as otherwise provided for in paragraph 6(b)
or 9(c).
In any event in which the SARs remain exercisable for a period of time
following the date of termination of Grantee's employment as provided above,
such SARs may be exercised during such period of time only to the extent they
were exercisable as provided in paragraph 2 or paragraph 9(c) on such date of
termination of Grantee's employment. A change of employment is not a termination
of employment within the meaning of this paragraph 6, provided that, after
giving effect to such change, Grantee is an employee of, or becomes or continues
to be a consultant to, any member of the TCI Group. Anything contained herein to
the contrary notwithstanding, the SARs shall in any event terminate upon the
expiration of the ten-year period provided for in paragraph 1, if not
theretofore terminated.
7. NONTRANSFERABILITY OF SARS. During Grantee's lifetime, the SARs
are not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, the SARs shall be exercisable only by
Grantee or Grantee's court appointed legal representative. Grantee may designate
a beneficiary or beneficiaries to whom the SARs shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company
Board, provided that no such designation shall be effective unless so filed
prior to the death of Grantee. If no such designation is made or if the
designated beneficiary does not survive Grantee's death, the SARs shall pass by
will or the laws of descent and distribution. Following Grantee's death, the
SARs, if otherwise exercisable, may be exercised by the person to whom the SARs
pass according to the foregoing, and such person shall be deemed to be Grantee
for purposes of any applicable provisions of this Agreement.
8. NO SHAREHOLDER RIGHTS; NO GUARANTEE OF EMPLOYMENT; UNSECURED
OBLIGATION. (a) Grantee shall not be deemed for any purpose to be, or to have
any of the rights of, a stockholder of the Company. The existence of this
Agreement and Grantee's rights hereunder shall not affect in any way the right
or power of the Company or its stockholders to accomplish any corporate act.
(b) Nothing contained in this Agreement, and no action by the
Company or the Company Board with respect hereto, shall confer or be construed
to confer on Grantee any right to continue in the employ of the TCI Group or any
member thereof or interfere in any way with the right of TCI, the Company or any
employing member of the TCI Group to terminate Grantee's
5
<PAGE> 6
employment at any time, with or without Cause, except as otherwise expressly
provided in any written employment agreement between the applicable member(s) of
the TCI Group and Grantee.
(c) The amount of cash payable at any time by the Company upon
the valid exercise of SARs granted hereunder shall not in any way be reserved or
held in trust by the Company or TCI. Grantee shall not have any rights against
the Company in respect of payments of such amount of cash other than as the
rights of an unsecured general creditor of the Company. The amount of cash
payable upon the valid exercise of SARs hereunder shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and shall not in any manner be liable or subject to the
debts, contracts, liabilities, engagements or torts of Grantee or of any
designated beneficiary or personal representative.
9. ADJUSTMENTS; ACCELERATION; AUTOMATIC EXERCISE. (a) If, after
December 31, 1996, the Company: (i) pays a dividend or makes a distribution on
the Company Common Stock in shares of Company Common Stock; (ii) subdivides the
outstanding shares of Company Common Stock into a greater number of shares or
(iii) combines the outstanding shares of Company Common Stock into a smaller
number of shares, then the number of Remaining SARs, the number of shares of
Company Common Stock to which such Remaining SARs relate (the "REFERENCE
SHARES") and the Strike Price in effect immediately prior to the opening of
business on the record date for such dividend or distribution or the effective
date of such subdivision or combination, shall be adjusted proportionately so
that the number of SARs and the shares of Company Common Stock to which the SARs
relate will be equal to that number of shares of Company Common Stock which the
Reference Shares would have become had such shares been issued and outstanding
as of the date such adjustment was required to be made. The adjustment
contemplated by the preceding sentence shall be made successively whenever any
event listed above shall occur. For a dividend or distribution, the adjustment
shall become effective immediately after the record date for the dividend or
distribution. For a subdivision or combination, the adjustment shall become
effective immediately after the effective date of the subdivision or
combination. Adjustments to the Strike Price shall be made on a per SAR basis so
that the aggregate Strike Price of all SARs outstanding following such
adjustment is unchanged.
(b) The SARs shall also be subject to adjustment (including,
without limitation, as to the number of shares of Company Common Stock as to
which the SARs relate and the Strike Price) in the sole discretion of the
Company Board and in such manner as the Company Board may deem equitable and
appropriate in connection with the occurrence of any of the following events
after December 31, 1996 that affects the Company Common Stock such that an
adjustment would be required in order to preserve the benefits or potential
benefits intended to be made available under this Agreement: any dividend or
distribution on the Company Common Stock in shares of the Company's capital
stock (other than Company Common Stock); any reclassification of the Company
Common Stock into shares of the Company's capital stock (other than a
reclassification by way of an Approved Transaction); any extraordinary cash
dividend; any distribution of any rights, warrants or options to holders of
Company Common Stock; any distribution of any assets or debt securities (other
than cash dividends or distributions that are not extraordinary cash dividends);
any
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<PAGE> 7
recapitalization, reorganization, split up or spin off; and any merger,
consolidation or binding share exchange that reclassifies or changes the
outstanding Company Common Stock or other similar corporate event (other than
those which constitute Approved Transactions). Notwithstanding the foregoing, in
the event of any reclassification or recapitalization of the Company Common
Stock into two or more classes or series of common stock with different voting
rights (however the same may be effected), the SARs shall relate to the shares
of the class or series of common stock of the Company with the fewest number of
votes per share. Adjustments to the Strike Price shall be made on a per SAR
basis so that the aggregate Strike Price of all SARs outstanding following such
adjustment is unchanged.
(c) The Company Board may at any time in its sole discretion
determine that the SARs shall become exercisable in full, without regard to
paragraph 2, whether immediately, upon the occurrence of specified events, or
otherwise. Without limiting the generality of the foregoing, in the event of any
Board Change, Control Purchase or Approved Transaction that occurs with respect
to TCI following December 31, 1996 and prior to the earlier of such time as the
Company ceases to be a Subsidiary of TCI or such time as the Company becomes a
Public Company, the SARs shall become exercisable in full, without regard to
paragraph 2, effective upon the Board Change or Control Purchase or immediately
prior to consummation of the Approved Transaction, as applicable (or at such
earlier time as the Company Board in its sole discretion may determine);
provided, however, that to the extent not theretofore exercised the SARs shall
terminate upon the first to occur of the consummation of the Approved
Transaction or the expiration or early termination of the Term. In the event
that (i) at any time after December 31, 1996 while the Company is a Subsidiary
of TCI, an Approved Transaction occurs with respect to the Company after giving
effect to which the Company will cease to be a Subsidiary of TCI or (ii) an
Approved Transaction, Board Change or Control Purchase occurs with respect to
the Company at a time following December 31, 1996 that the Company is no longer
a Subsidiary of TCI, then, in any such case, the SARs shall become exercisable
in full, without regard to paragraph 2, effective upon the Board Change or
Control Purchase or immediately prior to consummation of the Approved
Transaction, as applicable (or at such earlier time as the Company Board in its
sole discretion may determine); provided, however, that to the extent not
theretofore exercised the SARs shall terminate upon the first to occur of the
consummation of the Approved Transaction or the expiration or early termination
of the Term. Notwithstanding the foregoing, the Company Board may, in its
discretion, determine that the SARs will not become exercisable on an
accelerated basis in connection with an Approved Transaction and/or will not
terminate if not exercised prior to consummation of the Approved Transaction, if
the Company Board or the surviving or acquiring corporation, as the case may be,
shall have taken or made effective provision for the taking of such action as in
the opinion of the Company Board is equitable and appropriate to substitute new
stock appreciation rights for the SARs evidenced by this Agreement or to assume
this Agreement and the SARs evidenced hereby and in order to make such new or
assumed stock appreciation rights, as nearly as may be practicable, equivalent
to the SARs evidenced by this Agreement as then in effect (but before giving
effect to any acceleration of the exercisability hereof unless otherwise
determined by the Company Board), taking into account, to the extent applicable,
the kind and amount of securities, cash or other assets into or for which the
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<PAGE> 8
Company Common Stock may be changed, converted or exchanged in connection with
the Approved Transaction.
(d) All actions taken by the Company Board with respect to the
SARs pursuant to this paragraph 9 shall be consistent with any actions taken by
the Company Board with respect to the Other SARs.
(e) Immediately prior to the termination of the SARs as provided
in paragraph 6 above (other than pursuant to paragraph 6(d)), this paragraph 9,
or the expiration of the Term, all Remaining SARs shall be deemed to have been
exercised by Grantee and Grantee shall be deemed to have taken all actions
required by paragraph 3(a) for a valid exercise of SARs (and, to the extent that
a corresponding exercise of the TCI.NET Option is required pursuant to paragraph
3(a), Grantee shall be deemed to have instructed the Company to pay the exercise
price of the TCI.NET Option to TCI.NET from the proceeds of the exercise of
SARs).
10. RESTRICTIONS IMPOSED BY LAW; AGREED PER SHARE VALUE; APPRAISAL
PROCEDURES. (a) Grantee acknowledges that neither the SARs nor the interests
evidenced thereby have been registered under the Securities Act and that neither
the SARs nor such interests may be transferred in the absence of such
registration or the availability of an exemption therefrom under the Securities
Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder. Neither the Company nor any other person shall have any
obligation to register the SARs or the interests represented thereby, or any
transfer of the SARs or the interests represented thereby, under the Securities
Act, the Exchange Act or any other state or federal securities law.
(b) In the event that the Company is not a Public Company as of
the Exercise Date, Grantee shall have the right to elect that the Per Share
Value be determined by appraisal as provided herein or to seek to negotiate a
mutually acceptable Per Share Value with the Company; provided, that in the
event Grantee and the Company are unable to agree upon the Per Share Value prior
to the Close of Business on the fifteenth (15th) day following the Exercise
Date, then Grantee shall have the further right (subject to the last sentence of
paragraph 10(c) below), exercisable by written notice to the Company, to require
that the Per Share Value be determined by appraisal as provided herein. In the
event Grantee and the Company have not agreed upon the Per Share Value as of the
Close of Business on such fifteenth (15th) day and the Grantee has not delivered
notice requiring appraisal, the Grantee shall be deemed to have rescinded the
exercise of SARs pursuant to paragraph 3 hereof. In the event that Grantee
elects to seek to negotiate the Per Share Value with the Company, each party
agrees to negotiate in good faith and use its commercially reasonable efforts to
agree upon the Agreed Per Share Value. The parties acknowledge and agree that in
connection with such negotiations the parties shall give due consideration to
the determination of the Fair Market Value of the Company (as set forth in the
definition thereof) and the number of shares of Company Common Stock outstanding
(based upon the principles set forth in paragraph 10(c) hereof).
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<PAGE> 9
(c) In the event Grantee elects to require that the Per Share
Value be determined by appraisal, Grantee shall specify in the Exercise Notice
or the subsequent written notice to the Company electing appraisal, the identity
of the Appraiser selected by Grantee to make the determination of the Fair
Market Value of the Company (the "FIRST APPRAISER"). Within three (3) business
days following receipt of such notice, the Company shall notify Grantee in
writing as to the identity of the Appraiser selected by the Company (the "SECOND
APPRAISER"). The First Appraiser and the Second Appraiser shall each submit its
determination of the Fair Market Value of the Company to Grantee and the Company
within thirty (30) days of the date of selection of the Second Appraiser. If the
respective determinations of the Fair Market Value of the Company by such
Appraisers vary by less than 10% of the higher determination, then the Fair
Market Value of the Company shall be the average of the two determinations. If
such determinations vary by 10% or more of the higher determination, the two
Appraisers shall promptly designate a third Appraiser (the "THIRD APPRAISER").
Neither Grantee nor the Company shall provide, and the First Appraiser and
Second Appraiser shall be instructed not to provide, any information to the
Third Appraiser as to the determination of the First Appraiser and Second
Appraiser or otherwise influence such Third Appraiser's determination. The Third
Appraiser shall submit its determination of the Fair Market Value of the Company
to Grantee and the Company within fifteen (15) days of the date of its
selection. The Fair Market Value of the Company shall be equal to the average of
the two closest of the three determinations, provided that, if the difference
between the highest and middle determinations is no more than 105% and no less
than 95% of the difference between the middle and lowest determinations, the
Fair Market Value of the Company shall be equal to the middle determination.
Following the determination of the Fair Market Value of the Company, the
Appraisers whose determinations were used in the calculation of the Fair Market
Value of the Company shall determine the number of shares of Company Common
Stock outstanding together with any further appropriate adjustments to the Fair
Market Value of the Company resulting from such determination. The number of
shares of Company Common Stock outstanding shall mean a number, as determined by
such Appraisers as of the applicable date, equal to the sum of the number of
shares of Company Common Stock outstanding and the number of shares of Company
Common Stock issuable upon the conversion, exercise or exchange of those
convertible securities the holders of which would derive an economic benefit
from the conversion, exercise of exchange of such convertible securities which
exceeds the economic benefits of not converting, exercising or exchanging such
convertible securities. The Appraisers shall then calculate the value per share
of Company Common Stock (the "APPRAISED PER SHARE VALUE"), which shall be the
quotient obtained by dividing the Fair Market Value of the Company by the number
of shares of Company Common Stock outstanding or deemed outstanding; provided,
that if such Appraisers do not agree on the number of shares of Company Common
Stock outstanding, each Appraiser whose determination of the Fair Market Value
of the Company is being used in the calculation of the Appraised Per Share Value
shall determine the Appraised Per Share Value based upon its determination of
the Fair Market Value of the Company and the number of shares of Company Common
Stock outstanding, and the Appraised Per Share Value shall be the average of the
quotients so obtained on the basis of the respective determinations of such
firms. The Appraisers shall jointly notify the Company and Grantee in writing of
their final determination of the Appraised Per Share Value of the Company Common
Stock within five (5) days after the determination of the Fair Market Value of
the
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<PAGE> 10
Company. Grantee and the Company shall each pay the fees and expenses of his or
its own Appraiser and one-half of the fees and expenses of the Third Appraiser,
if any. Grantee acknowledges and agrees that he shall not be entitled to require
an appraisal pursuant to this Agreement more than once in any 12 month period.
11. NOTICE. Unless the Company or TCI, as applicable, notifies Grantee
in writing of a change of address, any notice or other communication to the
Applicable Person with respect to this Agreement shall be in writing and shall
be delivered personally or sent by first class mail, postage prepaid and
addressed as follows:
If to the Company:
TCI Internet Services, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Any notice or other communication by the Company or TCI to Grantee with respect
to this Agreement shall be in writing and shall be delivered personally, or
shall be sent by first class mail, postage prepaid, to Grantee's address as
listed in the records of TCI on the date hereof, unless the Company has received
written notification from Grantee of a change of address. Except as otherwise
specifically provided herein, all notices and other communications hereunder,
including without limitation any Exercise Notice, shall be effective when
actually received.
12. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Colorado.
13. CONSTRUCTION. References in this Agreement to "this Agreement"
and the words "herein," "hereof," "hereunder" and similar terms refer to this
Agreement, including all Exhibits, as a whole, unless the context otherwise
requires. The headings of the paragraphs of this Agreement have been included
for convenience of reference only, are not to be considered a part hereof and
shall not modify or restrict any of the terms or provisions hereof. All
decisions of the Company Board upon questions regarding this Agreement shall be
conclusive.
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<PAGE> 11
14. DUPLICATE ORIGINALS. The Company, TCI and Grantee may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
15. ENTIRE AGREEMENT. This Agreement is in satisfaction of and in
lieu of all prior discussions and agreements, oral or written, between or among
TCI, the Company and Grantee, or any of them, with respect to the subject matter
hereof. Each of TCI, the Company and Grantee hereby declares and represents that
no promise or agreement not herein expressed has been made and that this
Agreement contains the entire agreement between and among the parties hereto
with respect to the SARs and supersedes and makes null and void any prior
agreements between or among TCI, the Company and Grantee, or any of them,
regarding the SARs.
16. AMENDMENT. This Agreement may be amended, modified or
supplemented by the Company, without the consent of the Grantee, (i) to cure any
ambiguity or to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein or (ii) to make such
other changes as the Company, upon advice of counsel, determines are necessary
or advisable because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
17. DEFINITIONS. As used in this Agreement, the following terms have
the corresponding meanings:
"AGREED PER SHARE VALUE" means the fair market value of a
share of Company Common Stock as of the Exercise Date, as agreed by Grantee and
the Company pursuant to paragraph 10(b) hereof.
"APPLICABLE PERSON" means TCI or the Company, as applicable.
"APPRAISER" means, as of any date of selection, an investment
banking firm of national reputation that is not affiliated with TCI, the Company
or Grantee.
"APPROVED TRANSACTION", when used with respect to TCI or the
Company, as applicable, means any transaction in which the Relevant Board (or,
if approval of the Relevant Board is not required as a matter of law, the
stockholders of the Applicable Person) shall approve (i) any consolidation or
merger of the Applicable Person, or binding share exchange, pursuant to which
shares of common stock of the Applicable Person would be changed or converted
into or exchanged for cash, securities or other property, other than any such
transaction in which the common stockholders of the Applicable Person
immediately prior to such transaction have the same proportionate ownership of
the common stock of, and voting power with respect to, the surviving corporation
immediately after such transaction, (ii) any merger, consolidation or binding
share exchange to which the Applicable Person is a party as a result of which
the persons who are common
11
<PAGE> 12
stockholders of the Applicable Person immediately prior thereto have less than a
majority of the combined voting power of the outstanding capital stock of the
Applicable Person ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors immediately
following such merger, consolidation or binding share exchange, (iii) the
adoption of any plan or proposal for the liquidation or dissolution of the
Applicable Person, or (iv) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Applicable Person. Notwithstanding the foregoing, none of
such transactions that occur with respect to the Company while the Company is a
Subsidiary of TCI and that are effected in connection with a spin off of the
Company or rights offering of Company Common Stock to TCI's stockholders or
equivalent transaction shall constitute an Approved Transaction.
"BOARD CHANGE" means, during any period of two consecutive
years, individuals who at the beginning of such period constituted the entire
Relevant Board cease for any reason to constitute a majority thereof unless the
election, or the nomination for election, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
"CAUSE" has the meaning ascribed thereto in any employment
agreement between Grantee and the applicable member of the TCI Group, and in the
absence of any such employment agreement shall include but not be limited to,
insubordination, dishonesty, incompetence, moral turpitude, other misconduct of
any kind or the refusal to perform one's duties and responsibilities for any
reason other than illness or incapacity, or negligence in the performance of any
of one's material duties or responsibilities that continues after written notice
from the Company, as determined in good faith by the Company Board; provided,
however, that if such termination occurs within twelve (12) months after (i) an
Approved Transaction, Control Purchase or Board Change occurs (x) with respect
to TCI following December 31, 1996 and prior to the earlier of such time as the
Company ceases to be a Subsidiary of TCI or such time as the Company becomes a
Public Company or (y) with respect to the Company at any time following December
31, 1996 that the Company is no longer a Subsidiary of TCI, or (ii) an Approved
Transaction occurs with respect to the Company at any time after December 31,
1996 and while the Company is a Subsidiary of TCI and after giving effect to
such Approved Transaction the Company will cease to be a Subsidiary of TCI, then
"Cause" shall mean only a felony conviction for fraud, misappropriation or
embezzlement.
"CLOSING PRICE" of a share of any class or series of capital
stock on any day means the last sale price (or, if no last sale price is
reported, the average of the high bid and low asked prices) for a share of such
class or series of capital stock on such day (or, if such day is not a trading
day, on the next preceding trading day) as reported on NASDAQ or, if not
reported on NASDAQ, as quoted by the National Quotation Bureau Incorporated, or
if such class or series of capital stock is listed on an exchange, on the
principal exchange on which the shares are listed. If for any day the Closing
Price of a share of such class or series of capital stock is not determinable by
any of the foregoing means, then the Closing Price for such day shall be
determined in good faith by the
12
<PAGE> 13
issuer's Board of Directors on the basis of such quotations and other
considerations as such Board deems appropriate
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
"COMPANY COMMON STOCK" means the Common Stock, $1.00 par value
per share, of the Company.
"CONTROL PURCHASE" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other
than the Applicable Person, any Subsidiary of the Applicable Person or any
employee benefit plan sponsored by the Applicable Person or any Subsidiary of
the Applicable Person) shall purchase any common stock of the Applicable Person
(or securities convertible into common stock of the Applicable Person) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Relevant Board, or (ii) any person (as
such term is so defined), corporation or other entity (other than the Applicable
Person, any Subsidiary of the Applicable Person, any employee benefit plan
sponsored by the Applicable Person or any Subsidiary of the Applicable Person,
or any Controlling Person (as defined below)) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Applicable Person representing 20% or more
of the combined voting power of the then outstanding securities of the
Applicable Person ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors (calculated
as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to
acquire the Applicable Person's securities), other than in a transaction (or
series of related transactions) approved by the Relevant Board. For purposes of
this definition, "Controlling Person" means each of (a) the Chairman of the
Board, the President and each of the directors of the Applicable Person as of
December 31, 1996, (b) the respective family members, estates and heirs of (i)
Bob Magness and (ii) each of the persons referred to in clause (a) above, and
any trust or other investment vehicle for the primary benefit of any of such
persons or their respective family members or heirs and (c) Kearns-Tribune
Corporation, a Delaware corporation. As used with respect to any person, the
term "family member" means the spouse, siblings and lineal descendants of such
person.
"DETERMINATION DATE" means February 1, 1996.
"DISABILITY" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to result in death or (b) has lasted or can
be expected to last for a continuous period of not less than 12 months.
13
<PAGE> 14
"DOMESTIC RELATIONS ORDER" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
"FAIR MARKET VALUE OF THE COMPANY" means the fair market value of
the Company as a going concern based upon the estimated market capitalization of
the Company as if it were a Public Company and the Company Common Stock were
publicly traded and widely held. In determining the Fair Market Value of the
Company, the Company and Grantee shall, and each Appraiser shall be instructed
to, value the assets held directly or indirectly by the Company in the following
manner (but without duplication): (i) with respect to any shares of capital
stock as to which there is a public trading market, at the Closing Price of such
shares on the Exercise Date, (ii) with respect to any shares of capital stock
which are not publicly traded, based on a widely distributed public trading
market value for such shares and as if such shares of capital stock were liquid
and freely tradeable on a major public trading market and (iii) with respect to
any assets of the Company which are not shares of capital stock, at the fair
market value thereof. In addition, the Company and Grantee shall, and such
Appraisers shall be instructed to, deduct from such value all indebtedness of
the Company (including preferred stock except to the extent such preferred stock
is deemed converted to Company Common Stock in connection with the calculation
of the Per Share Value); provided, however, that no such deduction shall be made
with respect to (i) the Company's obligations with respect to the Remaining SARs
held by Grantee and the Other SARs or (ii) any indebtedness of the Company
incurred in connection with the Company's satisfaction of its obligations with
respect to any prior exercise of SARs or Other SARs.
"GOOD REASON" means the occurrence of any of the following prior
to any termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary (other than
a reduction to which Grantee consents);
(ii) a failure by TCI or the Company to continue in effect any
employee benefit plan in which Grantee was participating, or the taking
of any action by TCI or the Company that would adversely affect
Grantee's participation in, or materially reduce Grantee's benefits
under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the
corporate management of TCI or the Company (as applicable) generally;
14
<PAGE> 15
(iii) the assignment to Grantee of duties and responsibilities
that are materially more oppressive or onerous than those attendant to
Grantee's position on the date hereof;
(iv) the relocation of the office location as assigned to Grantee
by the Company to a location more than 20 miles from Grantee's current
location without Grantee's consent; or
(v) the failure of the Company to obtain, prior to the time of
any reorganization, merger, consolidation, disposition of all or
substantially all of the assets of the Company or similar transaction
effective after the date hereof, in which the Company is not the
surviving person, the unconditional assumption in writing or by
operation of law of the Company's obligations to Grantee under this
Agreement by each direct successor to the Company in any such
transaction.
"NASDAQ" means the Nasdaq Stock Market.
"OTHER SARS" means the stock appreciation rights relating to the
shares of Company Common Stock granted pursuant to certain Stock Appreciation
Right Agreements dated as of the date hereof among the Company, TCI and the
grantees named therein, respectively.
"PER SHARE VALUE" means (x) if the Company is a Public Company as
of the Exercise Date, the Closing Price of a share of Company Common Stock as of
such date, and (y) if the Company is not a Public Company as of the Exercise
Date, the Agreed Per Share Value or the Appraised Per Share Value, as
applicable, of a share of Company Common Stock as of such date.
"PUBLIC COMPANY" means a person the common equity securities of
which are registered under Section 12(b) or 12(g) of the Exchange Act and which
common equity securities are listed for trading on the New York Stock Exchange
or the NASDAQ National Market.
"RELEVANT BOARD", when used with respect to TCI, means the Board
of Directors of TCI and, when used with respect to the Company, means the
Company Board.
"STRIKE PRICE" means $32,911 per SAR, plus an interest factor of
6% per annum on such amount from the date hereof to the date of exercise
(calculated on the basis of a 365- day year and actual days elapsed), as such
amount per SAR may be adjusted from time to time pursuant to paragraph 9.
"SUBSIDIARY", when used with respect to TCI or the Company, as
applicable, means any present or future subsidiary (as defined in Section 424(f)
of the Code) of the Applicable Person or any business entity in which the
Applicable Person owns, directly or indirectly, 50% or more of the voting,
capital or profits interests. An entity shall be deemed a Subsidiary of the
Applicable
15
<PAGE> 16
Person for purposes of this definition only for such periods as the requisite
ownership or control relationship is maintained.
"TCI GROUP" means TCI and its Subsidiaries, collectively, or the
applicable of TCI or a Subsidiary of TCI, as the context may require. If the
Company ceases to be a Subsidiary of TCI, the Company and its Subsidiaries
shall, notwithstanding the last sentence of the definition of Subsidiary above,
be deemed for purposes of this definition only to continue to be Subsidiaries of
TCI and, accordingly, members of the TCI Group.
18. RULES BY COMPANY BOARD. The rights of Grantee and obligations of
the Company hereunder shall be subject to such reasonable rules and regulations
as the Company Board may adopt from time to time hereafter.
16
<PAGE> 17
IN WITNESS WHEREOF, the Company, TCI and Grantee have caused this
Agreement to be duly executed and delivered as of the date first written above.
ATTEST: TCI INTERNET SERVICES, INC.
By:
- ----------------------------- --------------------------------
Assistant Secretary Name:
Title:
TELE-COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
[Grantee]
<PAGE> 18
Exhibit A to Agreement
dated as of December 1, 1996
TCI INTERNET SERVICES, INC.
STOCK APPRECIATION RIGHT
DESIGNATION OF BENEFICIARY
I, ____________________________________ (the "Grantee"), hereby declare
that upon my death ______________________________________ (the "Beneficiary") of
Name
_______________________________________________________________________________,
Street Address City State Zip Code
who is my ____________________________________________, shall be entitled to the
Relationship to Grantee
stock appreciation rights and all other rights accorded Grantee by the
above-referenced grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant
to the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with TeleCommunications, Inc. and TCI Internet Services,
Inc., prior to Grantee's death.
- ------------------------------- ----------------------------
Date Grantee
<PAGE> 1
EXHIBIT 10.75
Execution copy
INTERMEDIA CAPITAL MANAGEMENT, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of June 10, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1 General Provisions . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Formation of the Partnership . . . . . . . . . . . . . . . . . 1
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Principal Place of Business . . . . . . . . . . . . . . . . . 1
1.4 Agent for Service of Process . . . . . . . . . . . . . . . . . 1
1.5 Business of the Partnership . . . . . . . . . . . . . . . . . 1
1.6 Term of the Partnership . . . . . . . . . . . . . . . . . . . 2
1.7 No Prior Agreement or Business Activity . . . . . . . . . . . 2
ARTICLE 2 Capital Contributions, Withdrawals and Capital Accounts . . . 2
2.1 Contributions of Capital . . . . . . . . . . . . . . . . . . . 2
2.2 Withdrawals of Capital Accounts . . . . . . . . . . . . . . . 2
(a) In General . . . . . . . . . . . . . . . . . . . . . . 2
(b) Limitations on Withdrawal of Capital Account . . . . . 2
2.3 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Interest on Capital Accounts . . . . . . . . . . . . . . . . . 3
2.5 Obligations of the General Partners . . . . . . . . . . . . . 3
2.6 Obligations of the Limited Partner . . . . . . . . . . . . . . 4
ARTICLE 3 Profits and Losses and Distributions . . . . . . . . . . . . . 4
3.1 Allocation of Profits and Losses Between the Partners . . . . 4
3.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 4 Management of Partnership . . . . . . . . . . . . . . . . . . 8
4.1 Management Generally . . . . . . . . . . . . . . . . . . . . . 8
4.2 Specific Authority of the Managing General Partner . . . . . . 8
4.3 Valuation of Assets . . . . . . . . . . . . . . . . . . . . . 9
4.4 Revaluation of Partnership Assets . . . . . . . . . . . . . . 9
4.5 Rights of the Limited Partner . . . . . . . . . . . . . . . 10
(a) No Control . . . . . . . . . . . . . . . . . . . . . 10
(b) Voting . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Partner Meetings . . . . . . . . . . . . . . . . . . 11
(d) Bankruptcy or Dissolution of the Limited Partner . . 11
4.6 Successor General Partner . . . . . . . . . . . . . . . . . 11
(a) Removal of a General Partner . . . . . . . . . . . . 11
(b) Withdrawal of a General Partner . . . . . . . . . . . 12
(c) Right To Recover Damages . . . . . . . . . . . . . . 13
ARTICLE 5 Tax Matters and Reports . . . . . . . . . . . . . . . . . . 13
5.1 Filing of Tax Returns . . . . . . . . . . . . . . . . . . . 13
5.2 Tax Reports to Current and Former Partners . . . . . . . . . 13
5.3 Books and Records; Independent Audit; Progress Reports . . . 13
5.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Method of Accounting . . . . . . . . . . . . . . . . . . . . 13
5.6 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . 14
5.7 Restriction on General Partner Activity With Respect
to Publicly Traded Partnerships . . . . . . . . . . . . . . 14
5.8 Duties and Obligations of the Managing General Partner
With Respect to Publicly Traded Partnerships . . . . . . . . 14
ARTICLE 6 Conflicts of Interest . . . . . . . . . . . . . . . . . . . 14
6.1 Contracts With General Partners, Affiliates and the
Limited Partner . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Outside Activities . . . . . . . . . . . . . . . . . . . . . 14
6.3 Indemnification of the Partners . . . . . . . . . . . . . . 15
6.4 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 7 Termination of the Partnership . . . . . . . . . . . . . . . 15
7.1 No Dissolution . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C> <C>
7.2 Events of Dissolution . . . . . . . . . . . . . . . . . . . 16
7.3 Winding-up . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.4 Order of Dissolution . . . . . . . . . . . . . . . . . . . . 16
7.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Orderly Methods of Liquidating Payments . . . . . . . . . . 17
ARTICLE 8 Transfer Restrictions . . . . . . . . . . . . . . . . . . . 17
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 18
9.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 18
9.5 Waiver of Partition . . . . . . . . . . . . . . . . . . . . 18
9.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 18
9.9 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . 18
9.11 Nonrecourse . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
INTERMEDIA CAPITAL MANAGEMENT, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") is dated as of
June 10, 1997 and effective as of May 22, 1997, by and between INTERMEDIA
MANAGEMENT, INC., a California corporation, as a general partner (the "General
Partner"), LEO J. HINDERY, JR., an individual, as managing general partner (the
"Managing General Partner"), and TCI ICM I, INC., a Delaware corporation, as a
limited partner (the "Limited Partner"). The General Partner and Managing
General Partner are collectively referred to as the General Partners; the
General Partners and the Limited Partner are collectively referred to as the
Partners; and each of the Partners individually is referred to as a Partner.
In consideration of the mutual promises and agreements herein made and
intending to be legally bound, the Partners hereby agree as follows:
ARTICLE 1
General Provisions
1.1 Formation of the Partnership. The Partners hereby form a limited
partnership (the "Partnership") under the California Revised Limited
Partnership Act (the "Act") pursuant to the Certificate of Limited Partnership
filed with the California Secretary of State on May 22, 1997. The Partnership
shall continue without interruption as a limited partnership pursuant to the
Act.
1.2 Name. The name of the Partnership shall be: InterMedia Capital
Management, L.P. The name of the Partnership may be changed by the Managing
General Partner upon compliance with applicable laws and after notice by the
Managing General Partner to the Limited Partner.
1.3 Principal Place of Business. The principal place of business of
the Partnership shall be 235 Montgomery Street, Suite 420, San Francisco,
California 94104. The principal place of business of the Partnership may be
changed by the Managing General Partner after notice to the Limited Partner.
1.4 Agent for Service of Process. The agent for service of process for
the Partnership and his address shall be Leo J. Hindery, Jr., 235 Montgomery
Street, Suite 420, San Francisco, CA 94104. The agent for service of process
of the Partnership may be changed by the Managing General Partner upon notice
to the Limited Partner.
1.5 Business of the Partnership.
(a) The Partnership is organized for the purpose of (i) acting as a
limited partner of InterMedia Partners, a California limited partnership
("IP-I"), (ii) performing administrative services for the cable television
systems owned and/or operated by IP-I, and (iii) engaging in all necessary and
appropriate activities and transactions as the Managing General Partner may
deem necessary, appropriate or advisable in connection therewith.
(b) Pending the investment of Partnership funds as described in
Section 1.5(a), and the distribution of funds as described in Section 3.2, the
Partnership may invest in certificates of deposit and overnight time deposits
in commercial banks with capital and surplus over $100 million, commercial
paper, money market funds, repurchase agreements and U.S. Treasury bills and
other government obligations and any other short-term, investment grade highly
liquid investments.
-1-
<PAGE> 5
(c) The Partnership may enter into, deliver and perform all
contracts, agreements and other undertakings and engage in all activities and
transactions that are necessary or appropriate to carry out the foregoing
purposes. Without limiting the foregoing, the Partnership may:
(i) exercise all rights, powers, privileges, and other incidents
of ownership or possession with respect to Partnership property and
investments;
(ii) borrow or raise money and secure the payment of any
obligations of the Partnership by mortgage upon, or pledge or
hypothecation of, all or any part of the assets of the Partnership;
(iii) engage personnel, whether part-time or full-time, and do
such other acts as the Managing General Partner may reasonably deem
necessary or advisable in connection with the maintenance and
administration of the Partnership and IP-I and their investments; and
(iv) engage attorneys, independent accountants, investment
bankers, consultants or such other persons for the Partnership and IP-I
as the Managing General Partner may deem necessary or advisable.
1.6 Term of the Partnership. The term of the Partnership shall be from
the date the Certificate of Limited Partnership was filed with the California
Secretary of State until December 31, 2007, unless the Partnership is earlier
dissolved pursuant to Article 7.2.
1.7 No Prior Agreement or Business Activity. A certificate of limited
partnership was filed on May 22, 1997 but no partnership agreement, oral or
written, was entered into prior to this Agreement and the Partnership has
conducted no business and the Partners have taken no action on behalf of the
Partnership prior to the date of this Agreement.
ARTICLE 2
Capital Contributions, Withdrawals and Capital Accounts
2.1 Contributions of Capital. The capital contribution of the General
Partner is the cash distribution proceeds it received from InterMedia CM - LP.
The capital contribution of the Managing General Partner is one thousand
dollars ($1,000). The capital contribution of the Limited Partner is a 1.103%
limited partner interest in IP-I. No Partner shall be required to make
additional capital contribution except as set forth in this Agreement.
2.2 Withdrawals of Capital Accounts.
(a) In General. No Partner shall be entitled to withdraw any amount
from its Capital Account without the consent of the other Partner. In the
event of the withdrawal of any Partner, the withdrawing Partner shall not
otherwise share in the income, gains and losses of the Partnership from the
valuation date of its Partnership Interest and shall not have any other rights
under this Agreement other than payment of its Capital Account.
(b) Limitations on Withdrawal of Capital Account. The right of any
withdrawn Partner or its legal representatives to have distributed the Capital
Account of such Partner is subject to the provision for all Partnership
liabilities in accordance with section 15666 of the Act and for estimates for
contingencies and expenses. The unused portion of any such estimates shall be
distributed after the need therefor shall have ceased.
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<PAGE> 6
2.3 Capital Accounts. The Partnership shall maintain for each Partner
a single, separate capital account (a "Capital Account") regardless of the
class of interests owned by such Partner and regardless of the time or manner
in which such interests were acquired. The Partnership shall maintain all
Capital Accounts in accordance with the capital accounting rules of section
704(b) of the Internal Revenue Code of 1986 (the "Code") and the Income Tax
Regulations thereunder, including in particular section 1.704-l(b)(2)(iv) of
the Treasury Regulations.
(a) In general, under such capital accounting rules, a Partner's
Capital Account shall be (i) increased by the amount of money and the fair
market value (determined in accordance with Section 4.3) of other property (net
of liabilities secured by such contributed property that the Partnership is
considered to take subject to or assume under section 752 of the Code)
contributed by the Partner to the Partnership and allocations to the Partner of
Partnership income and gain (or items thereof), including income and gain
exempt from tax and (ii) decreased by the amount of money and the fair market
value (determined in accordance with Section 4.3) of other property distributed
(net of liabilities secured by such distributed property that the Partner is
considered to take subject to or assume under section 752 of the Code) to the
Partner by the Partnership and allocations to the Partner of Partnership loss
and deduction (or items thereof), including Partnership expenditures not
deductible in computing its taxable income and not properly chargeable to its
Capital Account.
(b) When Partnership property is revalued by the Managing General
Partner pursuant to Section 4.4 or is distributed in kind (whether in
connection with dissolution and liquidation of the Partnership or otherwise),
the Capital Accounts of the Partners first shall be adjusted to reflect the
manner in which the unrealized income, gain, loss or deduction inherent in such
property (that has not previously been charged to Capital Accounts) would be
allocated among the Partners if there were a taxable disposition of such
property for its fair market value (determined in accordance with Section 4.3
and taking into account section 7701(g) of the Code) and such income, gain,
loss or deduction had been recognized for federal income tax purposes
immediately upon such distribution or the event requiring such revaluation.
(c) Where section 704(c) of the Code applies to Partnership property or
when Partnership property is revalued pursuant to section 1.704-1(b)(2)(iv)(f)
of the Income Tax Regulations, Capital Accounts of the Partners shall be
adjusted in accordance with section 1.704-1(b)(2)(iv)(g) of the Income Tax
Regulations as to allocations to the Partners of depreciation, depletion,
amortization and gain or loss, as computed for book purposes with respect to
such property.
(d) The Managing General Partner shall direct the Partnership's
accountant to make all necessary adjustments in each Partner's Capital Account
as required by the rules of section 704(b) of the Code and the Income Tax
Regulations thereunder.
2.4 Interest on Capital Accounts. No interest shall be paid on or with
respect to the capital contributions or Capital Account of any of the Partners.
2.5 Obligations of the General Partners. Neither the General Partner
nor the Managing General Partner shall be personally obligated to contribute
cash or other assets to the Partnership to make up any reduction in the Capital
Accounts of the Partners either during the term of the Partnership or upon
dissolution, subject to the obligation of the Managing General Partner to
return to the Partnership certain distributions as provided in the Act.
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2.6 Obligations of the Limited Partner. Except as otherwise
specifically provided herein, the Limited Partner shall not be personally
obligated for the debts, liabilities and obligations of the Partnership or of
any other Partner, except that the Limited Partner (and any former Limited
Partner) shall be obligated to return to the Partnership certain distributions
made to it as provided in section 15666 of the Act.
ARTICLE 3
Profits and Losses and Distributions
3.1 Allocation of Profits and Losses Between the Partners. A Partner's
distributive share of the Partnership's total income, gain, loss, deduction or
credit (or items thereof), which total shall be as shown on the annual federal
income tax return prepared by the Partnership's accountants or as finally
determined by the Internal Revenue Service or the courts, and as modified by
the capital accounting rules of section 704(b) of the Code and the Income Tax
Regulations thereunder as implemented by Section 2.3 hereof, as applicable,
shall be determined as provided in this Article 3.
(a) Except as otherwise provided in this Section 3.1, items of
Partnership income, gain, loss, deduction and credit shall be allocated among
the Partners in proportion to their percentage interest set forth Exhibit 1
hereto ("Partnership Interest").
(b) Solely for tax purposes, in determining each Partner's allocable
share of the taxable income or loss of the Partnership, depreciation,
depletion, amortization and gain or loss with respect to any contributed
property, or with respect to revalued property where Partnership property is
revalued pursuant to section 1.704-1(b)(2)(iv)(f) of the Income Tax
Regulations, shall be allocated to the Partners under the remedial method as
provided in section 1.704-3(d) of the Income Tax Regulations.
(c) Notwithstanding anything to the contrary in this Article 3, if
there is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt
Minimum Gain (as such terms are defined in sections 1.704-2(b) and
1.704-2(i)(2), respectively, of the Income Tax Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, section
1.704-2 of the Income Tax Regulations. This provision is intended to be a
"minimum gain chargeback" within the meaning of sections 1.704-2(f) and
1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted and
implemented as therein provided.
(d) Subject to the provisions of Section 3.1(c), but otherwise
notwithstanding anything to the contrary in this Section 3.1(d), if any
Partner's Capital Account has a deficit balance in excess of such Partner's
obligation to restore its Capital Account balance, computed in accordance with
the rules of section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations
(including such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in sections 1.704-2(g) and
1.704-2(i)(5) of the Income Tax Regulations), then sufficient amounts of income
and gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for such year) shall be allocated to such
Partner in an amount and manner sufficient to eliminate such deficit as quickly
as possible. This provision is intended to be a "qualified income offset"
within the meaning of section 1.704-1(b)(2)(ii)(d) of the Income Tax
Regulations and shall be interpreted and implemented as therein provided.
(e) Subject to the provisions of section 704(c) of the Code and
Sections 3.1(b) through (d) hereof, gain recognized (or deemed recognized
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under the provisions hereof) upon the sale or other disposition of Partnership
property, which is subject to depreciation recapture, shall be allocated to the
Partner who was entitled to deduct such depreciation.
(f) Except as otherwise provided in Section 3.1(j), if and to the
extent any Partner is deemed to recognize income as a result of any loans
described herein pursuant to the rules of section 1272, 1273, 1274, 1274A,
7872, 482 or 483 of the Code, or any similar provision now or hereafter in
effect, any corresponding resulting deduction of the Partnership shall be
allocated to the Partner who is charged with the income. Subject to the
provisions of section 704(c) of the Code and Sections 3.1(b) through (d)
hereof, if and to the extent the Partnership is deemed to recognize income as a
result of any loans described herein pursuant to the rules of section 1272,
1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar provision now
or hereafter in effect, such income shall be allocated to the Partner who is
entitled to any corresponding resulting deduction.
(g) Except as otherwise required by law, tax credits shall be allocated
among the Partners pro rata in accordance with the manner in which Partnership
profits are allocated to the Partners under this Article 3, as of the time the
credit property is placed in service or, if no property is involved, as of the
time the credit is earned. Recapture of any tax credit required by the Code
shall be allocated to the Partners in the same proportion in which such tax
credit was allocated.
(h) Except as provided in Sections 3.1(f) and 3.1(g) hereof or as
otherwise required by law, if the Partnership Interests of the Partners are
changed herein during any taxable year, all items to be allocated to the
Partners for such entire taxable year shall be prorated on the basis of the
portion of such taxable year which precedes each such change and the portion of
such taxable year on and after each such change according to the number of days
in each such portion, and the items so allocated for each such portion shall be
allocated to the Partners in the manner in which such items are allocated as
provided in this Section 3.1 during each such portion of the taxable year in
question.
(i) Any special allocation of income or gain pursuant to Section 3.1(d)
hereof shall be taken into account in computing subsequent allocations of
income and gain pursuant to this Section 3.1 so that the net amount of all such
allocations to each Partner shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Partner pursuant to the
provisions of this Section 3.1 if such special allocations of income or gain
under Section 3.1(d) hereof had not occurred.
(j)(1) Items of deduction and loss attributable to recourse
liabilities of the Partnership (within the meaning of section 1.752-
1(a)(1) of the Income Tax Regulations, but excluding Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations), shall be allocated among the Partners in
accordance with the ratio in which the Partners share the economic risk
of loss (within the meaning of section 1.752-2 of the Income Tax
Regulations) for such liabilities.
(2) Items of deduction and loss attributable to Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations shall be allocated among the Partners bearing the
economic risk of loss with respect to such debt in accordance with
section 1.704-2(i) of the Income Tax Regulations.
(3) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of section 1.704-2(b)(1) of
the Income Tax Regulations shall be allocated among the Partners
proportionately in accordance with their Partnership Interests.
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(4) All other items of deduction and loss ("Net Loss") shall be
allocated among the Partners proportionately in accordance with their
Partnership Interests, except that Net Loss shall not be allocated to
any Partner to the extent it would create a deficit balance in excess of
such Partner's obligation to restore its capital account balance
computed in accordance with the rules of section 1.704-1(b)(2)(ii)(d) of
the Income Tax Regulations and including such Partner's share of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as
provided in sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax
Regulations. Any Net Loss which cannot be allocated to a Partner
because of the limitation set forth in the previous sentence shall be
allocated first to the other Partner, to the extent such other Partner
would not be subject to such limitation, and second any remaining amount
to the other Partner in the manner required by the Code and the Income
Tax Regulations.
(k) Subject to the provisions of Sections 3.1(c) through 3.1(j), items
of income and gain shall be allocated to the Partners in the following
priority:
(1) First, to those Partners who have had items of loss or
deductions allocated to them under section 3.1(j)(1), in the amount of,
and proportionate to, the amount of such items of loss or deduction
(provided, however, that no such allocation shall be made with respect
to previously allocated items of loss or deduction to the extent of any
income and gains previously deemed recognized under Section 2.3(b)).
(2) Second, if allocations of Net Loss have been made to the
Partners under Section 3.1(j)(4), then in the amount of, and
proportionate to, the amount of such Net Loss (provided, however, that
no such allocation shall be made with respect to previously allocated
items of loss or deduction to the extent of any income and gains
previously deemed recognized under Section 2.3(b)).
(3) Third, the balance among the Partners in proportion to
their relative Partnership Interests.
(l) Notwithstanding Section 3.1(k), but subject to the provisions of
Section 3.1(c) through (j), gain which is recognized (or deemed to be
recognized) upon the sale, exchange or other disposition of any asset of the
Partnership or of any partnership in which the Partnership holds an interest
(whether directly or indirectly), or upon the dissolution of the Partnership or
any Partnership in which the Partnership holds an interest (whether directly or
indirectly), shall be allocated in the following order:
(1) First, to the Partners having deficit balances in their
Capital Accounts (computed after giving effect to all contributions,
distributions, allocations and other Capital Account adjustments for all
taxable years, including the year during which such liquidation or
dissolution occurs and including each Partner's share of Partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain as provided in
sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax Regulations, to
the extent of, and in proportion to, those deficits; and
(2) Thereafter, so as to bring the relative credit balance in
each Partner's Capital Account (computed in the same manner as provided
parenthetically in the preceding subparagraph (1)), as nearly as
possible, in proportion to such Partner's Partnership Interests.
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3.2 Distributions.
(a) Subject to Section 3.2(e), prior to dissolution of the Partnership,
the Managing General Partner shall, to the extent of available cash, after
servicing all principal and interest on Partnership debt and provision of
reasonable reserves for expenses and contingencies, distribute in cash, no
later than ninety (90) days after the close of each fiscal year, the excess, if
any, of (i) thirty-five percent (35%) of an amount equal to the excess, if any,
of the cumulative items of income and gain over the cumulative items of
deduction, loss and credit (grossed up to a deduction equivalent at a thirty-
five percent (35%) tax rate) of the Partnership as shown on the federal income
tax returns of the Partnership for all periods over (ii) the sum of amounts
previously distributed pursuant to Section 3.2(a), 3.2(b) or 3.2(c) provided
that the Managing General Partner shall make such distributions on a quarterly
basis as soon as possible to address any quarterly payments of estimated tax of
the partners of the Partners if such early distribution is feasible in terms of
available cash and accurate anticipation of the fiscal year's net tax position.
The Managing General Partner shall adjust the rate of distribution provided in
this Section 3.2(a) to reflect any increases made to the ordinary income and
capital gains tax rates of the Code which may have the effect of requiring the
Partners to pay more taxes on ordinary income or capital gains generated by
Partnership activities. Distributions pursuant to this Section 3.2(a) shall be
made to the Partners ratably in the proportions in which the net recognized
income and gains (but not income and gains deemed recognized under Section
2.3(b)) for such fiscal periods have been allocated to them for federal income
tax purposes pursuant to this Article 3. For purposes of this Section 3.2, in
the case of property contributed to the capital of the Partnership, items of
income, gain, deduction and loss shall be computed as if the tax basis of such
property were equal to its fair market value at the time of such contribution.
(b) Subject to Sections 3.2(a) and 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall distribute the net proceeds
from the sale or other disposition of any investment, after payment of all
indebtedness with respect thereto and less reasonable estimates for expenses,
liabilities, contingencies and working capital requirements, no later than
ninety (90) days after the close of such sale.
(c) Subject to the mandatory distribution provisions set forth in
Section 3.2(a) and 3.2(b) and to Section 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall distribute no less frequently
than on a quarterly basis cash received by the Partnership from operations, any
transaction not described in Section 3.2(b), and any dividends, interest or
other cash distributions from any corporation or other entity in which the
Partnership has invested and which is not necessary in the reasonable judgment
of the Managing General Partner for the payment of Partnership expenses or debt
or the maintenance of reasonable reserves for expenses, liabilities,
contingencies and working capital requirements to the Partners' Distributions
pursuant to this Section 3.2(c) shall be made to the Partners in proportion to
their positive Capital Accounts balances, to the extent of such balances, and
thereafter in proportion to their Partnership Interests.
(d) All distributions made pursuant to this Section 3.2 shall be
treated as a return of Partners' capital contributions until their respective
actual capital contributions are returned in full. Except as otherwise
provided herein, no Partner shall have a priority over any other Partner as to
returns of capital contributions or as to compensation as a Partner by way of
income.
(e) Any other provision of this Agreement to the contrary
notwithstanding, no distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness;
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provided, however, that the Managing General Partner shall use its reasonable
best efforts to obtain the right to make tax distributions pursuant to Section
3.2 above under the terms of any such indebtedness.
3.3 Expenses and Fees. The Partnership shall pay (or reimburse the
General Partners or any affiliate thereof which incurs expenses on behalf of
the Partnership) for any and all expenses relating to the Partnership's
organization, business or operations, including but not limited to the
following expenses: organizational expenses of the Partnership, interest,
legal, accounting, consulting and investment banking fees and expenses of the
Partnership and preparation of federal and state tax returns.
ARTICLE 4
Management of Partnership
4.1 Management Generally. Except as otherwise provided herein, the
business of the Partnership shall be conducted and managed by the Managing
General Partner. The Managing General Partner shall devote as much of its time
as is necessary and its best efforts and skill to the business and affairs of
the Partnership and its management, including the administration of the cable
television systems owned and/or operated by IP-I. The Managing General Partner
shall have the rights and powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited partners.
4.2 Specific Authority of the Managing General Partner. Except as
otherwise provided herein, the Managing General Partner shall have full power
and authority to do all things and to perform all acts reasonably necessary or
advisable to conduct the business affairs of the Partnership including, without
limitation, full power and authority to take any of the following actions:
(a) make decisions, after consultation with the Limited
Partner, concerning personnel;
(b) Employ such agents, consultants, advisers, directors,
attorneys, accountants, investment bankers and other personnel as may be
necessary or appropriate for the business of the Partnership on such
terms and conditions as the Managing General Partner shall determine are
reasonable;
(c) Open, maintain and close bank accounts and draw checks and
other orders for the payment of money;
(d) Collect accounts receivable, income and other payments due
to the Partnership;
(e) Keep the books and records of the Partnership and hire
independent certified public accountants;
(f) Pay accounts payable and other expenses of the
Partnership;
(g) Transfer, hypothecate, compromise or release any
Partnership claim not exceeding fifty thousand dollars ($50,000);
(h) enter into contracts in the ordinary course of the
Partnership's business and perform the obligations of the Partnership
undertaken in such contracts, including, without limitation, any
contract entered into with the Limited Partner or an affiliate of the
Limited Partner pursuant to Section 6.1;
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(i) subject to the Limited Partner voting rights set forth in
Section 4.5(b), administer the financial affairs of the Partnership,
make tax elections, including an election or elections under section 754
of the Code (which election shall be made upon the request of the
Limited Partner), file all required tax returns relating to the
Partnership, pay the liabilities of the Partnership and distribute the
profits of the Partnership to the Partners;
(j) subject to the Limited Partner voting rights set forth in
Section 4.5(b)(xiii), borrow money and make, issue and execute
promissory notes, drafts, bills of exchange, guarantees, and other
instruments and evidences of indebtedness in the name of the
Partnership, including, without limitation, in connection with and as
part of purchasing assets and securities for the Partnership, and
mortgage, pledge, assign or grant security interests in all or any part
of the assets then owned or thereafter acquired by the Partnership in
connection therewith;
(k) cause the Partnership to purchase and maintain any insurance
in amounts and on terms customary in the industry covering the potential
liabilities of the Partnership, the Partners, and their partners,
employees and agents, as well as the potential liabilities of any person
serving at the request of the Partnership as a director, officer,
employee, agent, consultant or adviser of any corporation or other
entity in which the Partnership has an investment;
(l) commence or defend litigation that pertains to the
Partnership or any assets of the Partnership and investigate potential
claims;
(m) execute and file fictitious business name statements and
similar documents;
(n) terminate the Partnership pursuant to Article 7; and
(o) execute and deliver all documents and instruments necessary
or advisable to carry out the foregoing.
4.3 Valuation of Assets. An independent appraiser selected by the
Managing General Partner and the Limited Partner shall value the assets of the
Partnership whenever appropriate or requested by a Partner, and whenever else
required by this Agreement or under the Code, and shall within ninety (90) days
of each such date furnish to each Partner a statement showing the value of each
asset and the net worth of the Partnership. An independent appraiser selected
by the Managing General Partner and the Limited Partner also shall value the
assets of the Partnership as of the date of dissolution and shall as promptly
as practicable thereafter furnish the Partners with the statement showing the
value of each asset and the net worth of the Partnership. For all purposes of
this Agreement, any assets of the Partnership being distributed in kind shall
be valued as of the date of distribution, and an independent appraiser shall
make such valuation and the Managing General Partner shall as promptly as
practicable thereafter furnish the Partners with a statement showing the value
of such asset. The value of each asset of the Partnership determined pursuant
to this Section 4.3 shall be conclusive and binding on all of the Partners and
all parties claiming through or under them.
4.4 Revaluation of Partnership Assets. The Managing General Partner
shall revalue Partnership property to its fair market value (determined as
provided in Section 4.3) as of the date when any additional or existing Partner
makes a non-pro rata contribution of money or property to the Partnership in
exchange for an interest in the Partnership or when the
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Partnership distributes money or property to a withdrawing or continuing
Partner in exchange for all or part of its interest in the Partnership.
4.5 Rights of the Limited Partner.
(a) No Control. The Limited Partner shall not take part in the
control, management, direction or operation of the business of the Partnership,
nor have the power to sign documents for or otherwise bind the Partnership.
(b) Voting. The Limited Partner's written consent shall be required
only with respect to those matters expressly set forth in this Agreement and
the following matters, which actions may be taken only with the written consent
of the General Partners (except with respect to the admission of a new general
partner where there is no existing general partner, which action may be taken
without the consent of the General Partners):
(i) The amendment of this Agreement pursuant to Section 9.3
hereof;
(ii) The amendment of the allocations and distributions to the
Limited Partner other than as permitted by Sections 3.1 and 3.2;
(iii) The admission of a new general partner where there is an
existing general partner;
(iv) The approval of a transaction in which one of the General
Partners or any of their affiliates has an actual or potential conflict
of interest with the Limited Partner or the Partnership and which is not
permitted by Section 6.1 or 6.2 or otherwise expressly permitted by the
terms of this Agreement;
(v) The continuation of the Partnership to effect an orderly
dissolution of the Partnership in accordance with Section 7.2;
(vi) The sale, exchange or other transfer of assets of the
Partnership;
(vii) The merger of or consolidation of the Partnership with any
other entity;
(viii) The taking of any act that would make it impossible to
carry on the business of the Partnership except upon the dissolution of
the Partnership in accordance with this Agreement;
(ix) Confessing a judgment against the Partnership in excess of
fifty thousand dollars ($50,000) or settling a judgment against the
Partnership in excess of one hundred thousand dollars ($100,000);
(x) Using any funds or assets of the Partnership other than for
the benefit of the Partnership;
(xi) Taking any action that would subject the Limited Partner to
personal liability as a general partner in any jurisdiction;
(xii) The making of, execution of, or delivery of any general
assignment for the benefit of the Partnership's creditors; and
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(xiii) Any of the acts set forth in Section 4.2(j).
(c) Partner Meetings. Any Partner may call a Partners' meeting at 235
Montgomery Street, Suite 420, San Francisco, CA 94104 on 48 hours' advance
notice to the other Partners. Such notice may be either written or oral and
shall designate the date and time of the meeting and the general nature of the
business to be transacted.
(d) Bankruptcy or Dissolution of the Limited Partner. The bankruptcy,
insolvency or dissolution of the Limited Partner shall not result in the
termination of the Partnership. The interest of the Limited Partner will
continue at the risk of the Partnership business until the dissolution and
winding up of the Partnership. The legal representative of or successor to the
Limited Partner will succeed to the Limited Partner's interest and rights in
the Partnership, but will not be a substituted Partner without the consent of
the Managing General Partner, which consent shall not be unreasonably withheld.
4.6 Successor General Partner.
(a) Removal of a General Partner.
(i) The Limited Partner may initiate removal of a general partner by
delivering written notice to such general partner (x) specifying one or more
grounds for removal that the Limited Partner believes exist, and, (y) if the
notice specifies grounds for removal described in this Section 4.6(a)(i),
selecting an individual to arbitrate whether such grounds exist in accordance
with Section 4.6(a)(ii). For purposes of this Section 4.6(a), grounds for
removal means conduct by or on behalf of a general partner in connection with
the Partnership that constitutes willful misconduct, bad faith, gross
negligence, reckless disregard of its duties, criminal intent, or a material
breach of this Agreement;
(ii) The existence of grounds for removal with respect to matters
described in Section 4.6(a)(i) shall be determined by arbitration. Within ten
(10) business days after its receipt of the Limited Partner's notice described
in Section 4.6(a)(i), the general partner receiving such notice shall send a
written notice to the Limited Partner selecting a second individual to
arbitrate whether grounds for removal exist. If such general partner fails to
select a second arbitrator within the time period specified in the preceding
sentence, the existence of grounds for removal shall be determined by the
arbitrator selected by the Limited Partner (and such arbitrator shall be deemed
to be the "arbitration panel" for purposes of this Section 4.6(a)). If such
general partner selects a second arbitrator within the specified time period,
the existence of grounds for removal shall be determined by an arbitration
panel consisting of the arbitrator selected by the Limited Partner, the
arbitrator selected by the relevant general partner, and a third arbitrator
selected by the two arbitrators previously selected. None of the arbitrators
selected pursuant to this Section 4.6(a) shall be associated or affiliated with
any of the Partners. The arbitration panel shall conduct its proceedings in
San Francisco in accordance with the commercial rules of the American
Arbitration Association then in effect and the determination of such panel
shall be final and binding upon and enforceable against all Partners.
(iii) If the arbitration panel determines that grounds for removal
exist, then:
(A) A successor general partner of the Partnership shall be
selected by the Limited Partner. If the Limited Partner does not select
a successor general partner within sixty (60) days after the
determination that grounds for removal exist, and there is no remaining
or surviving general partner, the Partnership shall be dissolved in
accordance with Article 7.2.
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(B) The successor general partner designated in accordance with
Section 4.6(a)(iii)(A) shall be admitted as a general partner of the
Partnership and the removed general partner shall be converted into a
limited partner of the Partnership as set forth in Section
4.6(a)(iii)(C). The successor general partner shall, beginning on the
date of admission, have the same authority and obligations that the
removed general partner had and shall have such rights to distributions
and allocations as are determined by the remaining Partners. Upon the
admission of the successor general partner, the rights to distributions
and allocations of the Partners shall be modified to the extent required
to reflect the rights accorded to the successor general partner. The
admission of a successor general partner to the Partnership shall be
deemed to have occurred prior to the effective date of the conversion of
the removed general partner.
(C) Upon removal of the removed general partner as general
partner of the Partnership, its interest in the Partnership shall be
converted to a limited partnership interest and this Agreement shall be
amended to reflect the events set forth in this Section 4.6.
(D) The removed general partner shall remain liable for any
obligations and liabilities incurred by it as general partner prior to
the effective date of its removal but shall be free of any and all
obligations or liabilities incurred on account of the activities of the
general partner of the Partnership from and after that time.
(b) Withdrawal of a General Partner.
(i) For purposes of this Section 4.6(b), "withdrawal of a General
Partner" shall include the occurrence of any of the following:
(A) any event that causes a general partner to cease to be a
general partner when there is no remaining or surviving general partner;
(B) the bankruptcy, insolvency, or appointment of a trustee to
manage the affairs of (x) a general partner when there is no remaining
or surviving general partner, or (y) Robert J. Lewis when the General
Partner is the sole general partner;
(C) the dissolution, whether or not required by operation of law
or judicial decree, of a general partner;
(D) the death of Leo J. Hindery, Jr.;
(E) the incapacity of Leo J. Hindery, Jr. such that he is unable
to perform substantially all of his duties as president and chief
executive officer of the General Partner for a period of six (6) months;
or
(F) any other event that causes the Managing General Partner to
cease to be controlled directly or indirectly through one or more
intermediaries by Leo J. Hindery, Jr..
(ii) Upon the withdrawal of a general partner, the provisions of
Section 4.6(a)(iii) shall be complied with; however, the time frame set forth
in Sections 4.6(a)(iii)(A) shall run from the date of withdrawal of such
general partner.
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(c) Right To Recover Damages. (i) Removal of a general partner
pursuant to this Section 4.6 shall not limit the right of the Partnership or
any Partner to recover any direct compensatory damages suffered by such Partner
as a result of any breach of this Agreement by the removed general partner or
any other person.
(ii) Removal of a general partner, except pursuant to the terms of this
Agreement, shall entitle such general partner to receive, in cash compensation,
damages for all direct and indirect economic consequences of such removal,
including, but not limited to, damages for all lost profits. Such removed
general partner's interest in the Partnership shall be converted to a limited
partnership interest pursuant to Section 4.6(a)(iii)(C).
ARTICLE 5
Tax Matters and Reports
5.1 Filing of Tax Returns. The Managing General Partner, at the
expense of the Partnership, shall prepare and file, or cause the accountants of
the Partnership to prepare, submit to the Partners for approval and thereafter
file, all required tax returns including a federal information tax return in
compliance with section 6031 of the Code and any required state and local tax
and information returns for each tax year of the Partnership.
5.2 Tax Reports to Current and Former Partners. The Limited Partner
will receive unaudited quarterly progress reports on the Partnership within
sixty (60) days of the end of the first three fiscal quarters. Within ninety
(90) days of the end of each fiscal year, the Partnership shall prepare and
mail, or cause its accountants to prepare and mail, to each Partner and, to the
extent necessary, to each former Partner (or its legal representatives), a
report setting forth in sufficient detail such information as is required to be
furnished to partners by law (e.g., section 6031(b) of the Code and the
regulations thereunder) and as shall enable such Partner or former Partner (or
its legal representatives) to prepare their respective federal and state income
tax or informational returns in accordance with the laws, rules and regulations
then prevailing and any information necessary for such Partner to calculate the
fair market value of its Interest (determined in accordance with Section 4.3).
5.3 Books and Records; Independent Audit; Progress Reports. Complete
books and records accurately reflecting the accounts, business and transactions
of the Partnership and Partners of the Partnership shall be maintained and kept
by the Managing General Partner at the Partnership's principal place of
business. The books and records of the Partnership shall be open at reasonable
business hours on prior appointment for inspection and copying by the Partners.
Notwithstanding anything to the contrary in this Agreement, the Managing
General Partner shall have the right to keep confidential from the Limited
Partner for such period of time as the Managing General Partner deems
reasonable, any information which the Partnership is required by law or by
agreement with a third party to keep confidential and any information which
relates to its purchasing of individual items of programming, plant or
equipment which it reasonably deems confidential.
5.4 Fiscal Year. Except as may otherwise be required by the federal
tax laws, the fiscal year of the Partnership for both financial and tax
reporting purposes shall end on December 31.
5.5 Method of Accounting. The books and accounts of the Partnership
shall be maintained using the accrual method of accounting for financial
reporting purposes and for tax purposes. Those documents relating to
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allocation of items of Partnership income, gain, loss, deduction or credit and
Capital Accounts shall be kept under federal income tax accounting principles
as provided herein.
5.6 Tax Matters Partner. The Managing General Partner is hereby
designated, and hereby agrees to discharge duly the duties of, the Tax Matters
Partner of the Partnership, as that term is defined in section 6231(a)(7) of
the Code.
5.7 Restriction on General Partner Activity With Respect to Publicly
Traded Partnerships. Without the consent of the Limited Partner, no General
Partner shall not have the authority on behalf of the Partnership to:
(a) list, recognize, or facilitate the trading of partnership
interests (or any interest therein) on any "established securities market"
within the meaning of section 7704 of the Code, or permit any of its affiliates
to take such actions, if as a result thereof the Partnership might be taxed for
federal income tax purposes as an association taxable as a corporation; or
(b) create for the partnership interests (or any interest therein) a
"secondary market (or the substantial equivalent thereof)" within the meaning
of section 7704 of the Code or otherwise permit, recognize or facilitate the
trading of such interests (or any interest therein) on any such market, or
permit any of its affiliates (or to the extent such General Partner has rights
with respect thereto, the selling agents or any of their affiliates) to take
such actions, if as a result thereof the Partnership might be taxed for federal
income tax purposes as an association taxable as a corporation.
5.8 Duties and Obligations of the Managing General Partner With Respect
to Publicly Traded Partnerships. The Managing General Partner shall monitor
the transfers of partnership interests to determine if such interests are being
traded on an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of section 7704 of the
Code, and shall take (and cause its affiliates to take) all steps within its
power and authority as are reasonably necessary or appropriate to prevent any
such trading of interests.
ARTICLE 6
Conflicts of Interest
6.1 Contracts With General Partners, Affiliates and the Limited
Partner. Either General Partner may, on behalf of the Partnership, enter into
contracts with itself, the other General Partner or any of their respective
employees, agents or affiliates. Either General Partner may, but is not
obligated to, cause the Partnership to enter into contracts with the Limited
Partner, and its partners, employees, agents or affiliates.
6.2 Outside Activities. Neither General Partner nor its employees,
agents or affiliates shall be prohibited from participating, directly or
indirectly, in any other enterprise or partnership with the business purpose of
owning or operating cable television systems, television stations or
broadcasting or interests in cable television systems, television stations or
broadcasting. The Limited Partner (and its partners, employees, agents and
affiliates) may engage in other enterprises, including enterprises in
competition with the Partnership. No Partner need first offer any investment
opportunities within the scope of the Partnership's business purpose to the
Partnership, but may give or share such investment opportunity to or with one
or more of the following: any Partner, any officer, director, shareholder,
partner, employee or affiliate of a Partner, any enterprise or partnership in
which a Partner has an interest, or any nonaffiliated person.
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<PAGE> 18
The Limited Partner or the partners, employees, agents or affiliates of the
Limited Partner shall not be prohibited from engaging directly or indirectly in
other activities, or from directly or indirectly purchasing, selling and
holding securities or assets in cable television corporations or systems for
their account or for the accounts of others. The Limited Partner and the
partners, employees or affiliates of the Limited Partner may invest on its own
or co-invest with the Partnership on a transaction within the scope of the
Partnership's business purpose. Neither the Partnership nor any other Partner
shall have any right to any income or profit derived by the Limited Partner, or
its partners, employees, agents or affiliates from any enterprise, opportunity
or transactions permitted by this Section 6.2 or Section 6.1. The Limited
Partner shall have the right to transact business with the Partnership. The
parties hereto hereby waive, and covenant not to sue on the basis of, any law
(statutory, common law or otherwise) respecting the rights and obligations of
the Partners inter se which is or may be inconsistent with this Section 6.2 or
Section 6.1.
6.3 Indemnification of the Partners. The Partnership shall indemnify
and hold harmless the Partners and the partners, employees and agents of the
Partners from and against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromises, as fines and penalties, and as
counsel fees) reasonably incurred by any of them in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which they may be involved or with which they may be threatened,
as a Partner or partner, employee or agent of a Partner or otherwise in
connection with the management of the Partnership, or by reason of being or
having been a Partner or partner, employee or agent of a Partner, or by serving
in such other capacity, except with respect to any matter as to which they
shall have acted in willful misconduct, bad faith, in a grossly negligent
manner or with reckless disregard of the duties of their office, or with
criminal intent.
6.4 Exculpation. Neither General Partner nor any partner, employee or
agent of the General Partners or the Partnership shall not be liable to the
Limited Partner or the Partnership for mistakes of judgment or for action or
inaction which such General Partner or any such partner, employee or agent of
such General Partner or the Partnership reasonably believed to be in the best
interests of the Partnership unless such action or inaction constitutes willful
misconduct, bad faith, gross negligence, reckless disregard of its duties or
material breach of this Agreement. The General Partners may consult with
counsel, accountants and other experts in respect of Partnership affairs and be
fully protected and justified in any action or inaction which is taken in
accordance with the advice or opinion of such counsel, accountants or other
experts, provided that they shall have been selected with reasonable care.
Notwithstanding any of the foregoing to the contrary, the provisions of this
Section 6.4 shall not be construed so as to relieve (or attempt to relieve) the
General Partners and any partner, employee or agent of the General Partners or
the Partnership of any liability, to the extent (but only to the extent) that
such liability may not be waived, modified or limited under applicable law, but
shall be construed so as to effectuate the provisions of this Section 6.4 to
the fullest extent permitted by law.
ARTICLE 7
Termination of the Partnership
7.1 No Dissolution. The Partnership shall not be dissolved by the
admission of substituted limited partners or by the admission of a new general
partner in accordance with the terms of this Agreement. The dissolution or
bankruptcy of the Limited Partner shall not cause the dissolution of the
Partnership.
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<PAGE> 19
7.2 Events of Dissolution. The Partnership shall dissolve upon (i)
expiration of the term of the Partnership specified in Section 1.6 hereof, (ii)
the removal, withdrawal or cessation of a General Partner as general partner or
the bankruptcy of a General Partner, in each case where there is no remaining
or surviving general partner or if a successor has not been appointed pursuant
to Section 4.6, (iii) dissolution being required by operation of law or
judicial decree, or (iv) the unanimous written consent of the Partners.
Notwithstanding anything to the contrary in this Section 7.2, without the
consent of the Limited Partner, the General Partner agrees not to withdraw as
general partner of the Partnership or to seek partition or dissolution of the
Partnership. If the General Partner effects such withdrawal or seeks partition
or dissolution of the Partnership in violation of this Agreement, the
Partnership may recover from the General Partner damages for breach of this
Agreement. Upon dissolution of the Partnership, the Managing General Partner,
or if there is no managing general partner then any remaining general partner
(or their representatives), shall wind up the affairs of the Partnership,
discharge the liabilities of the Partnership, distribute the assets of the
Partnership and terminate the Partnership.
7.3 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The Managing General Partner or,
if there is no managing general partner or if the Managing General Partner
wrongfully caused the dissolution of the Partnership, a liquidator appointed by
a majority in interest of the remaining Partners, shall proceed with the
dissolution and the final distribution. In the dissolution, the Managing
General Partner or such liquidator shall use its best efforts to reduce to cash
and cash equivalent items such assets of the Partnership as the Managing
General Partner or such liquidator shall deem it advisable to sell, subject to
obtaining fair value for such assets and any tax or other legal considerations.
A reasonable time shall be allowed for the orderly winding up of the business
and affairs of the Partnership and the liquidation of its assets in order to
minimize any losses otherwise attendant upon such a winding up, provided that
the liquidation is carried out in conformity with the requirements of this
Section 7.3 and section 1.704-1(b)(2)(ii)(b)(2) and (3) of the Income Tax
Regulations.
7.4 Order of Dissolution. In settling accounts after dissolution, the
assets of the Partnership shall be distributed as expeditiously as possible in
the following order not later than the end of the taxable year of the
liquidation (i.e., the date upon which the Partnership ceases to be a going
concern as provided in section 1.704-1(b)(2)(ii)(g) of the Income Tax
Regulations), or if later, within ninety (90) days after the date of such
liquidation:
(a) To creditors, including the Partners to the extent of any unpaid
expenses or any outstanding loan or advance;
(b) To the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 7.3 hereof;
(c) To the establishment of reasonable reserves to provide for
obligations to creditors;
(d) To the Partners with respect to which any other debts of the
Partnership are owing, other than debts arising out of the expulsion of a
Partner;
(e) Thereafter, to the Partners in the proportion of their respective
Capital Accounts or as those accounts are determined after all adjustments to
such accounts for the taxable year of the Partnership during which the
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<PAGE> 20
liquidation occurs as are required by this Agreement by section 1.704-1(b) of
the Income Tax Regulations, such adjustments to be made within the time
specified in such Regulations.
7.5 Termination. The Partnership shall terminate following its
dissolution and liquidation pursuant to this Article 7 when all of the
Partnership assets as to which it is practicable to do so in the sole
discretion of the Managing General Partner or the liquidator shall have been
converted into cash, the net proceeds therefrom as well as any other assets of
the Partnership, after payment of or due provision for all debts, liabilities
and obligations of the Partnership, shall have been distributed to the Partners
as provided for herein and the Partnership shall have been terminated in the
manner required by the Act.
7.6 Orderly Methods of Liquidating Payments. Notwithstanding anything
to the contrary in this Article 7, if required to maximize the proceeds of
liquidation, the Managing General Partner (or the liquidator chosen in
accordance with Section 7.2) may, with the consent of the other Partners,
implement the distribution provisions of Section 7.4 hereof by transfer, on
behalf of the Partners, of the assets of the Partnership to a liquidating
trustee or trustees.
ARTICLE 8
Transfer Restrictions
8.1 No Partner shall sell, assign, mortgage, encumber, hypothecate or
otherwise transfer, whether voluntarily or involuntarily, its interest in the
Partnership or any part thereof, unless (x) any such transferee entity meets
the suitability requirements originally imposed under the subscription
agreement on the transferring Partner and (y) such assignment or transfer will
not (A) violate any applicable federal or state securities laws or regulations,
subject the Partnership to registration as an investment company or election as
a "business development company" under the Investment Company Act; (B) require
the General Partners or any of their partners to register as an investment
adviser under the Investment Advisers Act of 1940; (C) violate any other
federal, state or local laws; (D) effect a termination of the Partnership under
section 708 of the Code; or (E) cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes, or
violate this Agreement. Notwithstanding the preceding sentence, a Partner may
assign, sell, mortgage, encumber, hypothecate or otherwise transfer its
interest in the Partnership (i) to a lender as security in connection with the
financing of the acquisition or operation of one or more cable systems by the
Partnership or (ii) if any such assignment or transfer effects a termination of
the Partnership under section 708 of the Code so long as the transferring
Partner agrees to indemnify and hold harmless the Partnership and all other
Partners against any and all costs and expenses incurred as a direct result of
a termination of the Partnership under section 708 of the Code. No transferee
or assignee of all or any part of a Partner's interest, other than a transferee
or assignee permitted under this Section 8.1, shall become a Partner without
the prior written consent of the Managing General Partner which consent shall
not be unreasonably withheld. Any purported transfer of any interest of a
Partner in the Partnership or any part thereof not in compliance with this
Section 8.1 shall be void and of no force or effect and the transferring
Partner shall be liable to the other Partners and the Partnership for all
liabilities, obligations, damages, losses, costs and expenses (including
reasonable attorneys' fees and court costs) arising as a result of such
noncomplying transfer.
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ARTICLE 9
Miscellaneous
9.1 Notices. All notices, approvals, consents and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be hand delivered (including by messenger or recognized commercial
delivery or courier service), sent by facsimile transmission or sent by
registered or certified mail, postage prepaid, addressed to the Partner
intended at the address set forth below its name on Exhibit 1 hereto or at such
other address as such Partner may designate by notice given to the other
Partners in the manner aforesaid and shall be deemed given and received on the
date it is delivered, in the case of delivery by hand or by facsimile or, in
the case of delivery by mail, actual delivery as shown by the addressee's
return receipt. Rejection or other refusal to accept or inability to deliver
because of a change of address of which no notice was given shall be deemed to
be receipt of the notice.
9.2 Governing Law. This Agreement and the limited partnership formed
hereby shall be governed by and construed in accordance with the laws of the
State of California.
9.3 Amendments. This Agreement may be modified or amended only by an
instrument in writing signed by all Partners.
9.4 Entire Agreement. This instrument constitutes the entire agreement
between the Partners with respect to the Partnership and supersede all prior
agreements, understandings, offers and negotiations, oral or written.
9.5 Waiver of Partition. Each Partner hereby irrevocably waives any
and all rights that it may have to maintain an action for partition of the
Partnership or any of the Partnership's property.
9.6 Consents. All consents, agreements and approvals required or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
9.7 Successors. Subject to Article 8, all rights and duties of the
Partners hereunder shall inure to the benefit of and be binding upon their
respective successors and assigns.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.9 Pronouns. As used in this Agreement, the masculine, feminine or
neuter gender and the singular or plural number shall each be allowed to
include the others whenever the context so indicates.
9.10 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision which is not essential
to the effectuation of the basic purposes of the Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable and contrary to
the Act or existing or future applicable law, such invalidity shall not impair
the operation of or affect those provisions of this Agreement which are valid.
In that case, this Agreement shall be construed so as to limit any term or
provision so as to make it enforceable or valid within the requirements of any
applicable law, and in the event such term or provision cannot be so limited,
this Agreement shall be construed to omit such invalid or unenforceable
provisions.
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<PAGE> 22
9.11 Nonrecourse. Neither the Partnership nor the Partners shall have
recourse to any partner, officer, director or shareholder of any Partner or to
the assets of any partner, officer, director or shareholder of any Partner with
respect to the obligations and liabilities of such Partner under this
Agreement, except that this Section 9.11 shall not limit or impair the exercise
or enforcement of rights and remedies in respect of any agreement to which such
person is a party in accordance with the terms and provisions of such
agreement.
IN WITNESS WHEREOF, the Partners have executed this Agreement of Limited
Partnership as of the date first hereinabove written.
MANAGING GENERAL PARTNER
By /s/ LEO J. HINDERY, JR.
------------------------------------------
Leo J. Hindery, Jr.
GENERAL PARTNER
INTERMEDIA MANAGEMENT, INC.
By /s/ LEO J. HINDERY, JR.
------------------------------------------
Leo J. Hindery, Jr.
President and
Chief Executive Officer
LIMITED PARTNER
TCI ICM I, INC.
By /s/ STEPHEN M. BRETT
------------------------------------------
Title Vice President
-------------------------------
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<PAGE> 23
EXHIBIT 1
<TABLE>
<CAPTION>
Names and Addresses Percentage
of Partners Interest
------------------- ----------
<S> <C>
Managing General Partner:
Leo J. Hindery, Jr. .001%
General Partner:
InterMedia Management, Inc. .001%
235 Montgomery Street, Suite 420
San Francisco, CA 94104
Limited Partner:
TCI ICM I, Inc. 99.998%
---------
100%
</TABLE>
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<PAGE> 1
EXHIBIT 10.76
Execution copy
INTERMEDIA CAPITAL MANAGEMENT III, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of June 10, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Continuation of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Business of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Term of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 Capital Contributions, Withdrawals and Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Contributions of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Withdrawals of Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Limitations on Withdrawal of Capital Account . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Interest on Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Obligations of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Obligations of the Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 Profits and Losses and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Allocation of Profits and Losses Among the Partners . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4 Management of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Management Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Specific Authority of the General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Valuation of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Revaluation of Partnership Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Rights of the Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) No Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Partner Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Bankruptcy or Dissolution of the Limited Partner . . . . . . . . . . . . . . . . . . . . . 12
4.6 Successor General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Removal of a General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Withdrawal of a General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Right To Recover Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5 Tax Matters and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Tax Reports to Current and Former Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Books and Records; Independent Audit; Progress Reports . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Method of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Restriction on General Partner Activity With Respect to Publicly Traded Partnerships . . . . . . . . 15
5.8 Duties and Obligations of the General Partners With Respect to Publicly Traded Partnerships . . . . 15
ARTICLE 6 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Contracts With a General Partner, Affiliates and the Limited Partner . . . . . . . . . . . . . . . . 15
6.2 Outside Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Indemnification of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 7 Termination of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 No Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Events of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.3 Winding-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Order of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Orderly Methods of Liquidating Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 8 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Waiver of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.9 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.11 Nonrecourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
-ii-
<PAGE> 4
INTERMEDIA CAPITAL MANAGEMENT III, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THE LIMITED PARTNERSHIP INTERESTS ("INTERESTS") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). SUCH
INTERESTS ARE BEING OFFERED AND SOLD UNDER THE EXEMPTION PROVIDED BY SECTION
4(2) OF THE 1933 ACT AND/OR PURSUANT TO RULE 506 OF REGULATION D THEREUNDER.
A PURCHASER OF ANY INTEREST MUST BE PREPARED TO BEAR THE ECONOMIC RISK
OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE INTERESTS HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT AND, THEREFORE, CANNOT BE SOLD UNLESS
THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THERE IS NO OBLIGATION OF THE PARTNERSHIP TO REGISTER THE INTERESTS
UNDER THE 1933 ACT.
THE AGREEMENT RESTRICTS TRANSFER OF THE INTERESTS. ACCORDINGLY,
PURCHASE OF THE INTERESTS IS ONLY SUITABLE FOR INVESTORS WILLING AND ABLE TO
ACCEPT THE ECONOMIC RISK OF THE INVESTMENT AND LACK OF LIQUIDITY.
* * *
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is entered into and effective as of June 10, 1997, by and among
LEO J. HINDERY, JR., as managing general partner (the "Managing General
Partner"), INTERMEDIA MANAGEMENT, INC., a California corporation, as a general
partner ("IMI," and together with the Managing General Partner, the "General
Partners"), and TCI ICM III, INC., a Delaware corporation, as a limited partner
("TCI" or the "Limited Partner"). The General Partners and the Limited Partner
are collectively referred to as the Partners and individually as a Partner.
WHEREAS, the Partnership originally was formed as of March 15, 1990
by and among the Managing General Partner and certain other general and limited
partners;
WHEREAS, the Partnership Agreement was amended and restated as of
November 20, 1992, amended as of December 30, 1993, and amended and restated in
its entirety as of January 1, 1996;
WHEREAS, the Managing General Partner desires to convert all but .001%
of its 89.999% general partner interest in the Partnership into a limited
partner interest (the "Conversion") and to be admitted to the Partnership as a
limited partner while continuing to serve as managing general partner of the
Partnership;
WHEREAS, the Managing General Partner's remaining .001% interest in
the Partnership shall continue as a general partner interest and shall include
the right to receive ten percent (10%) of the Carried Interest (as such term is
defined in Section 3.1(k)(3) of this Agreement);
WHEREAS, immediately following the Conversion, all existing limited
partners of the Partnership (including the Managing General Partner (in its
capacity as a limited partner), the Robin Hindery Trust, Mark J. Coleman, David
L. Klott and Gregg F. Vignos -- collectively, the "Existing Limited Partners")
intend to transfer all of their limited partner interests in the Partnership to
the IP Series B Trust I (the "Trust");
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WHEREAS, TCI intends to purchase all limited partner interests held by
the Trust ("Trust Purchase"), whereupon the Partners desire to admit TCI as a
limited partner of the Partnership and to permit the withdrawal from the
Partnership immediately thereafter of the Existing Limited Partners;
WHEREAS, subject to the limits contained in Sections 3.1(k)(3) and
3.1(l)(2) of this Agreement, the Partners desire to allocate five percent (5%)
of the Carried Interest to IMI;
WHEREAS, the limited partners of InterMedia Partners III, L.P., a
California limited partnership ("IP-III"), have consented to the preceding
changes in that certain Consent of Partners of IP-III dated as of February 7,
1997;
WHEREAS, the Partners desire to amend and restate this Agreement to
reflect the preceding changes and other related amendments; and
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, the Partners hereby amend and restate
this Agreement as follows:
ARTICLE 1
General Provisions
1.1 Continuation of the Partnership. The Partners hereby (i) admit
TCI and the Managing General Partner as limited partners of the Partnership,
(ii) acknowledge and consent to the Conversion and Trust Purchase, (iii)
acknowledge and consent to the withdrawal from the Partnership of the Existing
Limited Partners immediately thereafter, and (iv) continue a limited
partnership (the "Partnership") pursuant to the California Revised Limited
Partnership Act (the "Act"). The Partnership shall continue without
interruption as a limited partnership pursuant to the Act.
1.2 Name. The name of the Partnership shall be: InterMedia Capital
Management III, L.P. The name of the Partnership may be changed by the
Managing General Partner upon compliance with applicable laws and after notice
by the Managing General Partner to the Limited Partner.
1.3 Principal Place of Business. The principal place of business of
the Partnership shall be 235 Montgomery Street, Suite 420, San Francisco,
California 94104. The principal place of business of the Partnership may be
changed by the Managing General Partner after notice to the Limited Partner.
1.4 Agent for Service of Process. The agent for service of process
for the Partnership and his address shall be Leo J. Hindery, Jr., 235
Montgomery Street, Suite 420, San Francisco, CA 94104. The agent for service
of process of the Partnership may be changed by the Managing General Partner
upon notice to the Limited Partner.
1.5 Business of the Partnership.
(a) The Partnership is organized for the purpose of (i) acting as
a general and limited partner of IP-III, (ii) performing administrative
services for the cable television systems owned and/or operated by IP-III, and
(iii) engaging in all necessary and appropriate activities and transactions as
the Managing General Partner may deem necessary, appropriate or advisable in
connection therewith.
(b) Pending the investment of Partnership funds as described in
Section 1.5(a), and the distribution of funds as described in Section 3.2, the
Partnership may invest in certificates of deposit and overnight time deposits
in commercial banks with capital and surplus over $100 million, commercial
paper, money market funds, repurchase agreements and U.S.
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Treasury bills and other government obligations and any other short-term,
investment grade highly liquid investments.
(c) The Partnership may enter into, deliver and perform all
contracts, agreements and other undertakings and engage in all activities and
transactions that are necessary or appropriate to carry out the foregoing
purposes. Without limiting the foregoing, the Partnership may:
(i) exercise all rights, powers, privileges, and other
incidents of ownership or possession with respect to Partnership
property and investments;
(ii) borrow or raise money and secure the payment of any
obligations of the Partnership by mortgage upon, or pledge or
hypothecation of, all or any part of the assets of the Partnership;
(iii) engage personnel, whether part-time or full-time and do
such other acts as the Managing General Partner may reasonably deem
necessary or advisable in connection with the maintenance and
administration of the Partnership or IP-III and their investments; and
(iv) engage attorneys, independent accountants, investment
bankers, consultants or such other persons for the Partnership or
IP-III as the Managing General Partner may deem necessary or
advisable.
1.6 Term of the Partnership. The term of the Partnership shall be
from the date the Certificate of Limited Partnership was filed with the
California Secretary of State through final dissolution and liquidation of
IP-III, unless the Partnership is earlier dissolved pursuant to Article 7.2.
ARTICLE 2
Capital Contributions, Withdrawals and Capital Accounts
2.1 Contributions of Capital. The capital contribution of each
Partner is set forth on Exhibit 1. No Partner shall be required to make
additional capital contribution except as set forth in this Agreement.
2.2 Withdrawals of Capital Accounts.
(a) In General. No Partner shall be entitled to withdraw any amount
from its Capital Account without the consent of the other Partners. In the
event of the withdrawal of any Partner, the withdrawing Partner shall not
otherwise share in the income, gains and losses of the Partnership from the
valuation date of its Partnership Interest (as set forth in Exhibit 1 hereto)
and shall not have any other rights under this Agreement other than payment of
its Capital Account.
(b) Limitations on Withdrawal of Capital Account. The right of any
withdrawn Partner or its legal representatives to have distributed the Capital
Account of such Partner is subject to the provision for all Partnership
liabilities in accordance with section 15666 of the Act and for estimates for
contingencies and expenses. The unused portion of any such estimates shall be
distributed after the need therefor shall have ceased.
2.3 Capital Accounts. The Partnership shall maintain for each
Partner a single, separate capital account (a "Capital Account") regardless of
the class of interests owned by such Partner and regardless of the time or
manner in which such interests were acquired. The Partnership shall maintain
all Capital Accounts in accordance with the capital accounting rules of section
704(b) of the Internal Revenue Code of 1986 (the "Code")
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and the Income Tax Regulations thereunder, including in particular section
1.704-l(b)(2)(iv) of the Treasury Regulations.
(a) In general, under such capital accounting rules, a Partner's
Capital Account shall be (i) increased by the amount of money and the fair
market value (determined in accordance with Section 4.3) of other property (net
of liabilities secured by such contributed property that the Partnership is
considered to take subject to or assume under section 752 of the Code)
contributed by the Partner to the Partnership and allocations to the Partner of
Partnership income and gain (or items thereof), including income and gain
exempt from tax and (ii) decreased by the amount of money and the fair market
value (determined in accordance with Section 4.3) of other property distributed
(net of liabilities secured by such distributed property that the Partner is
considered to take subject to or assume under section 752 of the Code) to the
Partner by the Partnership and allocations to the Partner of Partnership loss
and deduction (or items thereof), including Partnership expenditures not
deductible in computing its taxable income and not properly chargeable to its
Capital Account.
(b) When Partnership property is revalued by the Managing General
Partner pursuant to Section 4.4 or is distributed in kind (whether in
connection with dissolution and liquidation of the Partnership or otherwise),
the Capital Accounts of the Partners first shall be adjusted to reflect the
manner in which the unrealized income, gain, loss or deduction inherent in such
property (that has not previously been charged to Capital Accounts) would be
allocated among the Partners if there were a taxable disposition of such
property for its fair market value (determined in accordance with Section 4.3
and taking into account section 7701(g) of the Code) and such income, gain,
loss or deduction had been recognized for federal income tax purposes
immediately upon such distribution or the event requiring such revaluation.
(c) Where section 704(c) of the Code applies to Partnership property
or when Partnership property is revalued pursuant to section
1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, Capital Accounts of the
Partners shall be adjusted in accordance with section 1.704-1(b)(2)(iv)(g) of
the Income Tax Regulations as to allocations to the Partners of depreciation,
depletion, amortization and gain or loss, as computed for book purposes with
respect to such property.
(d) The Managing General Partner shall direct the Partnership's
accountant to make all necessary adjustments in each Partner's Capital Account
as required by the rules of section 704(b) of the Code and the Income Tax
Regulations thereunder.
2.4 Interest on Capital Accounts. No interest shall be paid on or
with respect to the capital contributions or Capital Account of any of the
Partners.
2.5 Obligations of the General Partners. The General Partners shall
not be personally obligated to contribute cash or other assets to the
Partnership to make up any reduction in the Capital Accounts of the Partners
either during the term of the Partnership or upon dissolution, subject to the
obligation of the General Partners to return to the Partnership certain
distributions as provided in the Act.
2.6 Obligations of the Limited Partner. Except as otherwise
specifically provided herein, the Limited Partner shall not be personally
obligated for the debts, liabilities and obligations of the Partnership or of
any other Partner, except that the Limited Partner (and any former Limited
Partner) shall be obligated to return to the Partnership certain distributions
made to it as provided in section 15666 of the Act.
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ARTICLE 3
Profits and Losses and Distributions
3.1 Allocation of Profits and Losses Among the Partners. A Partner's
distributive share of the Partnership's total income, gain, loss, deduction or
credit (or items thereof), which total shall be as shown on the annual federal
income tax return prepared by the Partnership's accountants or as finally
determined by the Internal Revenue Service or the courts, and as modified by
the capital accounting rules of section 704(b) of the Code and the Income Tax
Regulations thereunder as implemented by Section 2.3 hereof, as applicable,
shall be determined as provided in this Article 3.
(a) Except as otherwise provided in this Section 3.1, items of
Partnership income, gain, loss, deduction and credit shall be allocated among
the Partners in proportion to their percentage interests set forth in Exhibit 1
("Partnership Interest").
(b) Solely for tax purposes, in determining each Partner's allocable
share of the taxable income or loss of the Partnership, depreciation,
depletion, amortization and gain or loss with respect to any contributed
property, or with respect to revalued property where Partnership property is
revalued pursuant to section 1.704-1(b)(2)(iv)(f) of the Income Tax
Regulations, shall be allocated to the Partners under the remedial method as
provided in section 1.704-3(d) of the Income Tax Regulations.
(c) Notwithstanding anything to the contrary in this Article 3, if
there is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt
Minimum Gain (as such terms are defined in sections 1.704-2(b) and
1.704-2(i)(2), respectively, of the Income Tax Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, section
1.704-2 of the Income Tax Regulations. This provision is intended to be a
"minimum gain chargeback" within the meaning of sections 1.704-2(f) and
1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted and
implemented as therein provided.
(d) Subject to the provisions of Section 3.1(c), but otherwise
notwithstanding anything to the contrary in this Section 3.1(d), if any
Partner's Capital Account has a deficit balance in excess of such Partner's
obligation to restore its Capital Account balance, computed in accordance with
the rules of section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations
(including such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in sections 1.704-2(g) and
1.704-2(i)(5) of the Income Tax Regulations), then sufficient amounts of income
and gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for such year) shall be allocated to such
Partner in an amount and manner sufficient to eliminate such deficit as quickly
as possible. This provision is intended to be a "qualified income offset"
within the meaning of section 1.704-1(b)(2)(ii)(d) of the Income Tax
Regulations and shall be interpreted and implemented as therein provided.
(e) Subject to the provisions of section 704(c) of the Code and
Sections 3.1(b) through (d) hereof, gain recognized (or deemed recognized under
the provisions hereof) upon the sale or other disposition of Partnership
property, which is subject to depreciation recapture, shall be allocated to the
Partner who was entitled to deduct such depreciation.
(f) Except as otherwise provided in Section 3.1(j), if and to the
extent any Partner is deemed to recognize income as a result of any loans
described herein pursuant to the rules of section 1272, 1273, 1274, 1274A,
7872, 482 or 483 of the Code, or any similar provision now or hereafter in
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effect, any corresponding resulting deduction of the Partnership shall be
allocated to the Partner who is charged with the income. Subject to the
provisions of section 704(c) of the Code and Sections 3.1(b) through (d)
hereof, if and to the extent the Partnership is deemed to recognize income as a
result of any loans described herein pursuant to the rules of section 1272,
1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar provision now
or hereafter in effect, such income shall be allocated to the Partner who is
entitled to any corresponding resulting deduction.
(g) Except as otherwise required by law, tax credits shall be
allocated among the Partners pro rata in accordance with the manner in which
Partnership profits are allocated to the Partners under this Article 3, as of
the time the credit property is placed in service or, if no property is
involved, as of the time the credit is earned. Recapture of any tax credit
required by the Code shall be allocated to the Partners in the same proportion
in which such tax credit was allocated.
(h) Except as provided in Sections 3.1(f) and 3.1(g) hereof or as
otherwise required by law, if the Partnership Interests of the Partners are
changed herein during any taxable year, all items to be allocated to the
Partners for such entire taxable year shall be prorated on the basis of the
portion of such taxable year which precedes each such change and the portion of
such taxable year on and after each such change according to the number of days
in each such portion, and the items so allocated for each such portion shall be
allocated to the Partners in the manner in which such items are allocated as
provided in this Section 3.1 during each such portion of the taxable year in
question.
(i) Any special allocation of income or gain pursuant to Section
3.1(d) hereof shall be taken into account in computing subsequent allocations
of income and gain pursuant to this Section 3.1 so that the net amount of all
such allocations to each Partner shall, to the extent possible, be equal to the
net amount that would have been allocated to each such Partner pursuant to the
provisions of this Section 3.1 if such special allocations of income or gain
under Section 3.1(d) hereof had not occurred.
(j)(1) Items of deduction and loss attributable to recourse
liabilities of the Partnership (within the meaning of section
1.752-1(a)(1) of the Income Tax Regulations, but excluding Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations), shall be allocated among the Partners in
accordance with the ratio in which the Partners share the economic
risk of loss (within the meaning of section 1.752-2 of the Income Tax
Regulations) for such liabilities.
(2) Items of deduction and loss attributable to Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations shall be allocated among the Partners bearing
the economic risk of loss with respect to such debt in accordance with
section 1.704-2(i) of the Income Tax Regulations.
(3) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of section 1.704-2(b)(1) of
the Income Tax Regulations shall be allocated among the Partners
proportionately in accordance with their Partnership Interests.
(4) All other items of deduction and loss ("Net Loss") shall
be allocated among the Partners proportionately in accordance with
their Partnership Interests, except that Net Loss shall not be
allocated to any Partner to the extent it would create a deficit
balance in excess of such Partner's obligation to restore its capital
account balance, computed in accordance with the rules of section
1.704-1(b)(2)(ii)(d) of the Income Tax Regulations and including such
Partner's share of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain as
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provided in sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax
Regulations. Any Net Loss which cannot be allocated to a Partner
because of the limitation set forth in the previous sentence shall be
allocated first to the other Partners to the extent such other
Partners would not be subject to such limitation, and second, any
remaining amount to the Partners in the manner required by the Code
and the Income Tax Regulations.
(k) Subject to the provisions of Sections 3.1(c) through (j),
items of income and gain shall be allocated to the Partners in the following
priority:
(1) First, to those Partners who have had items of loss
or deductions allocated to them under section 3.1(j)(1), in the amount
of, and proportionate to, the amount of such items of loss or
deduction (provided, however, that no such allocation shall be made
with respect to previously allocated items of loss or deduction to the
extent of any income and gains previously deemed recognized under
Section 2.3(b));
(2) Second, if allocations of Net Loss have been made to the
Partners under Section 3.1(j)(4), then in the amount of, and
proportionate to, the amount of such Net Loss (provided, however, that
no such allocation shall be made with respect to previously allocated
Net Loss to the extent of any income and gains previously deemed
recognized under Section 2.3(b));
(3) Third, (A) five percent (5%) of any income or gain
allocated to the Partnership under Section 3.1(l)(6) of the Amended
and Restated Agreement of Limited Partnership of InterMedia Partners
III, L.P. dated as of December 22, 1993 (the "Carried Interest") to
IMI, provided that such amount when aggregated with any income or gain
allocated to IMI with respect to the Carried Interest under this
Agreement and with any income or gain similarly derived by IMI from
its interest in InterMedia Capital Management IV, L.P., does not
exceed $1,800,000; (B) ten percent (10%) of any income or gain
resulting from the Carried Interest to the Managing General Partner;
and (C) the balance of any income or gain resulting from the Carried
Interest to the Limited Partner; and
(4) Fourth, the balance among the Partners in proportion to
their relative Partnership Interests.
(l) Notwithstanding Section 3.1(k), but subject to the provisions of
Section 3.1(c) through (j), gain which is recognized (or deemed to be
recognized) upon the sale, exchange or other disposition of any asset of the
Partnership or of any partnership in which the Partnership holds an interest
(whether directly or indirectly), or upon the dissolution of the Partnership or
any Partnership in which the Partnership holds an interest (whether directly or
indirectly), shall be allocated in the following order:
(1) First, to the Partners having deficit balances in
their Capital Accounts (computed after giving effect to all
contributions, distributions, allocations and other Capital Account
adjustments for all taxable years, including the year during which
such liquidation or dissolution occurs and including each Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum
Gain as provided in sections 1.704-2(g) and 1.704-2(i)(5) of the
Income Tax Regulations), to the extent of, and in proportion to, those
deficits;
(2) Second, (A) five percent (5%) of any income or gain
resulting from the Carried Interest to IMI, provided that such amount
when aggregated with any income or gain allocated to IMI
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with respect to the Carried Interest under this Agreement and with any
income or gain similarly derived by IMI from its interest in
InterMedia Capital Management IV, L.P., does not exceed $1,800,000;
(B) ten percent (10%) of any income or gain resulting from the Carried
Interest to the Managing General Partner; and (C) the balance of any
income or gain resulting from the Carried Interest to the Limited
Partner; and
(3) Thereafter, so as to bring the relative credit
balance in each Partner's Capital Account (computed in the same manner
as provided parenthetically in the preceding subparagraph (1)), as
nearly as possible, in proportion to such Partner's Partnership
Interest.
3.2 Distributions.
(a) Subject to Section 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall, to the extent of available
cash, after servicing all principal and interest on Partnership debt and
provision of reasonable reserves for expenses and contingencies, distribute in
cash, no later than sixty (60) days after the close of each fiscal year, the
excess, if any, of (i) forty percent (40%) of an amount equal to the excess, if
any, of the cumulative items of income and gain over the cumulative items of
deduction, loss and credit (grossed up to a deduction equivalent at a forty
percent (40%) tax rate) of the Partnership as shown on the federal income tax
returns of the Partnership for all periods over (ii) the sum of amounts
previously distributed pursuant to Section 3.2(a), 3.2(b) or 3.2(c) provided
that the Managing General Partner shall make such distributions on a quarterly
basis as soon as possible to address any quarterly payments of estimated tax of
the partners of the Partners if such early distribution is feasible in terms of
available cash and accurate anticipation of the fiscal year's net tax position.
The Managing General Partner shall adjust the rate of distribution provided in
this Section 3.2(a) to reflect any increases made to the ordinary income and
capital gains tax rates of the Code which may have the effect of requiring the
Partners to pay more taxes on ordinary income or capital gains generated by
Partnership activities. Distributions pursuant to this Section 3.2(a) shall be
made to the Partners ratably in the proportions in which the net recognized
income and gains (but not income and gains deemed recognized under Section
2.3(b)) for such fiscal periods have been allocated to them for federal income
tax purposes pursuant to this Article 3. For purposes of this Section 3.2, in
the case of property contributed to the capital of the Partnership, items of
income, gain, deduction and loss shall be computed as if the tax basis of such
property were equal to its fair market value at the time of such contribution.
(b) Subject to Sections 3.2(a) and 3.2(e), prior to dissolution of
the Partnership, the Managing General Partner shall distribute the net proceeds
from the sale or other disposition of any investment, after payment of all
indebtedness with respect thereto and less reasonable estimates for expenses,
liabilities, contingencies and working capital requirements, no later than
ninety (90) days after the close of such sale.
(c) Subject to the mandatory distribution provisions set forth in
Section 3.2(a) and 3.2(b) and to Section 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall distribute no less frequently
than on a quarterly basis cash received by the Partnership from operations, any
transaction not described in Section 3.2(b), and any dividends, interest or
other cash distributions from any corporation or other entity in which the
Partnership has invested and which is not necessary in the reasonable judgment
of the Managing General Partner for the payment of Partnership expenses or debt
or the maintenance of reasonable reserves for expenses, liabilities,
contingencies and working capital requirements to the Partners'. Distributions
pursuant to this Section 3.2(c) shall be made to the Partners in proportion to
their positive Capital Account balances, to the extent of such balances, and
thereafter in proportion to their Partnership Interests.
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(d) All distributions made pursuant to this Section 3.2 shall be
treated as a return of Partners' capital contributions until their respective
actual capital contributions are returned in full. Except as otherwise
provided herein, no Partner shall have a priority over any other Partner as to
returns of capital contributions or as to compensation as a Partner by way of
income.
(e) Any other provision of this Agreement to the contrary
notwithstanding, no distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness; provided, however, that the Managing General Partner shall use
its reasonable best efforts to obtain the right to make tax distributions
pursuant to Section 3.2 above under the terms of any such indebtedness.
3.3 Expenses and Fees.
(a) The Partnership shall pay (or reimburse the General Partners or
any affiliates thereof which incur expenses on behalf of the Partnership) for
any and all expenses relating to the Partnership's organization, business or
operations, including but not limited to the following expenses:
organizational expenses of the Partnership, interest, legal, accounting,
consulting and investment banking fees and expenses of the Partnership and
preparation of federal and state tax returns.
(b) The Partnership shall pay to the Limited Partner in cash during
the period the Partnership is in existence, as full payment for administrative
services rendered to the Partnership an Administration Fee (the "Administration
Fee") equal to all amounts received by the Partnership from IP-III as a
management fee, which payment shall be made to the Limited Partner as promptly
as practible after receipt by the Partnership.
ARTICLE 4
Management of Partnership
4.1 Management Generally. Except as otherwise provided herein, the
business of the Partnership shall be conducted and managed by the General
Partners. The General Partners shall devote as much of their time as is
necessary and their best efforts and skill to the business and affairs of the
Partnership and its management, including the administration of the cable
television systems owned and/or operated by IP-III. The General Partners shall
have the rights and powers and be subject to all the restrictions and
liabilities of a partner in a partnership without limited partners.
4.2 Specific Authority of the General Partners. Except as otherwise
provided herein, the General Partners shall have full power and authority to do
all things and to perform all acts reasonably necessary or advisable to conduct
the business affairs of the Partnership including, without limitation, full
power and authority to take any of the following actions:
(a) make decisions, after consultation with the Limited
Partner, concerning personnel;
(b) Employ such agents, consultants, advisers, directors,
attorneys, accountants, investment bankers and other personnel as may
be necessary or appropriate for the business of the Partnership on
such terms and conditions as the General Partners shall determine are
reasonable;
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(c) Open, maintain and close bank accounts and draw
checks and other orders for the payment of money;
(d) Collect accounts receivable, income and other
payments due to the Partnership;
(e) Keep the books and records of the Partnership and
hire independent certified public accountants;
(f) Pay accounts payable and other expenses of the
Partnership;
(g) Transfer, hypothecate, compromise or release any
Partnership claim not exceeding fifty thousand dollars ($50,000);
(h) enter into contracts in the ordinary course of the
Partnership's business and perform the obligations of the Partnership
undertaken in such contracts, including, without limitation, any
contract entered into with the Limited Partner or an affiliate of the
Limited Partner pursuant to Section 6.1;
(i) subject to the Limited Partner's voting rights set forth
in Section 4.5(b), administer the financial affairs of the
Partnership, make tax elections, including an election or elections
under section 754 of the Code (which election shall be made upon the
request of the Limited Partner), file all required tax returns
relating to the Partnership, pay the liabilities of the Partnership
and distribute the profits of the Partnership to the Partners;
(j) subject to the Limited Partner's voting rights set forth
in Section 4.5(b)(xiii), borrow money and make, issue and execute
promissory notes, drafts, bills of exchange, guarantees, and other
instruments and evidences of indebtedness in the name of the
Partnership, including, without limitation, in connection with and as
part of purchasing assets and securities for the Partnership, and
mortgage, pledge, assign or grant security interests in all or any
part of the assets then owned or thereafter acquired by the
Partnership in connection therewith;
(k) cause the Partnership to purchase and maintain any
insurance in amounts and on terms customary in the industry covering
the potential liabilities of the Partnership, the Partners, and their
partners, employees and agents, as well as the potential liabilities
of any person serving at the request of the Partnership as a director,
officer, employee, agent, consultant or adviser of any corporation or
other entity in which the Partnership has an investment;
(l) commence or defend litigation that pertains to the
Partnership or any assets of the Partnership and investigate potential
claims;
(m) execute and file fictitious business name statements and
similar documents;
(n) terminate the Partnership pursuant to Article 7; and
(o) execute and deliver all documents and instruments
necessary or advisable to carry out the foregoing.
4.3 Valuation of Assets. An independent appraiser selected by the
General Partners and the Limited Partner shall value the assets of the
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<PAGE> 14
Partnership whenever appropriate or requested by a Partner, and whenever else
required by this Agreement or under the Code, and shall within ninety (90) days
of each such date furnish to each Partner a statement showing the value of each
asset and the net worth of the Partnership. An independent appraiser selected
by the General Partners and the Limited Partner also shall value the assets of
the Partnership as of the date of dissolution and shall as promptly as
practicable thereafter furnish the Partners with the statement showing the
value of each asset and the net worth of the Partnership. For all purposes of
this Agreement, any assets of the Partnership being distributed in kind shall
be valued as of the date of distribution, and an independent appraiser shall
make such valuation and the Managing General Partner shall as promptly as
practicable thereafter furnish the Partners with a statement showing the value
of such asset. The value of each asset of the Partnership determined pursuant
to this Section 4.3 shall be conclusive and binding on all of the Partners and
all parties claiming through or under them.
4.4 Revaluation of Partnership Assets. The Managing General Partner
shall revalue Partnership property to its fair market value (determined as
provided in Section 4.3) as of the date when any additional or existing Partner
makes a non-pro rata contribution of money or property to the Partnership in
exchange for an interest in the Partnership or when the Partnership distributes
money or property to a withdrawing or continuing Partner in exchange for all or
part of its interest in the Partnership.
4.5 Rights of the Limited Partner.
(a) No Control. The Limited Partner shall not take part in the
control, management, direction or operation of the business of the Partnership,
nor have the power to sign documents for or otherwise bind the Partnership.
(b) Voting. The Limited Partner's written consent shall be required
only with respect to those matters expressly set forth in this Agreement and
the following matters, which actions may be taken only with the written consent
of the General Partners (except with respect to the admission of a new general
partner where there is no existing general partner, which action may be taken
without the consent of the General Partners):
(i) The amendment of this Agreement pursuant to Section 9.3
hereof;
(ii) The amendment of the allocations and distributions to
the Limited Partner other than as permitted by Sections 3.1 and 3.2;
(iii) The admission of a new general partner where there is
an existing general partner;
(iv) The approval of a transaction in which a General Partner
or any of its affiliates has an actual or potential conflict of
interest with the Limited Partner or the Partnership and which is not
permitted by Section 6.1 or 6.2 or otherwise expressly permitted by
the terms of this Agreement;
(v) The continuation of the Partnership to effect an orderly
dissolution of the Partnership in accordance with Section 7.2;
(vi) The sale, exchange or other transfer of assets of the
Partnership;
(vii) The merger of or consolidation of the Partnership with
any other entity;
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<PAGE> 15
(viii) The taking of any act that would make it impossible to
carry on the business of the Partnership except upon the dissolution
of the Partnership in accordance with this Agreement;
(ix) Confessing a judgment against the Partnership in excess
of fifty thousand dollars ($50,000) or settling a judgment against the
Partnership in excess of one hundred thousand dollars ($100,000);
(x) Using any funds or assets of the Partnership other than
for the benefit of the Partnership;
(xi) Taking any action that would subject the Limited Partner
to personal liability as a general partner in any jurisdiction;
(xii) The making of, execution of, or delivery of any general
assignment for the benefit of the Partnership's creditors; and
(xiii) Any of the acts set forth in Section 4.2(j).
(c) Partner Meetings. Any Partner may call a Partners' meeting at
235 Montgomery Street, Suite 420, San Francisco, CA 94104 on 48 hours' advance
notice to the other Partners. Such notice may be either written or oral and
shall designate the date and time of the meeting and the general nature of the
business to be transacted.
(d) Bankruptcy or Dissolution of the Limited Partner. The
bankruptcy, insolvency or dissolution of the Limited Partner shall not result
in the termination of the Partnership. The interest of the Limited Partner
will continue at the risk of the Partnership business until the dissolution and
winding up of the Partnership. The legal representative of or successor to the
Limited Partner will succeed to the Limited Partner's interest and rights in
the Partnership, but will not be a substituted Partner without the consent of
the Managing General Partner, which consent shall not be unreasonably withheld.
4.6 Successor General Partner.
(a) Removal of a General Partner.
(i) The Limited Partner may initiate removal of a general partner by
delivering written notice to such general partner (x) specifying one or more
grounds for removal that the Limited Partner believes exist, and, (y) if the
notice specifies grounds for removal described in this Section 4.6(a)(i),
selecting an individual to arbitrate whether such grounds exist in accordance
with Section 4.6(a)(ii). For purposes of this Section 4.6(a), grounds for
removal means conduct by or on behalf of a general partner in connection with
the Partnership that constitutes willful misconduct, bad faith, gross
negligence, reckless disregard of its duties, criminal intent, or a material
breach of this Agreement;
(ii) The existence of grounds for removal with respect to matters
described in Section 4.6(a)(i) shall be determined by arbitration. Within ten
(10) business days after its receipt of the Limited Partner's notice described
in Section 4.6(a)(i), the general partner shall send a written notice to the
Limited Partner selecting a second individual to arbitrate whether grounds for
removal exist. If the general partner fails to select a second arbitrator
within the time period specified in the preceding sentence, the existence of
grounds for removal shall be determined by the arbitrator selected by the
Limited Partner (and such arbitrator shall be deemed to be the "arbitration
panel" for purposes of this Section 4.6(a)).
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<PAGE> 16
If the general partner selects a second arbitrator within the specified time
period, the existence of grounds for removal shall be determined by an
arbitration panel consisting of the arbitrator selected by the Limited Partner,
the arbitrator selected by the general partner, and a third arbitrator selected
by the two arbitrators previously selected. None of the arbitrators selected
pursuant to this Section 4.6(a) shall be associated or affiliated with any of
the Partners. The arbitration panel shall conduct its proceedings in San
Francisco in accordance with the commercial rules of the American Arbitration
Association then in effect and the determination of such panel shall be final
and binding upon and enforceable against all Partners.
(iii) If the arbitration panel determines that grounds for removal
exist, then:
(A) A successor general partner of the Partnership shall be
selected by the Limited Partner. If the Limited Partner does not
select a successor general partner within sixty (60) days after the
determination that grounds for removal exist and there is no remaining
or surviving general partner, the Partnership shall be dissolved in
accordance with Article 7.2.
(B) The successor general partner designated in accordance
with Section 4.6(a)(iii)(A) shall be admitted as a general partner of
the Partnership and the general partner shall be converted into a
limited partner of the Partnership as set forth in Section
4.6(a)(iii)(C). The successor general partner shall, beginning on the
date of admission, have the same authority and obligations that the
removed general partner had and shall have such rights to
distributions and allocations as are determined by the Limited Partner
and the removed general partner. Upon the admission of the successor
general partner, the rights to distributions and allocations of the
Partners shall be modified to the extent required to reflect the
rights accorded to the successor general partner. The admission of a
successor general partner to the Partnership shall be deemed to have
occurred prior to the effective date of the conversion of the general
partner.
(C) Upon removal of the general partner, its interest in the
Partnership shall be converted to a limited partnership interest and
this Agreement shall be amended to reflect the events set forth in
this Section 4.6.
(D) The removed general partner shall remain liable for any
obligations and liabilities incurred by it as general partner prior to
the effective date of its removal but shall be free of any and all
obligations or liabilities incurred on account of the activities of
the general partner of the Partnership from and after that time.
(b) Withdrawal of a General Partner.
(i) For purposes of this Section 4.6(b), "withdrawal of a General
Partner" shall include the occurrence of any of the following:
(A) any event that causes a general partner to cease to be a
general partner;
(B) the bankruptcy, insolvency, or appointment of a trustee
to manage the affairs of a general partner or Leo J. Hindery, Jr.;
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<PAGE> 17
(C) the dissolution, whether or not required by operation of
law or judicial decree, of a general partner;
(D) the death of Leo J. Hindery, Jr.;
(E) the incapacity of Leo J. Hindery, Jr. such that he is
unable to perform substantially all of his duties as Managing General
Partner for a period of nine (9) months; or
(F) any other event that causes the Partnership to cease to
be controlled directly or indirectly through one or more
intermediaries by Leo J. Hindery, Jr..
(ii) Upon the withdrawal of a General Partner, the provisions of
Section 4.6(a)(iii) shall be complied with; however, the time frame set forth
in Sections 4.6(a)(iii)(A) shall run from the date of withdrawal of the general
partner.
(c) Right To Recover Damages. (i) Removal of a general partner
pursuant to this Section 4.6 shall not limit the right of the Partnership or
any Partner to recover any direct compensatory damages suffered by such person
as a result of any breach of this Agreement by such general partner or any
other person.
(ii) Removal of a general partner, except pursuant to the terms of
this Agreement, shall entitle such general partner to receive, in cash
compensation, damages for all direct and indirect economic consequences of such
removal, including, but not limited to, damages for all lost profits. Such
removed general partner's interest in the Partnership shall be converted to a
limited partnership interest pursuant to Section 4.6(a)(iii)(C).
ARTICLE 5
Tax Matters and Reports
5.1 Filing of Tax Returns. The Managing General Partner, at the
expense of the Partnership, shall prepare and file, or cause the accountants of
the Partnership to prepare, submit to the Partners for approval and thereafter
file, all required tax returns including a federal information tax return in
compliance with section 6031 of the Code and any required state and local tax
and information returns for each tax year of the Partnership.
5.2 Tax Reports to Current and Former Partners. All Partners will
receive unaudited quarterly progress reports on the Partnership within sixty
(60) days of the end of the first three fiscal quarters. Within ninety (90)
days of the end of each fiscal year, the Partnership shall prepare and mail, or
cause its accountants to prepare and mail, to each Partner and, to the extent
necessary, to each former Partner (or its legal representatives), a report
setting forth in sufficient detail such information as is required to be
furnished to partners by law (e.g., section 6031(b) of the Code and the
regulations thereunder) and as shall enable such Partner or former Partner (or
its legal representatives) to prepare their respective federal and state income
tax or informational returns in accordance with the laws, rules and regulations
then prevailing and any information necessary for such Partner to calculate the
fair market value of its Interest (determined in accordance with Section 4.3).
5.3 Books and Records; Independent Audit; Progress Reports. Complete
books and records accurately reflecting the accounts, business and transactions
of the Partnership and Partners of the Partnership shall be maintained and kept
by the Managing General Partner at the Partnership's principal place of
business. The books and records of the Partnership shall be open
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<PAGE> 18
at reasonable business hours on prior appointment for inspection and copying by
the Partners. Notwithstanding anything to the contrary in this Agreement, the
Managing General Partner shall have the right to keep confidential from the
Limited Partner for such period of time as the Managing General Partner deems
reasonable, any information which the Partnership is required by law or by
agreement with a third party to keep confidential and any information which
relates to its purchasing of individual items of programming, plant or
equipment which it reasonably deems confidential.
5.4 Fiscal Year. Except as may otherwise be required by the federal
tax laws, the fiscal year of the Partnership for both financial and tax
reporting purposes shall end on December 31.
5.5 Method of Accounting. The books and accounts of the Partnership
shall be maintained using the accrual method of accounting for financial
reporting purposes and for tax purposes. Those documents relating to
allocation of items of Partnership income, gain, loss, deduction or credit and
Capital Accounts shall be kept under federal income tax accounting principles
as provided herein.
5.6 Tax Matters Partner. The Managing General Partner is hereby
designated, and hereby agrees to discharge duly the duties of, the Tax Matters
Partner of the Partnership, as that term is defined in section 6231(a)(7) of
the Code.
5.7 Restriction on General Partner Activity With Respect to Publicly
Traded Partnerships. Without the consent of the Limited Partner, the General
Partners shall not have the authority on behalf of the Partnership to:
(a) list, recognize, or facilitate the trading of partnership
interests (or any interest therein) on any "established securities market"
within the meaning of section 7704 of the Code, or permit any of its affiliates
to take such actions, if as a result thereof the Partnership might be taxed for
federal income tax purposes as an association taxable as a corporation; or
(b) create for the partnership interests (or any interest therein)
a "secondary market (or the substantial equivalent thereof)" within the meaning
of section 7704 of the Code or otherwise permit, recognize or facilitate the
trading of such interests (or any interest therein) on any such market, or
permit any of their affiliates (or to the extent either General Partner has
rights with respect thereto, the selling agents or any of their affiliates) to
take such actions, if as a result thereof the Partnership might be taxed for
federal income tax purposes as an association taxable as a corporation.
5.8 Duties and Obligations of the General Partners With Respect to
Publicly Traded Partnerships. The General Partners shall monitor the transfers
of partnership interests to determine if such interests are being traded on an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of section 7704 of the Code, and shall
take (and cause its affiliates to take) all steps within their power and
authority as are reasonably necessary or appropriate to prevent any such
trading of interests.
ARTICLE 6
Conflicts of Interest
6.1 Contracts With a General Partner, Affiliates and the Limited
Partner. A General Partner may, on behalf of the Partnership, enter into
contracts with itself or any of its employees, agents or affiliates. A General
Partner may, but is not obligated to, cause the Partnership to enter into
contracts with any other Partner, and its partners, employees, agents or
affiliates.
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<PAGE> 19
6.2 Outside Activities. Neither the Managing General Partner nor its
employees, agents or affiliates shall be prohibited from participating,
directly or indirectly, in any other enterprise or partnership with the
business purpose of owning or operating cable television systems, television
stations or broadcasting or interests in cable television systems, television
stations or broadcasting. The Limited Partner (and its partners, employees,
agents and affiliates) may engage in other enterprises, including enterprises
in competition with the Partnership. No Partner need first offer any
investment opportunities within the scope of the Partnership's business purpose
to the Partnership, but may give or share such investment opportunity to or
with one or more of the following: any Partner, any officer, director,
shareholder, partner, employee or affiliate of a Partner, any enterprise or
partnership in which a Partner has an interest, or any nonaffiliated person.
Neither the Limited Partner nor the partners, employees, agents or affiliates
of the Limited Partner shall be prohibited from engaging directly or indirectly
in other activities, or from directly or indirectly purchasing, selling and
holding securities or assets in cable television corporations or systems for
its account or for the accounts of others. The Limited Partner and the
partners, employees or affiliates of the Limited Partner may invest on their
own or co-invest with the Partnership on a transaction within the scope of the
Partnership's business purpose. Neither the Partnership nor any other Partner
shall have any right to any income or profit derived by the Limited Partner, or
its partners, employees, agents or affiliates from any enterprise, opportunity
or transactions permitted by this Section 6.2 or Section 6.1. The Limited
Partner shall have the right to transact business with the Partnership. The
parties hereto hereby waive, and covenant not to sue on the basis of, any law
(statutory, common law or otherwise) respecting the rights and obligations of
the Partners inter se which is or may be inconsistent with this Section 6.2 or
Section 6.1.
6.3 Indemnification of the Partners. The Partnership shall indemnify
and hold harmless the Partners and the partners, employees and agents of the
Partners from and against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromises, as fines and penalties, and as
counsel fees) reasonably incurred by any of them in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which they may be involved or with which they may be threatened,
as a Partner or partner, employee or agent of a Partner or otherwise in
connection with the management of the Partnership, or by reason of being or
having been a Partner or partner, employee or agent of a Partner, or by serving
in such other capacity, except with respect to any matter as to which they
shall have acted in willful misconduct, bad faith, in a grossly negligent
manner or with reckless disregard of the duties of their office, or with
criminal intent.
6.4 Exculpation. The General Partners and any partner, employee or
agent of the General Partners or the Partnership shall not be liable to the
Limited Partner or the Partnership for mistakes of judgment or for action or
inaction which the General Partners or any such partner, employee or agent of
the General Partners or the Partnership reasonably believed to be in the best
interests of the Partnership unless such action or inaction constitutes willful
misconduct, bad faith, gross negligence, reckless disregard of its duties or
material breach of this Agreement. The General Partners may consult with
counsel, accountants and other experts in respect of Partnership affairs and be
fully protected and justified in any action or inaction which is taken in
accordance with the advice or opinion of such counsel, accountants or other
experts, provided that they shall have been selected with reasonable care.
Notwithstanding any of the foregoing to the contrary, the provisions of this
Section 6.4 shall not be construed so as to relieve (or attempt to relieve) the
General Partners and any partner, employee or
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<PAGE> 20
agent of the General Partners or the Partnership of any liability, to the
extent (but only to the extent) that such liability may not be waived, modified
or limited under applicable law, but shall be construed so as to effectuate the
provisions of this Section 6.4 to the fullest extent permitted by law.
ARTICLE 7
Termination of the Partnership
7.1 No Dissolution. The Partnership shall not be dissolved by the
admission of substituted limited partners or by the admission of a new general
partner in accordance with the terms of this Agreement. The dissolution or
bankruptcy of the Limited Partner shall not cause the dissolution of the
Partnership.
7.2 Events of Dissolution. The Partnership shall dissolve upon (i)
expiration of the term of the Partnership specified in Section 1.6 hereof, (ii)
the removal, withdrawal or cessation of a General Partner as general partner or
the bankruptcy of a General Partner, in each case where there is no remaining
or surviving general partner or if a successor has not been appointed pursuant
to Section 4.6, (iii) dissolution being required by operation of law or
judicial decree, or (iv) the written consent of the Partners. Notwithstanding
anything to the contrary in this Section 7.2, without the consent of the
Limited Partner, the Managing General Partner agrees not to withdraw as general
partner of the Partnership or to seek partition or dissolution of the
Partnership. If the Managing General Partner effects such withdrawal or seeks
partition or dissolution of the Partnership in violation of this Agreement, the
Partnership may recover from the Managing General Partner damages for breach of
this Agreement. Upon dissolution of the Partnership, the Managing General
Partner (or its representative) shall wind up the affairs of the Partnership,
discharge the liabilities of the Partnership, distribute the assets of the
Partnership and terminate the Partnership.
7.3 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The Managing General Partner or,
if there is no general partner or if the Managing General Partner wrongfully
caused the dissolution of the Partnership, a liquidator appointed by the
Limited Partner, shall proceed with the dissolution and the final distribution.
In the dissolution, the Managing General Partner or such liquidator shall use
its best efforts to reduce to cash and cash equivalent items such assets of the
Partnership as the Managing General Partner or such liquidator shall deem it
advisable to sell, subject to obtaining fair value for such assets and any tax
or other legal considerations. A reasonable time shall be allowed for the
orderly winding up of the business and affairs of the Partnership and the
liquidation of its assets in order to minimize any losses otherwise attendant
upon such a winding up, provided that the liquidation is carried out in
conformity with the requirements of this Section 7.3 and section
1.704-1(b)(2)(ii)(b)(2) and (3) of the Income Tax Regulations.
7.4 Order of Dissolution. In settling accounts after dissolution,
the assets of the Partnership shall be distributed as expeditiously as possible
in the following order not later than the end of the taxable year of the
liquidation (i.e., the date upon which the Partnership ceases to be a going
concern as provided in section 1.704- 1(b)(2)(ii)(g) of the Income Tax
Regulations), or if later, within ninety (90) days after the date of such
liquidation:
(a) To creditors, including the Partners to the extent of any
unpaid expenses or any outstanding loan or advance;
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(b) To the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 7.3 hereof;
(c) To the establishment of reasonable reserves to provide for
obligations to creditors;
(d) To the Partners with respect to which any other debts of the
Partnership are owing, other than debts arising out of the expulsion of a
Partner;
(e) Thereafter, to the Partners in the proportion of their respective
Capital Accounts or as those accounts are determined after all adjustments to
such accounts for the taxable year of the Partnership during which the
liquidation occurs as are required by this Agreement by section 1.704-1(b) of
the Income Tax Regulations, such adjustments to be made within the time
specified in such Regulations.
7.5 Termination. The Partnership shall terminate following its
dissolution and liquidation pursuant to this Article 7 when all of the
Partnership assets as to which it is practicable to do so in the sole
discretion of the Managing General Partner or the liquidator shall have been
converted into cash, the net proceeds therefrom as well as any other assets of
the Partnership, after payment of or due provision for all debts, liabilities
and obligations of the Partnership, shall have been distributed to the Partners
as provided for herein and the Partnership shall have been terminated in the
manner required by the Act.
7.6 Orderly Methods of Liquidating Payments. Notwithstanding
anything to the contrary in this Article 7, if required to maximize the
proceeds of liquidation, the Managing General Partner (or the liquidator chosen
in accordance with Section 7.2) may, with the consent of the other Partners,
implement the distribution provisions of Section 7.4 hereof by transfer, on
behalf of the Partners, of the assets of the Partnership to a liquidating
trustee or trustees.
ARTICLE 8
Transfer Restrictions
8.1 No Partner shall sell, assign, mortgage, encumber, hypothecate
or otherwise transfer, whether voluntarily or involuntarily, its interest in
the Partnership or any part thereof, unless (x) any such transferee entity
meets the suitability requirements originally imposed under the subscription
agreement on the transferring Partner and (y) such assignment or transfer will
not (A) violate any applicable federal or state securities laws or regulations,
subject the Partnership to registration as an investment company or election as
a "business development company" under the Investment Company Act; (B) require
any General Partner or any of its affiliates to register as an investment
adviser under the Investment Advisers Act of 1940; (C) violate any other
federal, state or local laws; (D) effect a termination of the Partnership under
section 708 of the Code; or (E) cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes, or
violate this Agreement. Notwithstanding the preceding sentence, a Partner may
assign, sell, mortgage, encumber, hypothecate or otherwise transfer its
interest in the Partnership (i) to a lender as security in connection with the
financing of the acquisition or operation of one or more cable systems by the
Partnership or (ii) if any such assignment or transfer effects a termination of
the Partnership under section 708 of the Code so long as the transferring
Partner agrees to indemnify and hold harmless the Partnership and all other
Partners against any and all costs and expenses incurred as a direct result of
a termination
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<PAGE> 22
of the Partnership under section 708 of the Code. No transferee or assignee of
all or any part of a Partner's interest, other than a transferee or assignee
permitted under this Section 8.1, shall become a Partner without the prior
written consent of the Managing General Partner which consent shall not be
unreasonably withheld. Any purported transfer of any interest of a Partner in
the Partnership or any part thereof not in compliance with this Section 8.1
shall be void and of no force or effect and the transferring Partner shall be
liable to the other Partners and the Partnership for all liabilities,
obligations, damages, losses, costs and expenses (including reasonable
attorneys' fees and court costs) arising as a result of such noncomplying
transfer.
ARTICLE 9
Miscellaneous
9.1 Notices. All notices, approvals, consents and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be hand delivered (including by messenger or recognized
commercial delivery or courier service), sent by facsimile transmission or sent
by registered or certified mail, postage prepaid, addressed to the Partner
intended at the address set forth below its name on Exhibit 1 hereto or at such
other address as such Partner may designate by notice given to the other
Partners in the manner aforesaid and shall be deemed given and received on the
date it is delivered, in the case of delivery by hand or by facsimile or, in
the case of delivery by mail, actual delivery as shown by the addressee's
return receipt. Rejection or other refusal to accept or inability to deliver
because of a change of address of which no notice was given shall be deemed to
be receipt of the notice.
9.2 Governing Law. This Agreement and the limited partnership
continued hereby shall be governed by and construed in accordance with the laws
of the State of California.
9.3 Amendments. This Agreement may be modified or amended only by an
instrument in writing signed by the General Partners and by the Limited
Partner.
9.4 Entire Agreement. This instrument constitutes the entire
agreement between the Partners with respect to the Partnership and supersede
all prior agreements, understandings, offers and negotiations, oral or written.
9.5 Waiver of Partition. Each Partner hereby irrevocably waives any
and all rights that it may have to maintain an action for partition of the
Partnership or any of the Partnership's property.
9.6 Consents. All consents, agreements and approvals required or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
9.7 Successors. Subject to Article 8, all rights and duties of the
Partners hereunder shall inure to the benefit of and be binding upon their
respective successors and assigns.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.9 Pronouns. As used in this Agreement, the masculine, feminine or
neuter gender and the singular or plural number shall each be allowed to
include the others whenever the context so indicates.
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<PAGE> 23
9.10 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision which is not essential
to the effectuation of the basic purposes of the Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable and contrary to
the Act or existing or future applicable law, such invalidity shall not impair
the operation of or affect those provisions of this Agreement which are valid.
In that case, this Agreement shall be construed so as to limit any term or
provision so as to make it enforceable or valid within the requirements of any
applicable law, and in the event such term or provision cannot be so limited,
this Agreement shall be construed to omit such invalid or unenforceable
provisions.
9.11 Nonrecourse. Neither the Partnership nor the Partners shall
have recourse to any partner, officer, director or shareholder of any Partner
or to the assets of any partner, officer, director or shareholder of any
Partner with respect to the obligations and liabilities of such Partner under
this Agreement, except that this Section 9.11 shall not limit or impair the
exercise or enforcement of rights and remedies in respect of any agreement to
which such person is a party in accordance with the terms and provisions of
such agreement.
IN WITNESS WHEREOF, the Partners have executed this Amended and
Restated Agreement of Limited Partnership as of the date first above written.
GENERAL PARTNERS:
LEO J. HINDERY, JR.
/s/ LEO J. HINDERY, JR.
----------------------------------------
INTERMEDIA MANAGEMENT, INC., a
California corporation
By /s/ LEO J. HINDERY, JR.
-------------------------------------
Leo J. Hindery, Jr.
President and
Chief Executive Officer
LIMITED PARTNER:
TCI ICM III, INC.
By /s/ STEPHEN M. BRETT
-------------------------------------
Vice President
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<PAGE> 24
Exhibit 1
<TABLE>
<CAPTION>
Names and Addresses Percentage Amount of Committed
of Partners Interest Capital Contribution
------------------- --------- --------------------
<S> <C> <C>
General Partners
----------------
Leo J. Hindery, Jr. .001% $4.00
235 Montgomery Street
Suite 420
San Francisco, CA 94104
InterMedia Management, Inc. .001 4.00
235 Montgomery Street
Suite 420
San Francisco, CA 94104
Limited Partner
---------------
TCI ICM III, Inc. 99.998 300,071.00
3619 DTC Parkway
11th Floor
Englewood, CO 80111
TOTAL 100.000% $300,079.00
======= ===========
</TABLE>
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<PAGE> 1
EXHIBIT 10.77
Execution Copy
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of August 5, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 General Provisions . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Continuation of the Partnership . . . . . . . . . . . . . . . 2
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Principal Place of Business . . . . . . . . . . . . . . . . . 2
1.4 Agent for Service of Process . . . . . . . . . . . . . . . . . 2
1.5 Business of the Partnership . . . . . . . . . . . . . . . . . 2
1.6 Term of the Partnership . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 Capital Contributions, Withdrawals and Capital Accounts . . . 3
2.1 Contributions of Capital . . . . . . . . . . . . . . . . . . . 3
2.2 Withdrawals of Capital Accounts . . . . . . . . . . . . . . . 3
(a) In General . . . . . . . . . . . . . . . . . . . . . . 3
(b) Limitations on Withdrawal of Capital Account . . . . . 3
2.3 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Interest on Capital Accounts . . . . . . . . . . . . . . . . . 4
2.5 Obligations of the General Partner . . . . . . . . . . . . . . 4
2.6 Obligations of the Limited Partners . . . . . . . . . . . . . 4
ARTICLE 3 Profits and Losses and Distributions . . . . . . . . . . . . . 5
3.1 Allocation of Profits and Losses Among the Partners . . . . . 5
3.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4 Management of Partnership . . . . . . . . . . . . . . . . . . 9
4.1 Management Generally . . . . . . . . . . . . . . . . . . . . . 9
4.2 Specific Authority of the General Partner . . . . . . . . . . 9
4.3 Valuation of Assets . . . . . . . . . . . . . . . . . . . . 10
4.4 Revaluation of Partnership Assets . . . . . . . . . . . . . 11
4.5 Rights of the Limited Partners . . . . . . . . . . . . . . . 11
(a) No Control . . . . . . . . . . . . . . . . . . . . . 11
(b) Voting . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Partner Meetings . . . . . . . . . . . . . . . . . . 12
(d) Bankruptcy or Dissolution of a Limited Partner . . . 12
4.6 Successor General Partner . . . . . . . . . . . . . . . . . 12
(a) Removal of the General Partner . . . . . . . . . . . 12
(b) Withdrawal of the General Partner . . . . . . . . . . 13
(c) Right To Recover Damages . . . . . . . . . . . . . . 14
ARTICLE 5 Tax Matters and Reports . . . . . . . . . . . . . . . . . . 14
5.1 Filing of Tax Returns . . . . . . . . . . . . . . . . . . . 14
5.2 Tax Reports to Current and Former Partners . . . . . . . . . 14
5.3 Books and Records; Independent Audit; Progress Reports . . . 14
5.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Method of Accounting . . . . . . . . . . . . . . . . . . . . 15
5.6 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . 15
5.7 Restriction on General Partner Activity With Respect
to Publicly Traded Partnerships . . . . . . . . . . . . . . 15
5.8 Duties and Obligations of the General Partner With
Respect to Publicly Traded Partnerships . . . . . . . . . . 15
ARTICLE 6 Conflicts of Interest . . . . . . . . . . . . . . . . . . . 15
6.1 Contracts With the General Partner, Affiliates
and the Limited Partner . . . . . . . . . . . . . . . . . . 15
6.2 Outside Activities . . . . . . . . . . . . . . . . . . . . . 16
6.3 Indemnification of the Partners . . . . . . . . . . . . . . 16
6.4 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 7 Termination of the Partnership . . . . . . . . . . . . . . . 17
7.1 No Dissolution . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Events of Dissolution . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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7.3 Winding-up . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Order of Dissolution . . . . . . . . . . . . . . . . . . . . 17
7.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Orderly Methods of Liquidating Payments . . . . . . . . . . 18
ARTICLE 8 Transfer Restrictions . . . . . . . . . . . . . . . . . . . 18
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Waiver of Partition . . . . . . . . . . . . . . . . . . . . 19
9.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 19
9.9 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . 19
9.11 Nonrecourse . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<PAGE> 4
INTERMEDIA CAPITAL MANAGEMENT IV, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THE LIMITED PARTNERSHIP INTERESTS ("INTERESTS") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). SUCH INTERESTS
ARE BEING OFFERED AND SOLD UNDER THE EXEMPTION PROVIDED BY SECTION 4(2) OF THE
1933 ACT AND/OR PURSUANT TO RULE 506 OF REGULATION D THEREUNDER.
A PURCHASER OF ANY INTEREST MUST BE PREPARED TO BEAR THE ECONOMIC RISK
OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME BECAUSE THE INTERESTS HAVE
NOT BEEN REGISTERED UNDER THE 1933 ACT AND, THEREFORE, CANNOT BE SOLD UNLESS
THEY ARE SUBSEQUENTLY REGISTERED OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE. THERE IS NO OBLIGATION OF THE PARTNERSHIP TO REGISTER THE INTERESTS
UNDER THE 1933 ACT.
THE AGREEMENT RESTRICTS TRANSFER OF THE INTERESTS. ACCORDINGLY,
PURCHASE OF THE INTERESTS IS ONLY SUITABLE FOR INVESTORS WILLING AND ABLE TO
ACCEPT THE ECONOMIC RISK OF THE INVESTMENT AND LACK OF LIQUIDITY.
* * *
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is entered into and effective as of August 5, 1997, by and between
INTERMEDIA MANAGEMENT, INC., a California corporation, as managing general
partner ("IMI" or the "Managing General Partner"), TCI ICM IV, INC., a Delaware
corporation, as a limited partner ("TCI" or the "Limited Partner") and LEO J.
HINDERY, JR., as a special limited partner ("Hindery" or the "Special Limited
Partner"). Except where expressly stated, the Special Limited Partner shall
not have the same rights and obligations hereunder as the Limited Partner and,
unless the context otherwise provides, the phrase "Limited Partners" shall not
include the Special Limited Partner. The Managing General Partner and the
Limited Partners are collectively referred to as the Partners and individually
as a Partner.
W I T N E S S E T H:
WHEREAS, the Partnership originally was formed as of October 24, 1994
by and among IMI and certain limited partners;
WHEREAS, Hindery was admitted as managing general partner of the
Partnership as of September 30, 1995 and various new limited partners were
admitted to the Partnership as of September 30, 1995 and October 1, 1996;
WHEREAS, the Partners desire to appoint IMI as the managing general
partner of the Partnership;
WHEREAS, Hindery desires to withdraw as managing general partner of the
Partnership immediately thereafter and to convert his entire remaining general
partner interest in the Partnership to a limited partner interest (the
"Conversion");
WHEREAS, immediately after the Conversion and immediately prior to the
execution of this Agreement, each of the former limited partners (including
Hindery after the Conversion) of the Partnership shall transfer its interest in
the Partnership to a grantor trust in exchange for an
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<PAGE> 5
interest in the trust, and TCI will acquire all such limited partnership
interests from such trust;
WHEREAS, Hindery desires to acquire a special limited partner interest
in the Partnership;
WHEREAS, the Partners desire to admit Hindery as a special limited
partner and TCI as a limited partner of the Partnership; and
WHEREAS, the Partners desire to amend and restate this Agreement to
reflect the preceding actions and other related amendments;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the Partners hereby amend and restate this
Agreement as follows:
ARTICLE 1
General Provisions
1.1 Continuation of the Partnership. The Partners hereby (i) appoint
IMI as the managing general partner of the Partnership, (ii) acknowledge and
consent to the withdrawal of Hindery as the managing general partner of the
Partnership immediately thereafter, (iii) admit Hindery as a special limited
partner and TCI as a limited partner of the Partnership, and (iv) continue a
limited partnership (the "Partnership") pursuant to the California Revised
Limited Partnership Act (the "Act"). The Partnership shall continue without
interruption as a limited partnership pursuant to the Act.
1.2 Name. The name of the Partnership shall be: InterMedia Capital
Management IV, L.P. The name of the Partnership may be changed by the Managing
General Partner upon compliance with applicable laws and after notice by the
Managing General Partner to the Limited Partners.
1.3 Principal Place of Business. The principal place of business of
the Partnership shall be 235 Montgomery Street, Suite 420, San Francisco,
California 94104. The principal place of business of the Partnership may be
changed by the Managing General Partner after notice to the Limited Partners.
1.4 Agent for Service of Process. The agent for service of process for
the Partnership and his address shall be Robert J. Lewis, 235 Montgomery
Street, Suite 420, San Francisco, CA 94104. The agent for service of process
of the Partnership may be changed by the Managing General Partner upon notice
to the Limited Partners.
1.5 Business of the Partnership.
(a) The Partnership was organized and continues to exist for the
purpose of (i) acting as a limited partner of InterMedia Capital Partners IV,
L.P. ("ICP-IV"), (ii) performing administrative services for the cable
television systems owned and/or operated by ICP-IV, and (iii) engaging in all
necessary and appropriate activities and transactions as the Managing General
Partner may deem necessary, appropriate or advisable in connection therewith.
(b) Pending the investment of Partnership funds as described in
Section 1.5(a), and the distribution of funds as described in Section 3.2, the
Partnership may invest in certificates of deposit and overnight time deposits
in commercial banks with capital and surplus over $100 million, commercial
paper, money market funds, repurchase agreements and U.S.
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<PAGE> 6
Treasury bills and other government obligations and any other short-term,
investment grade highly liquid investments.
(c) The Partnership may enter into, deliver and perform all
contracts, agreements and other undertakings and engage in all activities and
transactions that are necessary or appropriate to carry out the foregoing
purposes. Without limiting the foregoing, the Partnership may:
(i) exercise all rights, powers, privileges, and other incidents
of ownership or possession with respect to Partnership property and
investments;
(ii) borrow or raise money and secure the payment of any
obligations of the Partnership by mortgage upon, or pledge or
hypothecation of, all or any part of the assets of the Partnership;
(iii) engage personnel, whether part-time or full-time and do
such other acts as the Managing General Partner may reasonably deem
necessary or advisable in connection with the maintenance and
administration of the Partnership or ICP-IV and their investments; and
(iv) engage attorneys, independent accountants, investment
bankers, consultants or such other persons for the Partnership or ICP-IV
as the Managing General Partner may deem necessary or advisable.
1.6 Term of the Partnership. The term of the Partnership shall be from
the date the Certificate of Limited Partnership was filed with the California
Secretary of State until final dissolution and liquidation of ICP-IV, unless
the Partnership is earlier dissolved pursuant to Section 7.2.
ARTICLE 2
Capital Contributions, Withdrawals and Capital Accounts
2.1 Contributions of Capital. The Partners, or their predecessors,
have made capital contributions as reflected in the Partnership's books. No
Partner shall be required to make additional capital contribution except as set
forth in this Agreement.
2.2 Withdrawals of Capital Accounts.
(a) In General. No Partner shall be entitled to withdraw any amount
from its Capital Account without the consent of the other Partners. In the
event of the withdrawal of any Partner, the withdrawing Partner shall not
otherwise share in the income, gains and losses of the Partnership from the
valuation date of its Partnership Interest (as set forth in Exhibit 1 hereto)
and shall not have any other rights under this Agreement other than payment of
its Capital Account.
(b) Limitations on Withdrawal of Capital Account. The right of any
withdrawn Partner or its legal representatives to have distributed the Capital
Account of such Partner is subject to the provision for all Partnership
liabilities in accordance with section 15666 of the Act and for estimates for
contingencies and expenses. The unused portion of any such estimates shall be
distributed after the need therefor shall have ceased.
2.3 Capital Accounts. The Partnership shall maintain for each Partner
a single, separate capital account (a "Capital Account") regardless of the
class of interests owned by such Partner and regardless of the time or manner
in which such interests were acquired. The Partnership shall
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<PAGE> 7
maintain all Capital Accounts in accordance with the capital accounting rules
of section 704(b) of the Internal Revenue Code of 1986 (the "Code") and the
Income Tax Regulations thereunder, including in particular section
1.704-l(b)(2)(iv) of the Income Tax Regulations.
(a) In general, under such capital accounting rules, a Partner's
Capital Account shall be (i) increased by the amount of money and the fair
market value (determined in accordance with Section 4.3) of other property (net
of liabilities secured by such contributed property that the Partnership is
considered to take subject to or assume under section 752 of the Code)
contributed by the Partner to the Partnership and allocations to the Partner of
Partnership income and gain (or items thereof), including income and gain
exempt from tax and (ii) decreased by the amount of money and the fair market
value (determined in accordance with Section 4.3) of other property distributed
(net of liabilities secured by such distributed property that the Partner is
considered to take subject to or assume under section 752 of the Code) to the
Partner by the Partnership and allocations to the Partner of Partnership loss
and deduction (or items thereof), including Partnership expenditures not
deductible in computing its taxable income and not properly chargeable to its
Capital Account.
(b) When Partnership property is revalued by the Managing General
Partner pursuant to Section 4.4 or is distributed in kind (whether in
connection with dissolution and liquidation of the Partnership or otherwise),
the Capital Accounts of the Partners first shall be adjusted to reflect the
manner in which the unrealized income, gain, loss or deduction inherent in such
property (that has not previously been charged to Capital Accounts) would be
allocated among the Partners if there were a taxable disposition of such
property for its fair market value (determined in accordance with Section 4.3
and taking into account section 7701(g) of the Code) and such income, gain,
loss or deduction had been recognized for federal income tax purposes
immediately upon such distribution or the event requiring such revaluation.
(c) Where section 704(c) of the Code applies to Partnership property or
when Partnership property is revalued pursuant to section 1.704-1(b)(2)(iv)(f)
of the Income Tax Regulations, Capital Accounts of the Partners shall be
adjusted in accordance with section 1.704-1(b)(2)(iv)(g) of the Income Tax
Regulations as to allocations to the Partners of depreciation, depletion,
amortization and gain or loss, as computed for book purposes with respect to
such property.
(d) The Managing General Partner shall direct the Partnership's
accountant to make all necessary adjustments in each Partner's Capital Account
as required by the rules of section 704(b) of the Code and the Income Tax
Regulations thereunder.
2.4 Interest on Capital Accounts. No interest shall be paid on or with
respect to the capital contributions or Capital Account of any of the Partners.
2.5 Obligations of the General Partner. The Managing General Partner
shall not be personally obligated to contribute cash or other assets to the
Partnership to make up any reduction in the Capital Accounts of the Managing
General Partner or the Limited Partners either during the term of the
Partnership or upon dissolution, subject to the obligation of the Managing
General Partner to return to the Partnership certain distributions as provided
in the Act.
2.6 Obligations of the Limited Partners. Except as otherwise
specifically provided herein, the Limited Partners shall not be personally
obligated for the debts, liabilities and obligations of the Partnership or of
any other Partner, except that the Limited Partners (and any former
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<PAGE> 8
Limited Partner) shall be obligated to return to the Partnership certain
distributions made to it as provided in section 15666 of the Act.
ARTICLE 3
Profits and Losses and Distributions
3.1 Allocation of Profits and Losses Among the Partners. A Partner's
distributive share of the Partnership's total income, gain, loss, deduction or
credit (or items thereof), which total shall be as shown on the annual federal
income tax return prepared by the Partnership's accountants or as finally
determined by the Internal Revenue Service or the courts, and as modified by
the capital accounting rules of section 704(b) of the Code and the Income Tax
Regulations thereunder as implemented by Section 2.3 hereof, as applicable,
shall be determined as provided in this Article 3.
(a) Except as otherwise provided in this Section 3.1, items of
Partnership income, gain, loss, deduction and credit shall be allocated among
the Partners in proportion to their percentage interests set forth in Exhibit 1
hereto ("Partnership Interest").
(b) Solely for tax purposes, in determining each Partner's allocable
share of the taxable income or loss of the Partnership, depreciation,
depletion, amortization and gain or loss with respect to any contributed
property, or with respect to revalued property where Partnership property is
revalued pursuant to section 1.704-1(b)(2)(iv)(f) of the Income Tax
Regulations, shall be allocated to the Partners under the remedial method as
provided in section 1.704-3(d) of the Income Tax Regulations.
(c) Notwithstanding anything to the contrary in this Article 3, if
there is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt
Minimum Gain (as such terms are defined in sections 1.704-2(b) and
1.704-2(i)(2), respectively, of the Income Tax Regulations) during a
Partnership taxable year, then each Partner shall be allocated items of
Partnership income and gain for such year (and, if necessary, for subsequent
years), to the extent required by, and in the manner provided in, section
1.704-2 of the Income Tax Regulations. This provision is intended to be a
"minimum gain chargeback" within the meaning of sections 1.704-2(f) and
1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted and
implemented as therein provided.
(d) Subject to the provisions of Section 3.1(c), but otherwise
notwithstanding anything to the contrary in this Section 3.1(d), if any
Partner's Capital Account has a deficit balance in excess of such Partner's
obligation to restore its Capital Account balance, computed in accordance with
the rules of section 1.704-1(b)(2)(ii)(d) of the Income Tax Regulations
(including such Partner's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in sections 1.704-2(g) and
1.704-2(i)(5) of the Income Tax Regulations), then sufficient amounts of income
and gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for such year) shall be allocated to such
Partner in an amount and manner sufficient to eliminate such deficit as quickly
as possible. This provision is intended to be a "qualified income offset"
within the meaning of section 1.704-1(b)(2)(ii)(d) of the Income Tax
Regulations and shall be interpreted and implemented as therein provided.
(e) Subject to the provisions of section 704(c) of the Code and
Sections 3.1(b) through (d) hereof, gain recognized (or deemed recognized under
the provisions hereof) upon the sale or other disposition of Partnership
property, which is subject to depreciation recapture, shall be allocated to the
Partner who was entitled to deduct such depreciation.
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<PAGE> 9
(f) Except as otherwise provided in Section 3.1(j), if and to the
extent any Partner is deemed to recognize income as a result of any loans
described herein pursuant to the rules of section 1272, 1273, 1274, 1274A,
7872, 482 or 483 of the Code, or any similar provision now or hereafter in
effect, any corresponding resulting deduction of the Partnership shall be
allocated to the Partner who is charged with the income. Subject to the
provisions of section 704(c) of the Code and Sections 3.1(b) through (d)
hereof, if and to the extent the Partnership is deemed to recognize income as a
result of any loans described herein pursuant to the rules of section 1272,
1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar provision now
or hereafter in effect, such income shall be allocated to the Partner who is
entitled to any corresponding resulting deduction.
(g) Except as otherwise required by law, tax credits shall be allocated
among the Partners pro rata in accordance with the manner in which Partnership
profits are allocated to the Partners under this Article 3, as of the time the
credit property is placed in service or, if no property is involved, as of the
time the credit is earned. Recapture of any tax credit required by the Code
shall be allocated to the Partners in the same proportion in which such tax
credit was allocated.
(h) Except as provided in Sections 3.1(f) and 3.1(g) hereof or as
otherwise required by law, if the Partnership Interests of the Partners are
changed herein during any taxable year, all items to be allocated to the
Partners for such entire taxable year shall be prorated on the basis of the
portion of such taxable year which precedes each such change and the portion of
such taxable year on and after each such change according to the number of days
in each such portion, and the items so allocated for each such portion shall be
allocated to the Partners in the manner in which such items are allocated as
provided in this Section 3.1 during each such portion of the taxable year in
question.
(i) Any special allocation of income or gain pursuant to Section 3.1(d)
hereof shall be taken into account in computing subsequent allocations of
income and gain pursuant to this Section 3.1 so that the net amount of all such
allocations to each Partner shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Partner pursuant to the
provisions of this Section 3.1 if such special allocations of income or gain
under Section 3.1(d) hereof had not occurred.
(j)(1) Items of deduction and loss attributable to recourse
liabilities of the Partnership (within the meaning of section 1.752-
1(a)(1) of the Income Tax Regulations, but excluding Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations), shall be allocated among the Partners in
accordance with the ratio in which the Partners share the economic risk
of loss (within the meaning of section 1.752-2 of the Income Tax
Regulations) for such liabilities.
(2) Items of deduction and loss attributable to Partnership
nonrecourse debt within the meaning of section 1.704-2(b)(4) of the
Income Tax Regulations shall be allocated among the Partners bearing the
economic risk of loss with respect to such debt in accordance with
section 1.704-2(i) of the Income Tax Regulations.
(3) Items of deduction and loss attributable to Partnership
nonrecourse liabilities within the meaning of section 1.704-2(b)(1) of
the Income Tax Regulations shall be allocated among the Partners
proportionately in accordance with their Partnership Interests.
(4) All other items of deduction and loss ("Net Loss") shall be
allocated among the Partners proportionately in accordance with their
Partnership Interests, except that Net Loss shall not be allocated to
any Partner to the extent it would create a deficit balance in excess
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of such Partner's obligation to restore its capital account balance,
computed in accordance with the rules of section 1.704-1(b)(2)(ii)(d) of
the Income Tax Regulations and including such Partner's share of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain as
provided in sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax
Regulations. Any Net Loss which cannot be allocated to a Partner
because of the limitation set forth in the previous sentence shall be
allocated first to the other Partners to the extent such other Partners
would not be subject to such limitation, and second, any remaining
amount to the Partners in the manner required by the Code and the Income
Tax Regulations.
(k) Subject to the provisions of Sections 3.1(c) through (j), items
of income and gain shall be allocated to the Partners in the following
priority:
(1) First, to those Partners who have had items of loss or
deductions allocated to them under section 3.1(j)(1), in the amount of,
and proportionate to, the amount of such items of loss or deduction
(provided, however, that no such allocation shall be made with respect
to previously allocated items of loss or deduction to the extent of any
income and gains previously deemed recognized under Section 2.3(b));
(2) Second, if allocations of Net Loss have been made to the
Partners under Section 3.1(j)(4), then in the amount of, and
proportionate to, the amount of such Net Loss (provided, however, that
no such allocation shall be made with respect to previously allocated
Net Loss to the extent of any income and gains previously deemed
recognized under Section 2.3(b));
(3) Third, (A) five percent (5%) of any income or gain resulting
from the Partnership's carried interest, as specified in Sections
3.1(k)(5)(A) of the Amended and Restated Agreement of Limited
Partnership of InterMedia Capital Partners IV, L.P. dated as of August
__, 1997 (the "Carried Interest"), to the Managing General Partner,
provided that such amount when aggregated with any income or gain
similarly derived by the Managing General Partner from its interest in
InterMedia Capital Management III, L.P., does not exceed $1,800,000; (B)
ten percent (10%) of any income or gain resulting from the Carried
Interest to the Special Limited Partner; and (C) the balance of any
income or gain resulting from the Carried Interest to the Limited
Partner; and
(4) Fourth, the balance among the Partners in proportion to
their relative Partnership Interests.
(l) Notwithstanding Section 3.1(k), but subject to the provisions of
Section 3.1(c) through (j), gain which is recognized (or deemed to be
recognized) upon the sale, exchange or other disposition of any asset of the
Partnership or of any partnership in which the Partnership holds an interest
(whether directly or indirectly), or upon the dissolution of the Partnership or
any Partnership in which the Partnership holds an interest (whether directly or
indirectly), shall be allocated in the following order:
(1) First, to the Partners having deficit balances in their
Capital Accounts (computed after giving effect to all contributions,
distributions, allocations and other Capital Account adjustments for all
taxable years, including the year during which such liquidation or
dissolution occurs and including each Partner's share of Partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain as provided in
sections 1.704-2(g) and 1.704-2(i)(5) of the Income Tax Regulations), to
the extent of, and in proportion to, those deficits;
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<PAGE> 11
(2) Second, (A) five percent (5%) of any income or gain
resulting from the Carried Interest to the Managing General Partner,
provided that such amount when aggregated with any income or gain
similarly derived by the Managing General Partner from its interest in
InterMedia Capital Management III, L.P., does not exceed $1,800,000; (B)
ten percent (10%) of any income or gain resulting from the Carried
Interest to the Special Limited Partner; and (C) the balance of any
income or gain resulting from the Carried Interest to the Limited
Partner; and
(3) Thereafter, so as to bring the relative credit balance in
each Partner's Capital Account (computed in the same manner as provided
parenthetically in the preceding subparagraph (1)), as nearly as
possible, in proportion to such Partner's Partnership Interest.
3.2 Distributions.
(a) Subject to Section 3.2(e), prior to dissolution of the Partnership,
the Managing General Partner shall, to the extent of available cash, after
servicing all principal and interest on Partnership debt and provision of
reasonable reserves for expenses and contingencies, distribute in cash, no
later than sixty (60) days after the close of each fiscal year, the excess, if
any, of (i) forty percent (40%) of an amount equal to the excess, if any, of
the cumulative items of income and gain over the cumulative items of deduction,
loss and credit (grossed up to a deduction equivalent at a forty percent (40%)
tax rate) of the Partnership as shown on the federal income tax returns of the
Partnership for all periods over (ii) the sum of amounts previously distributed
pursuant to Section 3.2(a), 3.2(b) or 3.2(c) provided that the Managing General
Partner shall make such distributions on a quarterly basis as soon as possible
to address any quarterly payments of estimated tax of the Partners if such
early distribution is feasible in terms of available cash and accurate
anticipation of the fiscal year's net tax position. The Managing General
Partner shall adjust the rate of distribution provided in this Section 3.2(a)
to reflect any increases made to the ordinary income and capital gains tax
rates of the Code which may have the effect of requiring the Partners to pay
more taxes on ordinary income or capital gains generated by Partnership
activities. Distributions pursuant to this Section 3.2(a) shall be made to the
Partners ratably in the proportions in which the net recognized income and
gains (but not income and gains deemed recognized under Section 2.3(b)) for
such fiscal periods have been allocated to them for federal income tax purposes
pursuant to this Article 3. For purposes of this Section 3.2, in the case of
property contributed to the capital of the Partnership, items of income, gain,
deduction and loss shall be computed as if the tax basis of such property were
equal to its fair market value at the time of such contribution.
(b) Subject to Sections 3.2(a) and 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall distribute the net proceeds
from the sale or other disposition of any investment, after payment of all
indebtedness with respect thereto and less reasonable estimates for expenses,
liabilities, contingencies and working capital requirements, no later than
ninety (90) days after the close of such sale.
(c) Subject to the mandatory distribution provisions set forth in
Section 3.2(a) and 3.2(b) and to Section 3.2(e), prior to dissolution of the
Partnership, the Managing General Partner shall distribute no less frequently
than on a quarterly basis cash received by the Partnership from operations, any
transaction not described in Section 3.2(b), and any dividends, interest or
other cash distributions from any corporation or other entity in which the
Partnership has invested and which is not necessary in the reasonable judgment
of the Managing General Partner for the payment of Partnership expenses or debt
or the maintenance of reasonable reserves for expenses, liabilities,
contingencies and working capital
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requirements to the Partners'. Distributions pursuant to this Section 3.2(c)
shall be made to the Partners in proportion to their positive Capital Account
balances, to the extent of such balances, and thereafter in proportion to their
Partnership Interests.
(d) All distributions made pursuant to this Section 3.2 shall be
treated as a return of Partners' capital contributions until their respective
actual capital contributions are returned in full. Except as otherwise
provided herein, no Partner shall have a priority over any other Partner as to
returns of capital contributions or as to compensation as a Partner by way of
income.
(e) Any other provision of this Agreement to the contrary
notwithstanding, no distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness; provided, however, that the Managing General Partner shall use
its reasonable best efforts to obtain the right to make tax distributions
pursuant to Section 3.2 above under the terms of any such indebtedness.
3.3 Expenses and Fees.
(a) The Partnership shall pay (or reimburse the Managing General
Partner or any affiliate thereof which incurs expenses on behalf of the
Partnership) for any and all expenses relating to the Partnership's
organization, business or operations, including but not limited to the
following expenses: organizational expenses of the Partnership, interest,
legal, accounting, consulting and investment banking fees and expenses of the
Partnership and preparation of federal and state tax returns.
(b) The Partnership shall pay to TCI in cash during the period the
Partnership is in existence, as full payment for administrative services
rendered to the Partnership, an administration fee (the "Administration Fee")
equal to all amounts received by the Partnership from ICP-IV as an
administrative fee, which payment shall be made to TCI as promptly as
practicable after receipt by the Partnership.
ARTICLE 4
Management of Partnership
4.1 Management Generally. Except as otherwise provided herein, the
business of the Partnership shall be conducted and managed by the Managing
General Partner. The Managing General Partner shall devote as much of its time
as is necessary and its best efforts and skill to the business and affairs of
the Partnership and its management, including the administration of the cable
television systems owned and/or operated by ICP-IV. The Managing General
Partner shall have the rights and powers and be subject to all the restrictions
and liabilities of a partner in a partnership without limited partners.
4.2 Specific Authority of the General Partner. Except as otherwise
provided herein, the Managing General Partner shall have full power and
authority to do all things and to perform all acts reasonably necessary or
advisable to conduct the business affairs of the Partnership including, without
limitation, full power and authority to take any of the following actions:
(a) make decisions, after consultation with the Limited
Partners, concerning personnel;
(b) Employ such agents, consultants, advisers, directors,
attorneys, accountants, investment bankers and other personnel as may be
necessary or appropriate for the business of
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the Partnership on such terms and conditions as the Managing General
Partner shall determine are reasonable;
(c) Open, maintain and close bank accounts and draw checks and
other orders for the payment of money;
(d) Collect accounts receivable, income and other payments due
to the Partnership;
(e) Keep the books and records of the Partnership and hire
independent certified public accountants;
(f) Pay accounts payable and other expenses of the
Partnership;
(g) Transfer, hypothecate, compromise or release any
Partnership claim not exceeding fifty thousand dollars ($50,000);
(h) enter into contracts in the ordinary course of the
Partnership's business and perform the obligations of the Partnership
undertaken in such contracts, including, without limitation, any
contract entered into with the Limited Partners or an affiliate of the
Limited Partners pursuant to Section 6.1;
(i) subject to the Limited Partners' voting rights set forth in
Section 4.5(b), administer the financial affairs of the Partnership,
make tax elections, including an election or elections under section 754
of the Code (which election shall be made upon the request of a Limited
Partner), file all required tax returns relating to the Partnership, pay
the liabilities of the Partnership and distribute the profits of the
Partnership to the Partners;
(j) subject to the Limited Partners' voting rights set forth in
Section 4.5(b)(xiii), borrow money and make, issue and execute
promissory notes, drafts, bills of exchange, guarantees, and other
instruments and evidences of indebtedness in the name of the
Partnership, including, without limitation, in connection with and as
part of purchasing assets and securities for the Partnership, and
mortgage, pledge, assign or grant security interests in all or any part
of the assets then owned or thereafter acquired by the Partnership in
connection therewith;
(k) cause the Partnership to purchase and maintain any insurance
in amounts and on terms customary in the industry covering the potential
liabilities of the Partnership, the Partners, and their partners,
employees and agents, as well as the potential liabilities of any person
serving at the request of the Partnership as a director, officer,
employee, agent, consultant or adviser of any corporation or other
entity in which the Partnership has an investment;
(l) commence or defend litigation that pertains to the
Partnership or any assets of the Partnership and investigate potential
claims;
(m) execute and file fictitious business name statements and
similar documents;
(n) terminate the Partnership pursuant to Article 7; and
(o) execute and deliver all documents and instruments necessary
or advisable to carry out the foregoing.
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4.3 Valuation of Assets. An independent appraiser selected by the
Managing General Partner and the Limited Partners shall value the assets of the
Partnership whenever appropriate or requested by a Partner, and whenever else
required by this Agreement or under the Code, and shall within ninety (90) days
of each such date furnish to each Partner a statement showing the value of each
asset and the net worth of the Partnership. An independent appraiser selected
by the Managing General Partner and the Limited Partners also shall value the
assets of the Partnership as of the date of dissolution and shall as promptly
as practicable thereafter furnish the Partners with the statement showing the
value of each asset and the net worth of the Partnership. For all purposes of
this Agreement, any assets of the Partnership being distributed in kind shall
be valued as of the date of distribution, and an independent appraiser shall
make such valuation and the Managing General Partner shall as promptly as
practicable thereafter furnish the Limited Partners with a statement showing
the value of such asset. The value of each asset of the Partnership determined
pursuant to this Section 4.3 shall be conclusive and binding on all of the
Partners and all parties claiming through or under them.
4.4 Revaluation of Partnership Assets. The Managing General Partner
shall revalue Partnership property to its fair market value (determined as
provided in Section 4.3) as of the date when any additional or existing Partner
makes a non-pro rata contribution of money or property to the Partnership in
exchange for an interest in the Partnership or when the Partnership distributes
money or property to a withdrawing or continuing Partner in exchange for all or
part of its interest in the Partnership.
4.5 Rights of the Limited Partners.
(a) No Control. The Limited Partners shall not take part in the
control, management, direction or operation of the business of the Partnership,
nor have the power to sign documents for or otherwise bind the Partnership.
(b) Voting. The Limited Partners' written consent shall be required
only with respect to those matters expressly set forth in this Agreement and
the following matters, which actions may be taken only with the written consent
of the Managing General Partner (except with respect to the admission of a new
general partner where there is no existing general partner, which action may be
taken without the consent of the Managing General Partner):
(i) The amendment of this Agreement pursuant to Section 9.3
hereof;
(ii) The amendment of the allocations and distributions to the
Limited Partners other than as permitted by Sections 3.1 and 3.2;
(iii) The admission of a new general partner where there is an
existing general partner;
(iv) The approval of a transaction in which the Managing General
Partner or any of its affiliates has an actual or potential conflict of
interest with a Limited Partner or the Partnership and which is not
permitted by Section 6.1 or 6.2 or otherwise expressly permitted by the
terms of this Agreement;
(v) The continuation of the Partnership to effect an orderly
dissolution of the Partnership in accordance with Section 7.2;
(vi) The sale, exchange or other transfer of assets of the
Partnership;
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(vii) The merger of or consolidation of the Partnership with any
other entity;
(viii) The taking of any act that would make it impossible to
carry on the business of the Partnership except upon the dissolution of
the Partnership in accordance with this Agreement;
(ix) Confessing a judgment against the Partnership in excess of
fifty thousand dollars ($50,000) or settling a judgment against the
Partnership in excess of one hundred thousand dollars ($100,000);
(x) Using any funds or assets of the Partnership other than for
the benefit of the Partnership;
(xi) Taking any action that would subject a Limited Partner to
personal liability as a general partner in any jurisdiction;
(xii) The making of, execution of, or delivery of any general
assignment for the benefit of the Partnership's creditors; and
(xiii) Any of the acts set forth in Section 4.2(j).
(c) Partner Meetings. Any Partner may call a Partners' meeting at 235
Montgomery Street, Suite 420, San Francisco, CA 94104 on 48 hours' advance
notice to the other Partners. Such notice may be either written or oral and
shall designate the date and time of the meeting and the general nature of the
business to be transacted.
(d) Bankruptcy or Dissolution of a Limited Partner. The bankruptcy,
insolvency or dissolution of a Limited Partner shall not result in the
termination of the Partnership. The interest of such Limited Partner will
continue at the risk of the Partnership business until the dissolution and
winding up of the Partnership. The legal representative of or successor to
such Limited Partner will succeed to the Limited Partner's interest and rights
in the Partnership, but will not be a substituted Partner without the consent
of the Managing General Partner, which consent shall not be unreasonably
withheld.
4.6 Successor General Partner.
(a) Removal of the General Partner.
(i) The Limited Partners may initiate removal of the Managing General
Partner by delivering written notice to the Managing General Partner (x)
specifying one or more grounds for removal that the Limited Partners believes
exist, and, (y) if the notice specifies grounds for removal described in this
Section 4.6(a)(i), selecting an individual to arbitrate whether such grounds
exist in accordance with Section 4.6(a)(ii). For purposes of this Section
4.6(a), grounds for removal means conduct by or on behalf of the Managing
General Partner in connection with the Partnership that constitutes willful
misconduct, bad faith, gross negligence, reckless disregard of its duties,
criminal intent, or a material breach of this Agreement;
(ii) The existence of grounds for removal with respect to matters
described in Section 4.6(a)(i) shall be determined by arbitration. Within ten
(10) business days after its receipt of the Limited Partners' notice described
in Section 4.6(a)(i), the Managing General Partner shall send a written notice
to the Limited Partners selecting a second individual to arbitrate whether
grounds for removal exist. If the Managing General
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Partner fails to select a second arbitrator within the time period specified in
the preceding sentence, the existence of grounds for removal shall be
determined by the arbitrator selected by the Limited Partners (and such
arbitrator shall be deemed to be the "arbitration panel" for purposes of this
Section 4.6(a)). If the Managing General Partner selects a second arbitrator
within the specified time period, the existence of grounds for removal shall be
determined by an arbitration panel consisting of the arbitrator selected by the
Limited Partners, the arbitrator selected by the Managing General Partner, and
a third arbitrator selected by the two arbitrators previously selected. None
of the arbitrators selected pursuant to this Section 4.6(a) shall be associated
or affiliated with any of the Partners. The arbitration panel shall conduct
its proceedings in San Francisco in accordance with the commercial rules of the
American Arbitration Association then in effect and the determination of such
panel shall be final and binding upon and enforceable against all Partners.
(iii) If the arbitration panel determines that grounds for removal
exist, then:
(A) A successor general partner of the Partnership shall be
selected by the Limited Partners. If the Limited Partners do not select
a successor general partner within sixty (60) days after the
determination that grounds for removal exist, the Partnership shall be
dissolved in accordance with Article 7.2.
(B) The successor general partner designated in accordance with
Section 4.6(a)(iii)(A) shall be admitted as a general partner of the
Partnership and the Managing General Partner shall be converted into a
limited partner of the Partnership as set forth in Section
4.6(a)(iii)(C). The successor general partner shall, beginning on the
date of admission, have the same authority and obligations that the
removed general partner had and shall have such rights to distributions
and allocations as are determined by the Limited Partners and the
removed Managing General Partner. Upon the admission of the successor
general partner, the rights to distributions and allocations of the
Partners shall be modified to the extent required to reflect the rights
accorded to the successor general partner. The admission of a successor
general partner to the Partnership shall be deemed to have occurred
prior to the effective date of the conversion of the Managing General
Partner.
(C) Upon removal of the Managing General Partner as general
partner of the Partnership, its interest in the Partnership shall be
converted to a limited partnership interest and this Agreement shall be
amended to reflect the events set forth in this Section 4.6.
(D) The removed Managing General Partner shall remain liable for
any obligations and liabilities incurred by it as general partner prior
to the effective date of its removal but shall be free of any and all
obligations or liabilities incurred on account of the activities of the
general partner of the Partnership from and after that time.
(b) Withdrawal of the General Partner.
(i) For purposes of this Section 4.6(b), "withdrawal of the Managing
General Partner" shall include the occurrence of any of the following:
(A) any event that causes the Managing General Partner to cease
to be the managing general partner;
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(B) the bankruptcy, insolvency, or appointment of a trustee to
manage the affairs of the Managing General Partner or Robert J. Lewis;
(C) the dissolution, whether or not required by operation of law
or judicial decree, of the Managing General Partner;
(D) the death of Robert J. Lewis;
(E) the incapacity of Robert J. Lewis such that he is unable to
perform substantially all of his duties as president and chief executive
officer of the Managing General Partner for a period of nine (9) months;
or
(F) any other event that causes the Managing General Partner to
cease to be controlled directly or indirectly through one or more
intermediaries by Robert J. Lewis.
(ii) Upon the withdrawal of the Managing General Partner, the
provisions of Section 4.6(a)(iii) shall be complied with; however, the time
frame set forth in Sections 4.6(a)(iii)(A) shall run from the date of
withdrawal of the Managing General Partner.
(c) Right To Recover Damages. (i) Removal of the Managing General
Partner pursuant to this Section 4.6 shall not limit the right of the
Partnership or any Partner to recover any direct compensatory damages suffered
by such person as a result of any breach of this Agreement by the Managing
General Partner or any other person.
(ii) Removal of the Managing General Partner, except pursuant to the
terms of this Agreement, shall entitle the Managing General Partner to receive,
in cash compensation, damages for all direct and indirect economic consequences
of such removal, including, but not limited to, damages for all lost profits.
Such removed Managing General Partner's interest in the Partnership shall be
converted to a limited partnership interest pursuant to Section 4.6(a)(iii)(C).
ARTICLE 5
Tax Matters and Reports
5.1 Filing of Tax Returns. The Managing General Partner, at the
expense of the Partnership, shall prepare and file, or cause the accountants of
the Partnership to prepare, submit to the Partners for approval and thereafter
file, all required tax returns including a federal information tax return in
compliance with section 6031 of the Code and any required state and local tax
and information returns for each tax year of the Partnership.
5.2 Tax Reports to Current and Former Partners. The Limited Partners
will receive unaudited quarterly progress reports on the Partnership within
sixty (60) days of the end of the first three fiscal quarters. Within ninety
(90) days of the end of each fiscal year, the Partnership shall prepare and
mail, or cause its accountants to prepare and mail, to each Partner and, to the
extent necessary, to each former Partner (or its legal representatives), a
report setting forth in sufficient detail such information as is required to be
furnished to partners by law (e.g., section 6031(b) of the Code and the
regulations thereunder) and as shall enable such Partner or former Partner (or
its legal representatives) to prepare their respective federal and state income
tax or informational returns in accordance with the laws, rules and regulations
then prevailing and any information necessary for such Partner to calculate the
fair market value of its Interest (determined in accordance with Section 4.3).
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5.3 Books and Records; Independent Audit; Progress Reports. Complete
books and records accurately reflecting the accounts, business and transactions
of the Partnership and Partners of the Partnership shall be maintained and kept
by the Managing General Partner at the Partnership's principal place of
business. The books and records of the Partnership shall be open at reasonable
business hours on prior appointment for inspection and copying by the Partners.
Notwithstanding anything to the contrary in this Agreement, the Managing
General Partner shall have the right to keep confidential from the Limited
Partners for such period of time as the Managing General Partner deems
reasonable, any information which the Partnership is required by law or by
agreement with a third party to keep confidential and any information which
relates to its purchasing of individual items of programming, plant or
equipment which it reasonably deems confidential.
5.4 Fiscal Year. Except as may otherwise be required by the federal
tax laws, the fiscal year of the Partnership for both financial and tax
reporting purposes shall end on December 31.
5.5 Method of Accounting. The books and accounts of the Partnership
shall be maintained using the accrual method of accounting for financial
reporting purposes and for tax purposes. Those documents relating to
allocation of items of Partnership income, gain, loss, deduction or credit and
Capital Accounts shall be kept under federal income tax accounting principles
as provided herein.
5.6 Tax Matters Partner. The Managing General Partner is hereby
designated, and hereby agrees to discharge duly the duties of, the Tax Matters
Partner of the Partnership, as that term is defined in section 6231(a)(7) of
the Code.
5.7 Restriction on General Partner Activity With Respect to Publicly
Traded Partnerships. Without the consent of the Limited Partners, the Managing
General Partner shall not have the authority on behalf of the Partnership to:
(a) list, recognize, or facilitate the trading of partnership
interests (or any interest therein) on any "established securities market"
within the meaning of section 7704 of the Code, or permit any of its affiliates
to take such actions, if as a result thereof the Partnership might be taxed for
federal income tax purposes as an association taxable as a corporation; or
(b) create for the partnership interests (or any interest therein) a
"secondary market (or the substantial equivalent thereof)" within the meaning
of section 7704 of the Code or otherwise permit, recognize or facilitate the
trading of such interests (or any interest therein) on any such market, or
permit any of its affiliates (or to the extent the Managing General Partner has
rights with respect thereto, the selling agents or any of their affiliates) to
take such actions, if as a result thereof the Partnership might be taxed for
federal income tax purposes as an association taxable as a corporation.
5.8 Duties and Obligations of the General Partner With Respect to
Publicly Traded Partnerships. The Managing General Partner shall monitor the
transfers of partnership interests to determine if such interests are being
traded on an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of section 7704 of the
Code, and shall take (and cause its affiliates to take) all steps within its
power and authority as are reasonably necessary or appropriate to prevent any
such trading of interests.
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ARTICLE 6
Conflicts of Interest
6.1 Contracts With the General Partner, Affiliates and the Limited
Partners. The Managing General Partner may, on behalf of the Partnership,
enter into contracts with itself or any of its employees, agents or affiliates.
The Managing General Partner may, but is not obligated to, cause the
Partnership to enter into contracts with a Limited Partner, and its partners,
employees, agents or affiliates.
6.2 Outside Activities. Neither the Managing General Partner nor its
employees, agents or affiliates shall be prohibited from participating,
directly or indirectly, in any other enterprise or partnership with the
business purpose of owning or operating cable television systems, television
stations or broadcasting or interests in cable television systems, television
stations or broadcasting. The Limited Partners (and their partners, employees,
agents and affiliates) may engage in other enterprises, including enterprises
in competition with the Partnership. No Partner need first offer any
investment opportunities within the scope of the Partnership's business purpose
to the Partnership, but may give or share such investment opportunity to or
with one or more of the following: any Partner, any officer, director,
shareholder, partner, employee or affiliate of a Partner, any enterprise or
partnership in which a Partner has an interest, or any nonaffiliated person.
No Limited Partner or the partners, employees, agents or affiliates of such
Limited Partner shall be prohibited from engaging directly or indirectly in
other activities, or from directly or indirectly purchasing, selling and
holding securities or assets in cable television corporations or systems for
its account or for the accounts of others. The Limited Partners and the
partners, employees or affiliates of the Limited Partners may invest on their
own or co-invest with the Partnership on a transaction within the scope of the
Partnership's business purpose. Neither the Partnership nor any other Partner
shall have any right to any income or profit derived by a Limited Partner, or
its partners, employees, agents or affiliates from any enterprise, opportunity
or transactions permitted by this Section 6.2 or Section 6.1. The Limited
Partners shall have the right to transact business with the Partnership. The
parties hereto hereby waive, and covenant not to sue on the basis of, any law
(statutory, common law or otherwise) respecting the rights and obligations of
the Partners inter se which is or may be inconsistent with this Section 6.2 or
Section 6.1.
6.3 Indemnification of the Partners. The Partnership shall indemnify
and hold harmless the Partners and the partners, employees and agents of the
Partners from and against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromises, as fines and penalties, and as
counsel fees) reasonably incurred by any of them in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which they may be involved or with which they may be threatened,
as a Partner or partner, employee or agent of a Partner or otherwise in
connection with the management of the Partnership, or by reason of being or
having been a Partner or partner, employee or agent of a Partner, or by serving
in such other capacity, except with respect to any matter as to which they
shall have acted in willful misconduct, bad faith, in a grossly negligent
manner or with reckless disregard of the duties of their office, or with
criminal intent.
6.4 Exculpation. The Managing General Partner and any partner,
employee or agent of the Managing General Partner or the Partnership shall not
be liable to the Limited Partners or the Partnership for mistakes of judgment
or for action or inaction which the Managing General Partner or any such
partner, employee or agent of the Managing General Partner or the Partnership
reasonably believed to be in the best interests of the Partnership unless such
action or inaction constitutes willful misconduct, bad faith, gross negligence,
reckless disregard of its duties or material breach
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of this Agreement. The Managing General Partner may consult with counsel,
accountants and other experts in respect of Partnership affairs and be fully
protected and justified in any action or inaction which is taken in accordance
with the advice or opinion of such counsel, accountants or other experts,
provided that they shall have been selected with reasonable care.
Notwithstanding any of the foregoing to the contrary, the provisions of this
Section 6.4 shall not be construed so as to relieve (or attempt to relieve) the
Managing General Partner and any partner, employee or agent of the Managing
General Partner or the Partnership of any liability, to the extent (but only to
the extent) that such liability may not be waived, modified or limited under
applicable law, but shall be construed so as to effectuate the provisions of
this Section 6.4 to the fullest extent permitted by law.
ARTICLE 7
Termination of the Partnership
7.1 No Dissolution. The Partnership shall not be dissolved by the
admission of substituted limited partners or by the admission of a new general
partner in accordance with the terms of this Agreement. The dissolution or
bankruptcy of a Limited Partner shall not cause the dissolution of the
Partnership.
7.2 Events of Dissolution. The Partnership shall dissolve upon (i)
expiration of the term of the Partnership specified in Section 1.6 hereof, (ii)
the removal, withdrawal or cessation of the Managing General Partner as general
partner or the bankruptcy of the Managing General Partner, in each case where
there is no remaining or surviving general partner or if a successor has not
been appointed pursuant to Section 4.6, (iii) dissolution being required by
operation of law or judicial decree, or (iv) the written consent of the
Managing General Partner and the Limited Partners. Notwithstanding anything to
the contrary in this Section 7.2, without the consent of the Limited Partners,
the Managing General Partner agrees not to withdraw as general partner of the
Partnership or to seek partition or dissolution of the Partnership. If the
Managing General Partner effects such withdrawal or seeks partition or
dissolution of the Partnership in violation of this Agreement, the Partnership
may recover from the Managing General Partner damages for breach of this
Agreement. Upon dissolution of the Partnership, the Managing General Partner
(or its representative) shall wind up the affairs of the Partnership, discharge
the liabilities of the Partnership, distribute the assets of the Partnership
and terminate the Partnership.
7.3 Winding-up. Upon the occurrence of an event of dissolution, the
Partnership shall be wound up and liquidated. The Managing General Partner or,
if there is no general partner or if the Managing General Partner wrongfully
caused the dissolution of the Partnership, a liquidator appointed by the
Limited Partners, shall proceed with the dissolution and the final
distribution. In the dissolution, the Managing General Partner or such
liquidator shall use its best efforts to reduce to cash and cash equivalent
items such assets of the Partnership as the Managing General Partner or such
liquidator shall deem it advisable to sell, subject to obtaining fair value for
such assets and any tax or other legal considerations. A reasonable time shall
be allowed for the orderly winding up of the business and affairs of the
Partnership and the liquidation of its assets in order to minimize any losses
otherwise attendant upon such a winding up, provided that the liquidation is
carried out in conformity with the requirements of this Section 7.3 and section
1.704-1(b)(2)(ii)(b)(2) and (3) of the Income Tax Regulations.
7.4 Order of Dissolution. In settling accounts after dissolution, the
assets of the Partnership shall be distributed as expeditiously as possible in
the following order not later than the end of the taxable year
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of the liquidation (i.e., the date upon which the Partnership ceases to be a
going concern as provided in section 1.704-1(b)(2)(ii)(g) of the Income Tax
Regulations), or if later, within ninety (90) days after the date of such
liquidation:
(a) To creditors, including the Partners to the extent of any unpaid
expenses or any outstanding loan or advance;
(b) To the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership in accordance with Section 7.3 hereof;
(c) To the establishment of reasonable reserves to provide for
obligations to creditors;
(d) To the Partners with respect to which any other debts of the
Partnership are owing, other than debts arising out of the expulsion of a
Partner;
(e) Thereafter, to the Partners in the proportion of their respective
Capital Accounts or as those accounts are determined after all adjustments to
such accounts for the taxable year of the Partnership during which the
liquidation occurs as are required by this Agreement by section 1.704-1(b) of
the Income Tax Regulations, such adjustments to be made within the time
specified in such Regulations.
7.5 Termination. The Partnership shall terminate following its
dissolution and liquidation pursuant to this Article 7 when all of the
Partnership assets as to which it is practicable to do so in the sole
discretion of the Managing General Partner or the liquidator shall have been
converted into cash, the net proceeds therefrom as well as any other assets of
the Partnership, after payment of or due provision for all debts, liabilities
and obligations of the Partnership, shall have been distributed to the Partners
as provided for herein and the Partnership shall have been terminated in the
manner required by the Act.
7.6 Orderly Methods of Liquidating Payments. Notwithstanding anything
to the contrary in this Article 7, if required to maximize the proceeds of
liquidation, the Managing General Partner (or the liquidator chosen in
accordance with Section 7.2) may, with the consent of the other Partners,
implement the distribution provisions of Section 7.4 hereof by transfer, on
behalf of the Partners, of the assets of the Partnership to a liquidating
trustee or trustees.
ARTICLE 8
Transfer Restrictions
8.1 No Partner shall sell, assign, mortgage, encumber, hypothecate or
otherwise transfer, whether voluntarily or involuntarily, its interest in the
Partnership or any part thereof, unless (x) any such transferee entity meets
the suitability requirements originally imposed under the subscription
agreement on the transferring Partner and (y) such assignment or transfer will
not (A) violate any applicable federal or state securities laws or regulations,
subject the Partnership to registration as an investment company or election as
a "business development company" under the Investment Company Act; (B) require
the Managing General Partner or any of its affiliates to register as an
investment adviser under the Investment Advisers Act of 1940; (C) violate any
other federal, state or local laws; (D) effect a termination of the Partnership
under section 708 of the Code; or (E) cause the Partnership to be treated as an
association taxable as a
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<PAGE> 22
corporation for federal income tax purposes, or violate this Agreement.
Notwithstanding the preceding sentence, a Partner may assign, sell, mortgage,
encumber, hypothecate or otherwise transfer its interest in the Partnership (i)
to a lender as security in connection with the financing of the acquisition or
operation of one or more cable systems by the Partnership or (ii) if any such
assignment or transfer effects a termination of the Partnership under section
708 of the Code so long as the transferring Partner agrees to indemnify and
hold harmless the Partnership and all other Partners against any and all costs
and expenses incurred as a direct result of a termination of the Partnership
under section 708 of the Code. No transferee or assignee of all or any part of
a Partner's interest, other than a transferee or assignee permitted under this
Section 8.1, shall become a Partner without the prior written consent of the
Managing General Partner which consent shall not be unreasonably withheld. Any
purported transfer of any interest of a Partner in the Partnership or any part
thereof not in compliance with this Section 8.1 shall be void and of no force
or effect and the transferring Partner shall be liable to the other Partners
and the Partnership for all liabilities, obligations, damages, losses, costs
and expenses (including reasonable attorneys' fees and court costs) arising as
a result of such noncomplying transfer.
ARTICLE 9
Miscellaneous
9.1 Notices. All notices, approvals, consents and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be hand delivered (including by messenger or recognized commercial
delivery or courier service), sent by facsimile transmission or sent by
registered or certified mail, postage prepaid, addressed to the Partner
intended at the address set forth below its name on Exhibit 1 hereto or at such
other address as such Partner may designate by notice given to the other
Partners in the manner aforesaid and shall be deemed given and received on the
date it is delivered, in the case of delivery by hand or by facsimile or, in
the case of delivery by mail, actual delivery as shown by the addressee's
return receipt. Rejection or other refusal to accept or inability to deliver
because of a change of address of which no notice was given shall be deemed to
be receipt of the notice.
9.2 Governing Law. This Agreement and the limited partnership
continued hereby shall be governed by and construed in accordance with the laws
of the State of California.
9.3 Amendments. This Agreement may be modified or amended only by an
instrument in writing signed by the Managing General Partner and by the Limited
Partners.
9.4 Entire Agreement. This instrument constitutes the entire agreement
between the Partners with respect to the Partnership and supersede all prior
agreements, understandings, offers and negotiations, oral or written.
9.5 Waiver of Partition. Each Partner hereby irrevocably waives any
and all rights that it may have to maintain an action for partition of the
Partnership or any of the Partnership's property.
9.6 Consents. All consents, agreements and approvals required or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
9.7 Successors. Subject to Article 8, all rights and duties of the
Partners hereunder shall inure to the benefit of and be binding upon their
respective successors and assigns.
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<PAGE> 23
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
9.9 Pronouns. As used in this Agreement, the masculine, feminine or
neuter gender and the singular or plural number shall each be allowed to
include the others whenever the context so indicates.
9.10 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision which is not essential
to the effectuation of the basic purposes of the Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable and contrary to
the Act or existing or future applicable law, such invalidity shall not impair
the operation of or affect those provisions of this Agreement which are valid.
In that case, this Agreement shall be construed so as to limit any term or
provision so as to make it enforceable or valid within the requirements of any
applicable law, and in the event such term or provision cannot be so limited,
this Agreement shall be construed to omit such invalid or unenforceable
provisions.
9.11 Nonrecourse. Neither the Partnership nor the Partners shall have
recourse to any partner, officer, director or shareholder of any Partner or to
the assets of any partner, officer, director or shareholder of any Partner with
respect to the obligations and liabilities of such Partner under this
Agreement, except that this Section 9.11 shall not limit or impair the exercise
or enforcement of rights and remedies in respect of any agreement to which such
person is a party in accordance with the terms and provisions of such
agreement.
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<PAGE> 24
IN WITNESS WHEREOF, the Partners have executed this Amended and Restated
Agreement of Limited Partnership as of the date first hereinabove written.
MANAGING GENERAL PARTNER
INTERMEDIA MANAGEMENT, INC.
By /s/ ROBERT J. LEWIS
------------------------------------------
Robert J. Lewis
President and
Chief Executive Officer
SPECIAL LIMITED PARTNER
/s/ LEO J. HINDERY, JR.
---------------------------------------------
Leo J. Hindery, Jr.
LIMITED PARTNER
TCI ICM IV, INC.
By
------------------------------------------
Stephen M. Brett
Vice President
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<PAGE> 25
EXHIBIT 1
<TABLE>
<CAPTION>
Names and Addresses Percentage
of Partners Interest
------------------- ----------
<S> <C>
Managing General Partner:
InterMedia Management, Inc. .002%
235 Montgomery Street, Suite 420
San Francisco, CA 94104
Special Limited Partner:
Leo J. Hindery, Jr. .001%
5619 DTC Parkway
Englewood, CO 80111-3000
Limited Partner:
TCI ICM IV, Inc. 99.997%
5619 DTC Parkway
Englewood, CO 80111-3000
---------
100%
</TABLE>
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<PAGE> 1
EXHIBIT 10.79
AMENDED AND RESTATED
ASSET CONTRIBUTION AGREEMENT
DATED SEPTEMBER 25, 1997
BY AND AMONG
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
AND
TEMPO CABLE, INC., COMMUNICATIONS SERVICES, INC., TCI
CABLEVISION OF OKLAHOMA, INC., TCI OF KANSAS, INC.,
WENTRONICS, INC., TCI CABLEVISION OF UTAH, INC., TCI CABLEVISION OF
ARIZONA, INC., TULSA CABLE TELEVISION, INC. AND TCI
AMERICAN CABLE HOLDINGS III, L.P.
AND
PEAK CABLEVISION, LLC
<PAGE> 2
LIST OF SCHEDULES AND EXHIBITS
Schedules
Schedule 1.20 Fisher Leased Property
Schedule 1.22 Fisher Other Real Property Interests
Schedule 1.23 Fisher Owned Real Property
Schedule 1.25 Fisher System Contracts
Schedule 1.26 Fisher System Franchises
Schedule 1.27 Fisher System Licenses
Schedule 1.60 TCI Leased Property
Schedule 1.63 TCI Other Real Property Interests
Schedule 1.64 TCI Owned Real Property
Schedule 1.67 TCI System Contracts
Schedule 1.68 TCI System Franchises
Schedule 1.69 TCI System Licenses
Schedule 4.2 TCI Excluded Assets
Schedule 4.3 Fisher Excluded Assets
Schedule 5.3 Fisher Required Consents
Schedule 5.4 Fisher Liens and Permitted Liens
Schedule 5.8 Fisher Cost of Service Elections
Schedule 5.10 Fisher Financial Statements; Fisher
Changes or Events
Schedule 5.11 Fisher Litigation
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<PAGE> 3
Schedule 5.13 Fisher Employment Matters
Schedule 5.14 Fisher Systems Information
Schedule 5.15 Fisher Bonds
Schedule 6.3 TCI Required Consents
Schedule 6.4 TCI Liens and Permitted Liens
Schedule 6.8 TCI Cost of Service Elections
Schedule 6.10 TCI Financial Statements; TCI
Changes or Events
Schedule 6.11 TCI Litigation
Schedule 6.13 TCI Employment Matters
Schedule 6.14 TCI Systems Information
Schedule 6.15 TCI Bonds
Exhibits
Exhibit 9.2(b) Form of Keep Well Agreement
Exhibit 10.2(b) TCI Bill of Sale and Assignment and
Assumption Agreement
Exhibit 10.3(b) Fisher Bill of Sale and Assignment
and Assumption Agreement
-vi-
<PAGE> 4
ASSET CONTRIBUTION AGREEMENT
THIS ASSET CONTRIBUTION AGREEMENT ("Agreement") is dated as of September
25, 1997, by and among Fisher Communications Associates, L.L.C. ("Fisher"),
Tempo Cable, Inc., Communications Services, Inc., TCI Cablevision of Oklahoma,
Inc., TCI of Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah, Inc., TCI
Cablevision of Arizona, Inc., Tulsa Cable Television, Inc. (collectively, the
"TCI Entities"), TCI American Cable Holdings III, L.P. ("TCI Member") and
Premier Media, LLC, a Colorado limited liability company (the "Company").
RECITALS
A. Fisher and the TCI Member (together, the "Members") have formed
the Company for the purposes of, among other things, the ownership, operation,
acquisition and management of cable television systems.
B. Fisher will own and operate on or before the Closing Date certain
cable television systems serving certain systems in Arkansas, Missouri, Nevada,
Oklahoma and Utah (the "Fisher Systems"), with such cable television systems
being described in further detail on Exhibit A attached hereto.
C. TCI Member will own and operate on or before the Closing Date
certain cable television systems serving Arizona, Oklahoma and Utah (the "TCI
Systems"), with such cable television systems being described in further detail
on Exhibit A attached hereto.
D. Fisher desires to contribute substantially all of the assets of
the Fisher Systems to the Company, and TCI desires to contribute substantially
all of the assets of the TCI Systems to the Company, on the terms and
conditions hereinafter set forth.
AGREEMENTS
In consideration of the mutual covenants and promises set forth
herein, the parties agree as follows:
SECTION 1. DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms or terms otherwise defined in this SECTION 1 shall have the
meanings set forth below:
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<PAGE> 5
1.1 1992 Cable Act. The Cable Television Consumer Protection and
Competition Act of 1992 and the FCC rules and regulations promulgated
thereunder.
1.2 Affiliate. With respect to any Person, any Person controlling,
controlled by or under common control with such Person; "control" means the
ownership, directly or indirectly, of voting securities representing the right
generally to elect a majority of the directors (or similar officials) of a
Person or the possession, by contract or otherwise, of the authority to direct
the management and policies of a Person.
1.3 Assets. The Fisher Assets or the TCI Assets, as the context
requires.
1.4 Basic Services. The lowest tier of service offered to
subscribers of a System.
1.5 Business Day. Any day other than a Saturday, Sunday or a day on
which the banking institutions in Denver, Colorado are required or authorized
to be closed.
1.6 Cable Act. The Cable Communications Policy Act of 1984, as
amended, and the rules and regulations promulgated thereunder.
1.7 Cable Business. Fisher's Cable Business or TCI's Cable Business,
as the context requires.
1.8 Closing Time. 11:59 P.M., Mountain Time, on the Closing Date.
1.9 Communications Act. The Communications Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.10 Contract. Any contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant, right
or other instrument, document, obligation or agreement, whether written or
oral.
1.11 Equivalent Basic Subscribers (or "EBSs"). As of any date of
determination and for each franchise area served by a System, the sum of (a)
the total number of private residential customer accounts that are billed by
individual unit (regardless of whether such accounts are in single-family homes
or in individually billed units in apartment buildings and other multi- unit
buildings) (exclusive of (i) "second connects" and "additional outlets" as such
terms are commonly understood in the cable television industry, and (ii)
accounts that are not charged or are charged less than the standard monthly
service fees and charges then in effect for such System for Basic Services) for
Basic Services and (b) the quotient of (i) the total monthly billings for sales
of Basic Services and Expanded Basic Services by such System during the most
recent month ended prior to the date of calculation to commercial, bulk-billed
and other
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<PAGE> 6
accounts not billed by individual unit (whether on a discounted or undiscounted
basis) and individually billed subscribers that pay less than the standard
monthly service fees charged for Basic Services, but excluding billings in
excess of a single month's charges for any account, divided by (ii) the
standard monthly combined rate (without discount of any kind) charged to
individually billed subscribers for Basic Services and Expanded Basic Services
in effect during such month. For purposes of calculating the number of EBSs,
there will be excluded (i) all accounts billed by individual unit that are, and
all billings to any commercial, bulk-billed and other accounts not billed by
individual unit that are, more than 60 days past due in the payment of any
amount in excess of $5.00 or the standard rate charged for Basic Services at
the time of determination, (ii) any accounts billed by individual unit and all
commercial, bulk-billed and other accounts not billed by individual units that,
as of the date of calculation, have not paid in full the charges for at least
one full month of service, (iii) that portion of the billings to all accounts
billed by individual unit included in clause (b) above and any commercial,
bulk-billed and other accounts not billed by individual unit representing an
installation or other non-recurring charge, a charge for equipment or for any
outlet or connection other than the first outlet or first connection in any
individually billed unit or, with respect to a bulk account, in any residential
unit (e.g., an individual apartment or rental unit), a charge for any tiered
service other than Expanded Basic Services (whether or not included within Pay
TV), any charge for Pay TV or a pass-through charge for sales taxes, line-
itemized franchise fees, fees charged by the FCC and the like, (iv) any
individually billed unit and all billings to any commercial, bulk-billed and
other accounts not billed by individual unit whose service is pending
disconnection for any reason and (v) any individually billed unit and all
billings to any commercial, bulk-billed or other accounts not billed by
individual unit who was solicited 60 days prior to the Closing Date to purchase
such services by promotions or offers of discounts other than those then
generally being offered by the party for which the determination of EBSs is
being made. For purposes of this definition, payments on account of monthly
billings will be deemed due on the first day of the period for which the
service to which such billings relate is provided.
1.12 Environmental Law. Any Legal Requirement concerning the
protection of public health, safety, welfare or the environment, including
Legal Requirements relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment, air (including both
ambient and within buildings and other structures), surface water, ground water
or land or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
1.13 ERISA. The Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder and published
interpretations with respect thereto.
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<PAGE> 7
1.14 ERISA Affiliate. As to any Person, any trade or business,
whether or not incorporated, which together with such Person would be deemed a
single employer within the meaning of Section 4001 of ERISA.
1.15 Expanded Basic Services. Any video programming provided over a
cable television system, regardless of service tier, other than Basic Services,
any new product tier and Pay TV.
1.16 FCC. The Federal Communications Commission.
1.17 Financial Statements. Fisher's Financial Statements or TCI's
Financial Statements, as the context requires.
1.18 Fisher Assets. All properties, privileges, rights, interests and
claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held, used or useful in Fisher's Cable
Business in which Fisher or any Affiliate of Fisher has any right, title or
interest or in which Fisher or any Affiliate of Fisher acquires any right,
title or interest on or before the Closing Time that are not Fisher Excluded
Assets, including the Fisher Tangible Personal Property, Fisher Owned Real
Property, Fisher Leased Property, Fisher Other Real Property Interests, Fisher
System Franchises, Fisher System Licenses, Fisher System Contracts, Fisher
Books and Records and the Fisher Other Intangibles, but excluding any Fisher
Excluded Assets.
1.19 Fisher Books and Records. All engineering records, files, data,
drawings, blueprints, schematics, reports, lists, plans and processes and all
other files of correspondence, lists, records and reports concerning Fisher's
Cable Business, including subscribers and prospective subscribers of the Fisher
Systems, signal and program carriage and dealings with Governmental
Authorities, including all reports filed by or on behalf of Fisher with the FCC
and statements of account filed by or on behalf of Fisher with the U.S.
Copyright Office and all documents, reports and records relating to the
employees of the Fisher Systems.
1.20 Fisher Leased Property. The leaseholds of real property
described as Fisher Leased Property on SCHEDULE 1.20.
1.21 Fisher Other Intangibles. All intangible assets other than
Fisher System Franchises, Fisher System Licenses and Fisher System Contracts,
including subscriber lists, accounts receivable, claims (excluding any claims
relating to Fisher Excluded Assets), patents and copyrights, owned, used or
held for use in Fisher's Cable Business.
1.22 Fisher Other Real Property Interests. The easements and rights
of access (other than those relating to multiple dwelling units) and other
interests in real property held by Fisher in connection with Fisher's Cable
Business, including those interests
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<PAGE> 8
described as Fisher Other Real Property Interests on SCHEDULE 1.22, but
excluding the Fisher Owned Real Property.
1.23 Fisher Owned Real Property. The fee interests in the real
property described as Fisher Owned Real Property on SCHEDULE 1.23 and all
improvements thereon.
1.24 Fisher Required Consents. Any and all consents, authorizations
and approvals required under the Fisher System Franchises, Fisher System
Licenses, the leases and other documents evidencing Fisher Leased Property and
Fisher Other Real Property Interests and the Fisher System Contracts for (i)
Fisher to transfer the Fisher Assets to the Company; (ii) the Company to
operate the Fisher Systems and to own, lease, use and operate the Fisher Assets
and the Fisher Systems at the places and in substantially the manner in which
the Fisher Assets are used and the Fisher Systems are operated as of the date
of this Agreement and as of the Closing; and (iii) the Company to assume and
perform the Fisher System Franchises, the Fisher System Licenses, the leases
and other documents evidencing Fisher Leased Property or Fisher Other Real
Property Interests and the Fisher System Contracts.
1.25 Fisher System Contracts. The pole line agreements, underground
conduit agreements, crossing agreements, multiple dwelling, bulk billing or
commercial service agreements and other Contracts (other than Fisher System
Franchises and Fisher System Licenses) described on SCHEDULE 1.25.
1.26 Fisher System Franchises. The franchises and other
authorizations or permits described on SCHEDULE 1.26.
1.27 Fisher System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority (other than
Fisher System Franchises, Fisher System Contracts and Fisher Other Real
Property Interests) described on SCHEDULE 1.27.
1.28 Fisher Tangible Personal Property. All tangible personal
property, including towers, tower equipment, aboveground and underground cable,
distribution systems, headend amplifiers, line amplifiers, microwave equipment,
converters, testing equipment, motor vehicles, office equipment, computers and
billing equipment, furniture, supplies, inventory and other physical assets.
1.29 Fisher's Cable Business. The cable television business and other
income-generating business related to the Fisher Systems conducted by Fisher
through the Fisher Systems by Halcyon GP and Halcyon LP as of the date of this
Agreement and Fisher as of the Closing.
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<PAGE> 9
1.30 Governmental Authority. The United States of America, any state,
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.31 Halcyon GP. Halcyon Communications Partners, an Oklahoma
general partnership.
1.32 Halcyon LP. Halcyon Communications Limited Partnership, an
Oklahoma limited partnership.
1.33 Hazardous Substances. (a) Any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (RCRA) (42 U.S.C. Sections
6901 et seq.), as amended, and the rules and regulations promulgated
thereunder; (b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Sections 9601 et seq.) (CERCLA), as amended, and the rules and regulations
promulgated thereunder; (c) any substance regulated by the Toxic Substances
Control Act (TSCA) (42 U.S.C. Sections 2601 et seq.), or the Insecticide,
Fungicide and Rodenticide Act (IFRA) (7 U.S.C. Sections 136 et seq.), each as
amended, and the rules and regulations promulgated thereunder; (d) asbestos or
asbestos-containing material of any kind or character; (e) polychlorinated
biphenyls; (f) any substances regulated under the provisions of Subtitle I of
RCRA relating to underground storage tanks; (g) any substance the presence,
use, handling, treatment, storage or disposal of which on Owned Real Property
or Leased Property is prohibited by any Environmental Law; and (h) any other
substance which by any Environmental Law requires special handling, reporting
or notification of any Governmental Authority in its collection, storage, use,
treatment or disposal.
1.34 HCI Partnership Interests. The partnership interests in Halcyon
GP and Halcyon LP held by Halcyon Communications, Inc.
1.35 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
1.36 Judgment. Any judgment, writ, order, injunction, award or decree
of any court, judge, justice or magistrate, including any bankruptcy court or
judge or the arbitrator in any binding arbitration, and any order of or by any
Governmental Authority.
1.37 Knowledge. The actual knowledge of a particular matter of one or
more of the executive officers of such party or the general manager or one or
more of the managers of such party's Systems.
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<PAGE> 10
1.38 Leased Property. The Fisher Leased Property or TCI Leased
Property, as the context requires.
1.39 Legal Requirement. Applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
written standard, requirement or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Authority, including any Judgment.
1.40 Lien. Any security interest, security agreement, financing
statement filed with any Governmental Authority, conditional sale or other
title retention agreement, any lease, consignment or bailment given for
purposes of security, any mortgage, lien, indenture, pledge, option,
encumbrance, adverse interest, constructive trust or other trust, claim,
attachment, exception to, defect in or other condition affecting title or other
ownership interest (including but not limited to reservations, rights of entry,
possibilities of reverter, encroachments, protrusions, easements,
rights-of-way, rights of first refusal, restrictive covenants, leases and
licenses) of any kind, which constitutes an interest in or claim against
property, whether arising pursuant to any Legal Requirement, System License,
System Franchise, System Contract or otherwise.
1.41 Litigation. Any claim, action, suit, proceeding, arbitration,
investigation, hearing or other activity or procedure that could result in a
Judgment and any notice of any of the foregoing.
1.42 Losses. Any claims, losses, liabilities, damages, penalties,
costs and expenses, including interest that may be imposed in connection
therewith, expenses of investigation, reasonable fees and disbursements of
counsel and other experts, and the cost to any Person making a claim or seeking
indemnification under this Agreement with respect to funds expended by such
Person by reason of the occurrence of any event or the existence or assertion
of any Liens (other than Permitted Liens) with respect to which indemnification
is sought.
1.43 Operating Agreement. The Operating Agreement of the Company
dated as of the date hereof whose initial members are Fisher and TCI Member.
1.44 Owned Real Property. Fisher Owned Real Property or TCI Owned
Real Property, as the context requires.
1.45 Other Real Property Interests. The Fisher Other Real Property
Interests or the TCI Other Real Property Interests, as the context requires.
1.46 Party. Either Fisher, on the one hand, or the TCI Entities for
periods prior to the Initial Contribution Date and the TCI Member for periods
on and after the Initial Contribution Date, on the other hand, as the context
requires.
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<PAGE> 11
1.47 Pay TV. A la carte tiers or premium programming services
selected by and sold to subscribers on a per channel or per program basis.
1.48 Permitted Lien. Any (a) Lien securing Taxes, assessments and
governmental charges not yet due and payable, (b) zoning law or ordinance or
any similar Legal Requirement, (c) right reserved to any Governmental Authority
to regulate the affected property, (d) as to Owned Real Property and Other Real
Property Interests, any Lien that does not individually or in the aggregate
interfere with the right or ability to own, use or operate the Owned Real
Property or Other Real Property Interests as they are being used or operated or
to convey title to the same and (e) in the case of Leased Property, (i) the
rights of any lessor and (ii) any Lien granted by any lessor of Leased
Property; provided that "Permitted Lien" will not include any Lien securing a
debt or claim (other than inchoate materialmen's, mechanics', workmen's,
repairmen's or other like Liens arising in the ordinary course of business or
any Lien described in clause (e) above) or any Lien which could prevent or
impair in any way the conduct of the business of the affected System as it is
currently being conducted, and provided further that the classification of any
Lien as a "Permitted Lien" will not affect any liability which TCI may have
under this Agreement for any such Lien with respect to the exchange of the TCI
Systems or which Fisher may have under this Agreement for any such Lien with
respect to the exchange of the Fisher Systems, including pursuant to any
indemnity obligation under this Agreement.
1.49 Person. Any natural person, Governmental Authority, corporation,
general or limited partnership, limited liability company, joint venture,
trust, association or unincorporated entity of any kind.
1.50 Required Consents. The Fisher Required Consents or the TCI
Required Consents, as the context requires.
1.51 System. Any of the Fisher Systems or the TCI Systems, as the
context requires.
1.52 System Contracts. The Fisher System Contracts or the TCI System
Contracts, as the context requires.
1.53 System Franchises. The Fisher System Franchises or the TCI
System Franchises, as the context requires.
1.54 System Licenses. The Fisher System Licenses or the TCI System
Licenses, as the context requires.
1.55 Tangible Personal Property. The Fisher Tangible Personal
Property or the TCI Tangible Personal Property, as the context requires.
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<PAGE> 12
1.56 Taxes. All levies and assessments of any kind or nature imposed
by any Governmental Authority, including all income, sales, use, ad valorem,
value added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies or assessments related to
unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
1.57 TCI. The TCI Entities for all periods prior to the Initial
Contribution Date and the TCI Member for all periods on and after the Initial
Contribution Date.
1.58 TCI Assets. All of the assets, properties, privileges, rights,
interests and claims, real and personal, tangible and intangible, of every type
and description that are owned, leased, held, used or useful in TCI's Cable
Business in which TCI or any Affiliate of TCI has any right, title or interest
or in which TCI or any Affiliate of TCI acquires any right, title or interest
on or before the Closing Time that are not TCI Excluded Assets, including the
TCI Tangible Personal Property, the TCI Owned Real Property, the TCI Leased
Property, the TCI Other Real Property Interests, the TCI System Franchises,
the TCI System Licenses, the TCI System Contracts, the TCI Books and Records
and TCI Other Intangibles, but excluding any TCI Excluded Assets.
1.59 TCI Books and Records. All engineering records, files, data,
drawings, blueprints, schematics, reports, lists, plans and processes and all
other files of correspondence, lists, records and reports concerning TCI's
Cable Business, including subscribers and prospective subscribers of the TCI
Systems, signal and program carriage and dealings with Governmental
Authorities, including all reports filed by or on behalf of TCI with the FCC
and statements of account filed by or on behalf of TCI with the U.S. Copyright
Office and all documents, reports and records relating to the employees of the
TCI Systems.
1.60 TCI Leased Property. The leaseholds of real property described
as TCI Leased Property on SCHEDULE 1.60.
1.61 TCI Other Intangibles. All intangible assets other than TCI
System Franchises, TCI System Licenses and TCI System Contracts, including
subscriber lists, accounts receivable, claims (excluding any claims relating to
TCI Excluded Assets), patents, copyrights and goodwill, if any, owned, used or
held for use in TCI's Cable Business.
1.62 TCI Options. Various options held by Fisher giving Fisher the
option to purchase the TCI Partnership Interests for a total option price equal
to $3,000,000.
1.63 TCI Other Real Property Interests. The easements and rights of
access (other than those relating to multiple dwelling units) and other
interests in real property held by TCI in connection with TCI's Cable Business,
including those interests described
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as TCI Other Real Property Interests on SCHEDULE 1.63, but excluding the TCI
Owned Real Property.
1.64 TCI Owned Real Property. The fee interests in the real property
described as TCI Owned Real Property on SCHEDULE 1.64 and all improvements
thereon.
1.65 TCI Partnership Interests. The various partnership interests in
Halcyon GP and Halcyon LP held by American Televenture of Minersville, Inc.,
TCI Cablevision of Nevada, Inc., TCI Cablevision of Utah, Inc., Tempo Cable,
Inc. and ECP Holdings, Inc.
1.66 TCI Required Consents. Any and all consents, authorizations and
approvals required under the TCI System Franchises, the TCI System Licenses,
the leases and other documents evidencing the TCI Leased Property or the TCI
Other Real Property Interests and the TCI System Contracts for (i) TCI to
transfer the TCI Assets to the Company; (ii) the Company to operate the TCI
Systems and to own, lease, use and operate the TCI Assets and the TCI Systems
at the places and in substantially the manner in which the TCI Assets are used
and the TCI Systems are operated as of the date of this Agreement and as of the
Closing; and (iii) the Company to assume and perform the TCI System Franchises,
the TCI System Licenses, the leases and other documents evidencing TCI Leased
Property or TCI Other Real Property Interests and the TCI System Contracts.
1.67 TCI System Contracts. The pole line agreements, underground
conduit agreements, crossing agreements, multiple dwelling, bulk billing or
commercial service agreements and other Contracts (other than TCI System
Franchises and TCI System Licenses) described on SCHEDULE 1.67.
1.68 TCI System Franchises. The franchises and similar authorizations
or permits described on SCHEDULE 1.68.
1.69 TCI System Licenses. The intangible cable television channel
distribution rights, cable television relay service (CARS), business radio and
other licenses, copyright notices and other licenses, authorizations, consents
or permits issued by the FCC or any other Governmental Authority (other than
TCI System Franchises, TCI System Contracts and TCI Other Real Property
Interests) described on SCHEDULE 1.69.
1.70 TCI Tangible Personal Property. All tangible personal property,
including towers, tower equipment, aboveground and underground cable,
distribution systems, headend amplifiers, line amplifiers, microwave equipment,
converters, testing equipment, motor vehicles, office equipment, computers and
billing equipment, furniture, supplies, inventory and other physical assets.
1.71 TCI's Cable Business. The cable television business and other
income-generating business related to the TCI Systems conducted by TCI through
the TCI Systems.
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1.72 third party. Any Person other than TCI and its Affiliates or
Fisher and its Affiliates.
1.73 Transaction Documents. The instruments and documents described
in SECTIONS 10.2 and 10.3 which are being executed and delivered by or on
behalf of Fisher or TCI in connection with this Agreement or the transactions
contemplated hereby.
1.74 Other Definitions. The following terms are defined in the
Sections or Recitals indicated:
<TABLE>
<CAPTION>
Term Section or Recital
---- ------------------
<S> <C>
Action 12.5
Adjustments 3.3
Agreement First Paragraph
Assumed Debt 3.2
Assumed Obligations and Liabilities 4.3
Closing 10.1
Closing Date 10.1
Company First Paragraph
Cost of Service Election 5.8(d)
Final Adjustment Certificate 3.3
Fisher Balance Sheet 5.10
Fisher Excluded Assets 4.4
Fisher Plans 5.13(b)
Fisher Systems Recital B
Fisher's Financial Statements 5.10
Hired Employee 8.3(g)
Indemnified Party 12.5
Indemnifying Party 12.5
Initial Adjustment Certificate 3.3
Initial Contribution Date 2.1
Members Recital A
Outside Closing Date 11.1
Prime Rate 13.10
Roll-Up 2.2
Survival Period 12.1
Taking 13.16
TCI Member First Paragraph
TCI Balance Sheet 6.10
TCI Entities First Paragraph
TCI Excluded Assets 4.2
TCI Plans 6.13(b)
TCI Systems Recital C
TCI's Financial Statements 6.10
Transitional Billing Services 8.10
WARN 5.13(b)
</TABLE>
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<PAGE> 15
1.75 Accounting Terms. All accounting terms not otherwise defined in
this Agreement will have the meanings ascribed to them under generally
acceptable accounting principles as in effect from time to time in the United
States.
SECTION 2. INITIAL CONTRIBUTION BY TCI ENTITIES; ROLL-UP; CONTRIBUTION TO
COMPANY
2.1 Initial Contribution by TCI Entities. Prior to the Closing, the
TCI Entities shall contribute, convey, assign and transfer, or cause to be
contributed, conveyed, assigned and transferred, to the TCI Member, and the TCI
Member shall accept, assume and acquire from the TCI Entities, all of the TCI
Assets and liabilities, contingent or otherwise, relating thereto (the "Initial
Contribution"). The date of the Initial Contribution shall be deemed the
"Initial Contribution Date."
2.2 Roll-Up. Prior to or substantially contemporaneously with the
Closing, but in any event in the following sequence, Fisher shall first
exercise the TCI Options, which shall result in Fisher owning approximately 99%
of the partnership interests of Halcyon GP and Halcyon LP, and second, purchase
the HCI Partnership Interests, which shall result in Fisher owning all of the
partnership interests of Halcyon LP and Halcyon GP. The foregoing shall be
collectively referred to as the "Roll-Up."
2.3 Agreement to Contribute. Subject to the terms and conditions set
forth in this Agreement, after the Initial Contribution and Roll-Up described
in Sections 2.1 and 2.2 have occurred, TCI and Fisher hereby agree to transfer
and deliver to the Company on the Closing Date all of the TCI Assets or Fisher
Assets, as applicable, free and clear of any Liens (except for Permitted
Liens).
2.4 Issuance of Ownership Interests. In consideration for the
contribution to the Company by the Members of their respective Assets described
in Section 2.3, the Members shall receive at Closing the Ownership Interests in
the Company as set forth in, and in accordance with the terms of, the Operating
Agreement. In connection therewith, each Member or its designee shall receive
a credit to its capital account in the Company in an amount equal to the value
of its respective Assets as set forth in Exhibit C to the Operating Agreement
less such Member's debt being assumed by the Company as set forth in Exhibit C
to the Operating Agreement, and subject to the adjustments applicable to such
Member pursuant to Section 3.1 and any adjustment to the debt being assumed
pursuant to Section 3.2. Such credit to each Member's capital account in the
Company will be made on the Closing Date based on information available on such
date, with any post-Closing adjustment to be made in cash between the
applicable Parties.
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<PAGE> 16
SECTION 3. ADJUSTMENTS
3.1 Closing Adjustments. On the Closing Date, each Member's capital
account in the Company shall be increased or decreased, as appropriate, by the
net amount of the following adjustments:
(a) Each Member shall make adjustments on a pro rata basis as
of the Closing Time for all prepaid expenses, other than inventory (but only to
the extent the full benefit thereof will be realizable by the Company within 12
months after the Closing Date), accrued expenses (including real and personal
property taxes), copyright fees and franchise or license fees or charges,
prepaid income, subscriber prepayments and accounts receivable related to such
Member's Cable Business, all as determined in accordance with generally
accepted accounting principles consistently applied, to reflect the principle
that all expenses and income attributable to such Member's Cable Business for
the period through and including the Closing Time are for the account of such
Member, and all expenses and income attributable to such Member's Cable
Business for the period after the Closing Time are for the account of the
Company. Such Member will receive no credit for any (i) accounts receivable
resulting from cable service sales any portion of which is 60 days or more past
due from the billing date as of the Closing Date, (ii) all accounts receivable
resulting from advertising sales any portion of which is 120 days or more past
due as of the Closing Date, or (iii) accounts receivable from customers whose
accounts are inactive or whose service is pending disconnection for any reason
as of the Closing Date. Notwithstanding the foregoing, no adjustment will be
made for any items of income or expense that relate to any Excluded Assets.
For purposes of making "past due" calculations under this paragraph, the
billing statements of a System will be deemed to be due and payable on the
first day of the period during which the service to which such billing
statements relate is provided.
(b) All advance payments to, or funds of third parties on
deposit with, a Member as of the Closing Date, relating to such Member's Cable
Business, including advance payments and deposits (including any accrued
interest on such deposits) by subscribers served by such Member's Cable
Business for converters, encoders, decoders, cable television service and
related sales, shall be assumed by, and credited to the account of, the
Company.
(c) Each Member's capital account shall be reduced by the
economic value of all accrued vacation time permitted to be taken by the
employees of such Member after the Closing Time pursuant to Section 8.3(g).
(d) If the aggregate number of EBS's as of the month ending
immediately preceding the Closing Date of the Systems contributed by Fisher is
less than 27,116, then Fisher's capital account shall be reduced by the product
of the number of EBS's less than 27,116, multiplied by $1,250. If the
aggregate number of EBS's as of the
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<PAGE> 17
month ending immediately preceding the Closing Date of the Systems contributed
by TCI is less than 86,786, then TCI's capital account shall be reduced by the
product of the number of EBS's less than 86,786, multiplied by $1,400.
3.2 Assumption by the Company of Assumed Debt.
(a) Concurrent with the Closing, the Company will assume, and
then immediately prepay, debt of the Members in the initial amount set forth in
Exhibit C to the Operating Agreement (the "Assumed Debt"), subject to
adjustment in accordance with Section 3.2(b). Such assumption will be
accomplished in a manner that fully releases the applicable Member from further
liability for the Assumed Debt pursuant to applicable loan documents related to
such Assumed Debt.
(b) The Assumed Debt of either Member will be adjusted upward
or downward, as necessary, so that the aggregate Ownership Interest (as defined
in the Operating Agreement) of all of the Members in the Company upon and
immediately after Closing will be equal to the percentages set forth in Section
4.2 of the Operating Agreement. Any dispute concerning the amount of such
Assumed Debt adjustment will be determined prior to Closing by an auditor
selected in accordance with Section 3.3.
3.3 Calculation of Adjustments.
(a) Each Member will estimate in good faith with respect to
their respective Systems, and set forth, together with a detailed statement of
the calculation thereof, the adjustments and prorations with respect to its
Cable Business prescribed by Section 3.1 (the "Adjustments"), in a certificate
(the "Initial Adjustment Certificate") executed by an authorized representative
of Fisher or TCI, as appropriate, and delivered to the other Member at least 10
Business Days prior to the Closing. Each Initial Adjustment Certificate will
be accompanied by appropriate documentation, including an accounts receivable
detail with relevant aging information as of the date of such certification, in
summary form, supporting the determination of and the Adjustments proposed in
such certificate. Following receipt of such Initial Adjustment Certificate,
the recipient shall have five Business Days to review such schedule and
supporting information and to notify the preparer of such Initial Adjustment
Certificate of any disagreements with the preparer's estimates of the
Adjustments. If the recipient provides a notice of disagreement with the
preparer's estimates of such amounts within such five Business Day period, TCI
and Fisher shall negotiate in good faith to resolve any such dispute and to
reach an agreement prior to the Closing Date on such estimated amounts as of
the Closing Date. The estimate so agreed upon by TCI and Fisher or (if the
parties do not reach such an agreement on such estimated amounts set forth in
the Initial Adjustment Certificates prior to the Closing Date or if the
recipient fails to provide a notice of disagreement with the preparer's
estimates of such amounts within the time provided) the estimates of
Adjustments set forth in the Initial Adjustment Certificates shall be the basis
for determining the net Adjustment set forth in Section 3.1. For purposes of
this section,
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<PAGE> 18
the net Adjustment shall be the difference between the estimated Adjustments of
each Member. The net Adjustment shall be made to the Member's capital account
with the highest estimated Adjustment. A corresponding adjustment shall then
be made to TCI's capital account in accordance with Section 3.2(b).
(b) Within 90 days after the Closing, Fisher and TCI will each
deliver to the other a certificate (the "Final Adjustment Certificate") showing
in full detail the final determination of their respective Adjustments which
certificate will be accompanied by appropriate documentation supporting the
amounts proposed in such certificate, including an accounts receivable detail
with relevant aging information as of the Closing Time, and which will be
executed by an officer of Fisher or TCI, as appropriate. Each party will
provide to the other reasonable access to all records in its possession which
were used in the preparation of its Initial and Final Adjustment Certificates.
Fisher and TCI will each review the other's Final Adjustment Certificate and
will give written notice to the other party of any objections it has to the
calculations shown in such certificate within 30 days after its receipt
thereof. TCI and Fisher will endeavor in good faith to resolve any such
objections within 30 days after the receipt by the Members of each other's
objections. If any objections or disputes have not been resolved at the end of
such 30-day period, the disputed portion of the Adjustments will be determined
within the following 30 days by a partner in a major accounting firm with
substantial cable television audit experience which is not the auditor of
either Fisher or TCI (or any Affiliate of either of them) and the determination
of such auditor will be final and will be binding upon the Members. If Fisher
and TCI cannot agree with respect to the selection of an auditor, Fisher and
TCI will each select an auditor and those two auditors will select a third
auditor whose determination will be final and will be binding upon the Members.
Fisher and TCI will bear equally the expenses arising in connection with such
determination of all disputed amounts, whether by agreement of the Members or
by an auditor's determination. The net final Adjustment amount shall be
further adjusted in order to take into account any estimated Adjustments
actually made at the Closing pursuant to Section 3.3(a) (the "Post-Closing
Adjustment"). The positive Post-Closing Adjustment shall be added to the
appropriate Member's capital account with a corresponding adjustment being made
to TCI's capital account in accordance with Section 3.2(b). In connection
therewith, if the positive Post-Closing Adjustment is added to TCI's capital
account then the amount of TCI Assumed Debt will be increased accordingly.
Likewise, if the positive Post-Closing Adjustment is added to Fisher's capital
account then the amount of TCI Assumed Debt will be decreased accordingly and
TCI will reimburse to Peak such decreased amount.
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS
4.1 Assumed Obligations and Liabilities. At the Closing Date, the
Company will assume and after the Closing, the Company will pay, discharge and
perform the following (the "Assumed Obligations and Liabilities"): (a) those
obligations and liabilities accruing and relating to periods after the Closing
Time under or with respect to
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<PAGE> 19
the Assets assigned and transferred to the Company at the Closing; (b) those
obligations and liabilities of either Member to customers of the Cable Business
for (i) subscriber deposits related to the Systems in the amount for which the
Company received credit under Section 3.3 and (ii) customer, advertising and
other advance payments held by either Member as of the Closing Date in the
amount for which the Company received credit under Section 3.3; and (c) all
other obligations and liabilities accruing and relating to periods after the
Closing Time and arising out of the ownership of the Assets or operation of the
Systems after the Closing Time, except to the extent that such obligations or
liabilities relate to any Excluded Asset.
4.2 TCI Excluded Assets. "TCI Excluded Assets" means all: (a)
programming (including cable guide Contracts) and retransmission consent
Contracts (other than those listed on SCHEDULE 1.63 (TCI System Contracts); (b)
vehicle leases; (c) TCI Plans; (d) insurance policies and rights and claims
thereunder (except as otherwise provided in Section 13.16); (e) bonds, letters
of credit, surety instruments and other similar items; (f) cash and cash
equivalents and notes receivable; (g) subscriber billing Contracts and related
leased equipment to the extent not used at the Company; (h) all commercial
accounts relating to the provision of cable music services through DMX, Inc.;
(i) all Contracts relating to national advertising sales representation,
including Contracts with National Cable Communications or Cable Networks, Inc.;
and (j) rights, assets and properties described on SCHEDULE 4.2.
4.3 Fisher Excluded Assets. "Fisher Excluded Assets" means all: (a)
programming (including cable guide Contracts) and retransmission consent
Contracts (other than those listed on SCHEDULE 1.25 (Fisher System Contracts);
(b) vehicle leases; (c) Fisher Plans unless expressly included as a Fisher
System Contract; (d) insurance policies and rights and claims thereunder
(except as otherwise provided in Section 13.16); (e) bonds, letters of credit,
surety instruments and other similar items; (f) cash and cash equivalents and
notes receivable; (g) subscriber billing Contracts and related leased equipment
to the extent not used at the Company; and (h) rights, assets and properties
described on SCHEDULE 4.3.
SECTION 5. FISHER'S REPRESENTATIONS AND WARRANTIES
Fisher represents and warrants to the Company and TCI as of the
date of this Agreement and as of the Closing, as follows:
5.1 Organization and Qualification of Fisher. Fisher is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Colorado and has all requisite power and authority to
own, lease and use the Fisher Assets owned, leased or used by it and to conduct
Fisher's Cable Business as it is currently conducted. Fisher is duly qualified
to do business and is in good standing under the laws of each jurisdiction in
which the ownership, leasing or use of the Fisher Assets owned, leased or used
by it or the nature of its activities in connection with the Fisher
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<PAGE> 20
Systems makes such qualification necessary, except in any such jurisdiction
where the failure to be so qualified and in good standing would not have a
material adverse effect on the ownership or operation of Fisher's Cable
Business, the Fisher Assets or Fisher Systems or on the ability of Fisher to
perform its obligations under this Agreement.
5.2 Authority and Validity. Fisher has all requisite power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which Fisher is a party. The execution and delivery by Fisher,
the performance by Fisher under, and the consummation by Fisher of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Fisher is a party have been duly and validly authorized by all necessary
action by or on behalf of Fisher. This Agreement has been, and when executed
and delivered by Fisher the Transaction Documents will be, duly and validly
executed and delivered by Fisher and the valid and binding obligations of
Fisher, enforceable against Fisher in accordance with their terms, except as
the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for the Fisher Required
Consents, all of which are listed on SCHEDULE 5.3, the TCI Required Consents
and the notification and expiration or earlier termination of the waiting
period under the HSR Act, the execution and delivery by Fisher, the performance
of Fisher under, and the consummation of the transactions contemplated by, this
Agreement and the Transaction Documents to which Fisher is a party do not and
will not: (a) conflict with or violate any provision of its articles of
organization or operating agreement; (b) violate any provision of any Legal
Requirement; (c) require any consent, approval or authorization of, or filing
of any certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Fisher under, or (iv) result in the
creation or imposition of any Lien under any Fisher System Franchise, Fisher
System License or any Fisher System Contract or other instrument evidencing
any of the Fisher Assets or by which Fisher or any of its assets is bound or
affected, except for purposes of clauses (c) and (d) such consents, approvals,
authorizations and filings that, if not obtained or made, would not, and such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any Fisher System, Fisher's Cable Business or
Fisher or on the ability of Fisher to perform its obligations under this
Agreement or the Transaction Documents to which Fisher is a party.
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<PAGE> 21
5.4 Assets.
5.4.1 As of the date of this Agreement, Halcyon GP and Halcyon
LP have, and as of Closing, Fisher will have, exclusive and good title to (or,
in the case of Assets that are leased, valid leasehold interests in) the Fisher
Assets (other than Fisher Owned Real Property, Fisher Leased Property and
Fisher Other Real Property Interests, as to which representations and
warranties in SECTION 5.6 apply). The Fisher Assets are free and clear of all
Liens, except for (a) Permitted Liens or (b) Liens described on SCHEDULE 5.4,
all of which will be terminated, released or, in the case of the rights of
first refusal listed on SCHEDULE 5.4, waived, as appropriate, at or prior to
the Closing. Except as described on SCHEDULE 1.28 (Fisher Tangible Personal
Property), the Fisher Tangible Personal Property is in good operating condition
and repair (ordinary wear and tear excepted).
5.4.2 Except for items included in the Fisher Excluded Assets,
the Fisher Assets constitute all the assets necessary to permit the Company to
conduct Fisher's Cable Business and to operate the Fisher Systems substantially
as they are being conducted and operated on the date of this Agreement and in
compliance in all material respects with all applicable Legal Requirements,
Fisher System Contracts, Fisher System Licenses and Fisher System Franchises
and to perform all of the Assumed Obligations and Liabilities.
5.4.3 To the Knowledge of Fisher, no third party has been
granted or applied for a cable television franchise or is providing or
intending to provide cable television services in any of the communities or
unincorporated areas currently served by Fisher's Cable Business.
5.5 Fisher System Franchises, Fisher System Licenses, Fisher System
Contracts and Fisher Other Real Property Interests.
(a) Except as described on SCHEDULES 1.20 (Fisher Leased Property),
1.22 (Fisher Other Real Property Interests), 1.25 (Fisher System Contracts),
1.26 (Fisher System Franchises), 1.27 (Fisher System Licenses), or 4.3 (Fisher
Excluded Assets), (a) Halcyon GP or Halcyon LP is not as of the date of this
Agreement, and Fisher will not be as of the Closing Date, bound or affected by
any of the following that relate primarily or in whole to Fisher's Cable
Business: (i) leases of real or personal property; (ii) franchises for the
construction or operation of cable television systems or System Contracts of
substantially equivalent effect; (iii) other licenses, authorizations, consents
or permits of the FCC or any other Governmental Authority; (iv) material
easements or rights of access; (v) pole line agreements, underground conduit
agreements, crossing agreements or bulk or commercial service agreements; or
(vi) System Contracts relating to the operation of Fisher's Cable Business
other than those described in any other clause of this Section which
contemplate payments by or to Fisher in any 12-month period exceeding $10,000
individually or $50,000 in the aggregate or that are not terminable by Fisher
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without cost or penalty on not more than 90 days prior written notice, and (b)
no Affiliate of Fisher is a party to any documents listed on such Schedules.
(b) Complete and correct copies of the Fisher System Franchises and
Fisher System Licenses have been delivered by Fisher to TCI. The Fisher System
Franchises and Fisher System Licenses are currently in full force and effect
and are valid under all applicable Legal Requirements according to their terms.
There is no legal action, governmental proceeding or investigation, pending or
to Fisher's Knowledge threatened, to terminate, suspend or modify any Fisher
System Franchise and Fisher System License and Halcyon GP and Halcyon LP are as
of the date of this Agreement, and Fisher will be as of the Closing Date, in
material compliance with the terms and conditions of all the Fisher System
Franchises and Fisher System Licenses and with other applicable requirements of
all Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the Fisher System Franchises and Fisher System Licenses, including
all requirements for notification, filing, reporting, posting and maintenance
of logs and records.
(c) Complete and correct copies of all material Fisher System
Contracts (including Contracts relating to Leased Property and Other Real
Property Interests described on SCHEDULE 1.22) have been provided to TCI. Such
documents constitute the entire agreement with the other party. Each such
Fisher System Contract is in full force and effect and constitutes the valid,
legal, binding and enforceable obligation of Halcyon GP, Halcyon LP or Fisher,
as the case may be, and Halcyon GP, Halcyon LP or Fisher, as the case may be,
are not and to Fisher's Knowledge, each other party thereto is not in breach or
default of any material terms or conditions thereunder.
5.6 Real Property. All the Assets consisting of Fisher Owned Real
Property, Fisher Leased Property and material Fisher Other Real Property
Interests are described on SCHEDULES 1.20 (Fisher Leased Property), 1.22
(Fisher Other Real Property Interests) and 1.23 (Fisher Owned Real Property).
Except as otherwise disclosed on SCHEDULES 1.20 (Fisher Leased Property), 1.22
(Fisher Other Real Property Interests) and 1.23 (Fisher Owned Real Property),
Halcyon GP and Halcyon LP, as of the date of this Agreement, and Fisher will,
as of the Closing Date, hold title to the Fisher Owned Real Property free and
clear of all Liens, other than Permitted Liens and have the valid and
enforceable right to use and possess such Fisher Owned Real Property, subject
only to the Permitted Liens; and Halcyon GP and Halcyon LP, as of the date of
this Agreement, and Fisher will, as of the Closing Date, have valid and
enforceable leasehold interests in all Fisher Leased Property and, with respect
to Fisher Other Real Property Interests, have valid and enforceable rights to
use all Fisher Other Real Property Interests subject only to Permitted Liens.
Except for routine repairs, all of the material improvements, leasehold
improvements and the premises of the Fisher Owned Real Property and the
premises demised under the leases and other documents evidencing the Fisher
Leased Property are in good condition and repair and are suitable for the
purposes used. Each parcel of Fisher Owned Real Property and each parcel of
Fisher Leased Property and any improvements
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<PAGE> 23
thereon and their current use (a) has access to and over public streets or
private streets for which Fisher has a valid right of ingress and egress, (b)
conforms in its current use and occupancy to all material zoning requirements
without reliance upon a variance issued by a Governmental Authority or a
classification of the parcel in question as a nonconforming use and (c)
conforms in its current use to all restrictive covenants, if any, or other
Liens affecting all or part of such parcel. Except where the failure of the
representations made in this sentence to be true and correct would not have a
material adverse effect on any Fisher Assets comprising any Fisher System, all
buildings, towers, guy wires and anchors, earth-receiving dishes and related
facilities used in the operations of the Fisher Systems are located entirely on
the Fisher Owned Real Property or Fisher Leased Property, and together with all
pole attachments, cable plant and cable installations, equipment and facilities
used in connection with the Fisher Systems, are located entirely on the Fisher
Owned Real Property or Fisher Leased Property, and together with all pole
attachments, cable plant and cable installations, equipment and facilities used
in connection with the Fisher Systems are maintained, placed and located in
accordance with the provisions of all applicable Legal Requirements, deeds,
leases, licenses, permits or other legally enforceable arrangements.
5.7 Environmental.
(a) To Fisher's Knowledge, the Fisher Owned Real Property and
Fisher Leased Property comply in all material respects with and has previously
been operated in compliance in all material respects with all Environmental
Laws. Neither Halcyon GP, Halcyon LP nor Fisher have, either directly or
indirectly, (i) generated, stored, used, treated, handled, discharged, released
or disposed of any Hazardous Substances at, on, under, in or about, to or from
or in any other manner affecting, any Fisher Owned Real Property or Fisher
Leased Property, (ii) transported any Hazardous Substances to or from any
Fisher Owned Property or Fisher Leased Property or (iii) undertaken or caused
to be undertaken any other activities relating to the Fisher Owned Real
Property or Fisher Leased Property, which could reasonably give rise to any
liability under any Environmental Law and, to Fisher's Knowledge, no other
present or previous owner, tenant, occupant or user of any Fisher Owned Real
Property or Fisher Leased Property or any other Person has committed or
suffered any of the foregoing. To Fisher's Knowledge, no release of Hazardous
Substances outside the Fisher Owned Real Property or Fisher Leased Property has
entered or threatens to enter any Fisher Owned Real Property or Fisher Leased
Property, nor is there any pending or threatened Litigation based on
Environmental Laws which arises from any condition of the land adjacent to or
immediately surrounding any Fisher Owned Real Property or Fisher Leased
Property. No Litigation based on Environmental Laws which relates to any
Fisher Owned Real Property or Fisher Leased Property or any operations or
conditions on it (A) has been asserted or conducted in the past or is currently
pending against or with respect to Fisher or, to Fisher's Knowledge, any other
Person or (B) to Fisher's Knowledge, is threatened or contemplated.
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(b) To Fisher's Knowledge, (i) no aboveground or underground
storage tanks are currently or have been located on any Fisher Owned Real
Property or Fisher Leased Property, (ii) no Fisher Owned Real Property or
Fisher Leased Property has been used at any time as a gasoline service station
or any other facility for storing, pumping, dispensing or producing gasoline or
any other petroleum products or wastes and (iii) no building or other structure
on any Fisher Owned Real Property or Fisher Leased Property contains asbestos,
asbestos-containing material or material presumed to be asbestos-containing
material under any Environmental Law.
(c) Fisher has provided TCI with complete and correct copies
of (i) all studies, reports, surveys or other written materials in Fisher's
possession or to which Fisher has access relating to the presence or alleged
presence of Hazardous Substances at, on, under or affecting the Fisher Owned
Real Property or Fisher Leased Property, (ii) all notices (other than general
notices made by general publication) or other materials in Fisher's possession
or to which Fisher has access that were received from any Governmental
Authority having the power to administer or enforce any Environmental Laws
relating to current or past ownership, use or operation of the Fisher Owned
Real Property or Fisher Leased Property or activities at the Fisher Owned Real
Property or Fisher Leased Property and (iii) all materials in Fisher's
possession or to which Fisher has access relating to any Litigation or
allegation by any private third party concerning any Environmental Law.
5.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the Fisher Assets as
they are currently owned, leased and used and the conduct of Fisher's Cable
Business and the operation of the Fisher Systems as they are currently
conducted and operated do not violate or infringe in any material respect any
Legal Requirements currently in effect (other than Legal Requirements described
in Section 5.8(d), as to which the representations and warranties set forth in
that subsection shall apply). Neither Halcyon GP, Halcyon LP nor Fisher has
received any notice of any violation by Fisher or Fisher's Cable Business of
any Legal Requirement applicable to the operation of Fisher's Cable Business as
currently conducted, or the Fisher Systems as currently operated and to
Fisher's Knowledge, there is no existing fact, circumstance or condition that
could reasonably form the basis for an allegation of any such violation.
(b) A valid request for renewal has been duly and timely filed
under Section 626 of the Communications Act with the proper Governmental
Authority with respect to all Fisher System Franchises that have expired prior
to or will expire within 36 months after the date of this Agreement.
(c) As of the date of this Agreement, Halcyon GP and Halcyon
LP have complied, and as of Closing, Fisher will comply, and Fisher's Cable
Business is in compliance, in all material respects, with the specifications
set forth in Part 76, Subpart K
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of the rules and regulations of the FCC, Section 111 of the U.S. Copyright Act
of 1976 and the applicable rules and regulations thereunder and the applicable
rules and regulations of the U.S. Copyright Office, the Register of Copyrights,
the Copyright Royalty Tribunal and the Communications Act, including provisions
of any thereof pertaining to signal leakage, to utility pole make ready and to
grounding and bonding of cable television systems (in each case as the same is
currently in effect), and all other applicable Legal Requirements relating to
the construction, maintenance, ownership and operation of the Fisher Assets,
the Fisher Systems and Fisher's Cable Business.
(d) Notwithstanding the foregoing, to Fisher's Knowledge, each
Fisher System is in compliance in all material respects with the provisions of
the 1992 Cable Act as such Legal Requirements relate to the operation of
Fisher's Cable Business. As of the date of this Agreement, Halcyon GP and
Halcyon LP have complied, and as of Closing, Fisher will comply, in all
material respects with the must carry and retransmission consent provisions of
the 1992 Cable Act as they relate to the Fisher Systems. As of the date of the
Agreement, Halcyon GP and Halcyon LP have used, and as of Closing, Fisher will
use, reasonable good faith efforts to establish rates charged to subscribers,
effective since September 1, 1993, that are or were allowable under the 1992
Cable Act and any authoritative interpretation thereof now or then in effect,
whether or not such rates are or were subject to regulation at that date by any
Governmental Authority, including any local franchising authority and/or the
FCC, unless such rates were not subject to regulation pursuant to a specific
exemption from rate regulation contained in the 1992 Cable Act other than the
failure of any franchising authority to have been certified to regulate rates.
Notwithstanding the foregoing, Fisher makes no representation or warranty that
the rates charged to subscribers would be allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, promulgated
after the date of the Closing. Fisher has delivered to TCI complete and
correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215, 1220, 1225, 1235
and 1240 filed with respect to the Fisher Systems, copies of all other FCC
Forms filed by Fisher and of all correspondence with any Governmental Authority
relating to rate regulation generally or specific rates charged to subscribers
with respect to Fisher Systems, including copies of any complaints filed with
the FCC with respect to any rates charged to subscribers of the Fisher Systems,
and any other documentation supporting an exemption from the rate regulation
provisions of the 1992 Cable Act claimed by Fisher with respect to any of the
Fisher Systems. Neither Halcyon GP, Halcyon LP nor Fisher has received any
notice from any Governmental Authority with respect to an intention to enforce
customer service standards pursuant to the 1992 Cable Act and neither Halcyon
GP, Halcyon LP nor Fisher have agreed with any Governmental Authority to
establish customer service standards that exceed the customer service standards
promulgated pursuant to the 1992 Cable Act. Except as set forth on SCHEDULE
5.8, neither Halcyon GP, Halcyon LP nor Fisher has made any election with
respect to any cost of service proceeding conducted in accordance with Part
76.922 of Title 47 of the Code of Federal Regulations or any similar proceeding
with respect to any of the Fisher Systems (a "Cost of Service Election").
Neither Halcyon GP, Halcyon LP nor Fisher has entered into or is subject to any
so-called social contract
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or proposed resolution with the FCC with respect to rates charged for cable
television services in the Fisher Systems and is currently negotiating or
anticipating entering into or being subject to the same.
5.9 Patents, Trademarks and Copyrights. Halcyon GP, Halcyon LP or
Fisher, as the case may be, have timely and accurately made all requisite
filings and payments with the Register of Copyrights with respect to Fisher's
Cable Business. Fisher has delivered to TCI complete and correct copies of all
current reports and filings for the past two years, made or filed pursuant to
copyright rules and regulations with respect to Fisher's Cable Business.
Neither Halcyon LP, Halcyon GP nor Fisher possesses any patent, patent right,
trademark or copyright related to or material to the operation of the Fisher
Systems and neither Halcyon GP, Halcyon LP nor Fisher is a party to any license
or royalty agreement with respect to any such patent, trademark or copyright,
except for licenses respecting program material and obligations under the
Copyright Act of 1976 applicable to cable television systems generally. The
Fisher Systems and Fisher's Cable Business have been operated in such a manner
so as not to violate or infringe upon the rights, or give rise to any rightful
claim of any Person for copyright, trademark, service mark, patent or license
infringement or the like.
5.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. Fisher has delivered to TCI complete and correct copies of
(a) unaudited balance sheets of each of the Fisher Systems and related
statements of income, for and as of the year ended December 31, 1996 and (b)
unaudited balance sheets and the related unaudited statements of income for
each quarter ending on and after March 31, 1997 (all of such financial
statements and notes being hereinafter referred to as "Fisher's Financial
Statements"). Fisher's Financial Statements are in accordance with the books
and records of each of the respective Fisher Systems, were prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis throughout the periods covered thereby, and, except as may be
described therein, present fairly the financial condition of such Systems at
the dates and for the periods indicated, subject, in the case of unaudited
Fisher Financial Statements, only to standard year-end adjustments and the
omission of footnotes. The balance sheets as of March 31, 1997 of each of the
Fisher Systems is herein called "Fisher Balance Sheet." At the date of the
Fisher Balance Sheet, Fisher had no material liabilities required by generally
accepted accounting principles to be reflected or reserved against therein that
were not fully reflected or reserved against on the Fisher Balance Sheet, other
than liabilities included in Fisher liabilities as set forth on SCHEDULE 5.10.
Except as set forth on SCHEDULE 5.10, since the date of Fisher Balance Sheet:
(a) none of the Fisher Systems has incurred any obligation or liability
(contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of business, the performance of which will not, to
Fisher's Knowledge, individually or in the aggregate, have a material adverse
effect on the financial condition of Fisher or the results of operations of
Fisher's Cable Business; (b) there has been no material adverse change in the
Fisher Assets comprising any Fisher System or in the business, condition,
financial or otherwise, or liabilities of Fisher's Cable
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Business or any Fisher System and, to Fisher's Knowledge, no fact or condition
exists or is contemplated or threatened which would result in such a change in
the future; and (c) Fisher's Cable Business has been conducted only in the
ordinary course of business consistent with past practice. For the purpose of
this Agreement, the impact on Fisher of events which affect the cable industry
as a whole in the States of Arkansas, Missouri, Nevada, Oklahoma and Utah or
the United States, shall not be considered in determining whether there has
been a material adverse change in the business, condition, financial or
otherwise or liabilities of Fisher's Cable Business or any Fisher System.
5.11 Litigation. Except as set forth in SCHEDULE 5.11: (a) there is
no Litigation pending or, to Fisher's Knowledge, threatened, by or before any
Governmental Authority or private arbitration tribunal against Halcyon GP,
Halcyon LP or Fisher which, if adversely determined, would materially adversely
affect the financial condition or operations of Fisher's Cable Business, the
Fisher Systems, the Fisher Assets or the ability of Fisher to perform its
obligations under this Agreement, or which, if adversely determined, would
result in the modification, revocation, termination, suspension or other
limitation of any of the Fisher System Franchises, Fisher System Licenses,
Fisher System Contracts or leases or other documents evidencing the Fisher
Leased Property or the Fisher Other Real Property Interests; and (b) there is
not in existence any Judgment requiring Fisher to take any action of any kind
with respect to the Fisher Assets or the operation of the Fisher Systems, or to
which Fisher (with respect to the Fisher Systems), the Fisher Systems or the
Fisher Assets are subject or by which they are bound or affected.
5.12 Tax Returns; Other Reports. Halcyon Communications, Inc. ("HCI"),
as the tax matters partner for each of Halcyon LP and Halcyon GP, has duly and
timely filed all federal, state, local and foreign Tax returns and other Tax
reports required to be filed by Halcyon LP and Halcyon GP. Fisher has received
no notice of any deficiency, assessment or audit, or proposed deficiency,
assessment or audit from any taxing Governmental Authority which could affect
or result in the imposition of a Lien upon the Fisher Assets.
5.13 Employment Matters.
(a) SCHEDULE 5.13(A) contains a complete and correct list of
the names and positions of all employees engaged in Fisher's Cable Business as
of the date set forth on SCHEDULE 5.13(A). Fisher has complied in all material
respects with all applicable Legal Requirements relating to the employment of
labor, including, the Worker Adjustment and Retraining Notification Act, 29
U.S.C. Section 2101, et seq. ("WARN"), ERISA, continuation coverage
requirements with respect to group health plans and those relating to wages,
hours, collective bargaining, unemployment insurance, worker's compensation,
equal employment opportunity, age and disability discrimination, immigration
control and the payment and withholding of Taxes.
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(b) Each employee benefit plan (as defined in Section 3(3) of
ERISA) or any multiemployer plan (as defined in Section 3(37) of ERISA) with
respect to which Fisher or any of its ERISA Affiliates has any liability or in
which any employees or agents, or any former employees or agents, of Fisher or
any of its ERISA Affiliates participate is set forth in SCHEDULE 5.13(B) (the
"Fisher Plans"). Neither Fisher, any of its ERISA Affiliates nor any Fisher
Plan is in material violation of any provision of the Internal Revenue Code, as
amended (the "Code") or ERISA. No "reportable event" (as defined in Section
4043 of ERISA) has occurred and is continuing with respect to any Fisher Plan
and no "prohibited transaction" (as defined in Section 406 of ERISA) has
occurred with respect to any Fisher Plan which reasonably could result in
material liability to Fisher or any of its ERISA Affiliates. No material
"accumulated funding deficiency" or "withdrawal liability" (as defined in
Section 302 of ERISA) exists with respect to any of the Fisher Plans. After
the Closing, the Company will not be required, under ERISA, the Code or any
collective bargaining agreement, to establish, maintain or continue any Plan
currently maintained by Fisher or any of its ERISA Affiliates.
(c) Except as set forth on SCHEDULE 5.13(C), there are no
collective bargaining agreements applicable to any Person employed by Fisher
that renders services in connection with the Fisher Systems and Fisher has no
duty to bargain with any labor organization with respect to any such Person.
There are not pending any unfair labor practice charges against Fisher, any
demand for recognition or any other effort of or request or demand from, a
labor organization for representative status with respect to any Person
employed by Fisher that renders services in connection with the Fisher Systems.
Except as described on SCHEDULE 5.13(C), Fisher has no employment agreements,
either written or oral, with any employee of the Fisher Systems and none of the
employment agreements listed on SCHEDULE 5.13(C) requires Fisher or will
require the Company to employ any Person after the Closing.
5.14 Fisher Systems Information. SCHEDULE 5.14 sets forth a
materially true and accurate description of the following information relating
to Fisher's Cable Business as of the most recent monthly report generated by
Fisher in the ordinary course of business containing the information required
to prepare such SCHEDULE 5.14, provided that such date is no earlier than two
months prior to the date of this Agreement:
(a) the approximate number of miles of plant included in the
Fisher Assets;
(b) the number of subscribers and subscriber equivalents
served by the Fisher Systems for each Fisher System Franchise;
(c) the approximate number of single family homes and
residential dwelling units passed by the Fisher Systems;
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(d) a description of basic and optional or tier services
available from the Fisher Systems, the rates charged by Fisher for each and the
number of subscribers and subscriber equivalents receiving each optional or
tier service;
(e) the stations and signals carried by the Fisher Systems and
the channel position of each such signal and station; and
(f) the cities, towns, villages, townships, boroughs and
counties served by the Fisher Systems.
5.15 Bonds; Letters of Credit. Except as set forth on SCHEDULE 5.15,
there are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by Halcyon GP, Halcyon
LP or Fisher in connection with its operation or ownership of any of the Fisher
Systems or Fisher Assets.
5.16 Finders and Brokers. Fisher has not employed any financial
advisor, broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which the Company or TCI could
be liable.
SECTION 6. TCI'S REPRESENTATIONS AND WARRANTIES
TCI represents and warrants to Fisher as of the date of this Agreement
and as of the Closing, as follows.
6.1 Organization and Qualification of TCI.
(a) Tempo Cable, Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oklahoma;
Communications Services, Inc. is a corporation duly organized, validly existing
and in good standing under the laws of the State of Kansas; TCI Cablevision of
Oklahoma, Inc. is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado; TCI of Kansas, Inc. is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Kansas; Wentronics, Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Mexico; TCI Cablevision of Utah, Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah; TCI
Cablevision of Arizona, Inc. is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona; and Tulsa Cable
Television, Inc. is a corporation duly organized, validly existing and in good
standing under the laws of the State of Oklahoma. Each of the TCI Entities has
all requisite corporate power and authority to own, lease and use the TCI
Assets owned, leased or used by it and to conduct TCI's Cable Business as it is
currently conducted. Each of the TCI Entities is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which the
ownership, leasing or use of the
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TCI Assets owned, leased or used by it or the nature of its activities in
connection with the TCI Systems makes such qualification necessary, except in
any such jurisdiction where the failure to be so qualified and in good standing
would not have a material adverse effect on the ownership or operation of TCI's
Cable Business, the TCI Assets or TCI Systems or on the ability of TCI to
perform its obligations under this Agreement.
(b) TCI Member is a limited partnership duly organized and
validly existing under the laws of the State of Colorado and has all requisite
partnership power and authority to own, lease and use the TCI Assets owned,
leased or used by it and to conduct TCI's Cable Business as it is currently
conducted. Prior to Closing, TCI Member will be duly qualified to do business
and in good standing under the laws of each jurisdiction in which the
ownership, leasing or use of the TCI Assets owned, leased or used by it or the
nature of its activities in connection with the TCI Systems makes such
qualification necessary, except in any such jurisdiction where the failure to
be so qualified and in good standing would not have a material adverse effect
on the ownership or operation of TCI's Cable Business, the TCI Assets or TCI
Systems or on the ability of TCI to perform its obligations under this
Agreement.
6.2 Authority and Validity. Each of the TCI Entities and the TCI
Member have all requisite power and authority to execute and deliver, to
perform its obligations under, and to consummate the transactions contemplated
by, this Agreement and the Transaction Documents to which it is a party. The
execution and delivery by the TCI Entities and the TCI Member, the performance
by the TCI Entities and the TCI Member, and the consummation by the TCI
Entities and the TCI Member of the transactions contemplated by, this Agreement
and the Transaction Documents to which any of the TCI Entities or the TCI
Member is a party have been duly and validly authorized by all necessary
action. This Agreement has been, and when executed and delivered by the TCI
Entities and the TCI Member, the Transaction Documents will be, duly and
validly executed and delivered by the TCI Entities and the TCI Member and the
valid and binding obligations of the TCI Entities and the TCI Member,
enforceable against the TCI Entities and the TCI Member in accordance with
their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to the enforcement of creditors' rights generally or by
principles governing the availability of equitable remedies.
6.3 No Conflict; Required Consents. Except for the TCI Required
Consents, all of which are listed on SCHEDULE 6.3, the Fisher Required Consents
and the notification and expiration or earlier termination of the waiting
period under the HSR Act, the execution and delivery by any of the TCI Entities
or the TCI Member, the performance of any of the TCI Entities or the TCI Member
under, and the consummation of the transactions contemplated by, this Agreement
and the Transaction Documents to which any of the TCI Entities or the TCI
Member is a party do not and will not: (a) conflict with or violate any
provision of its charter, bylaws or other constituent documents; (b) violate
any provision of any Legal Requirement; (c) require any consent, approval or
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authorization of, or filing of any certificate, notice, application, report or
other document with, any Governmental Authority or other Person; or (d) (i)
conflict with, violate, result in a breach of or constitute a default under
(without regard to requirements of notice, lapse of time or elections of other
Persons or any combination thereof), (ii) permit or result in the termination,
suspension or modification of, (iii) result in the acceleration of (or give any
Person the right to accelerate) the performance of any of the TCI Entities or
the TCI Member under, or (iv) result in the creation or imposition of any Lien
under any TCI System Franchise, TCI System License or any TCI System Contract
or other instrument evidencing any of the TCI Assets or by which any of the TCI
Entities or the TCI Member or any of its assets is bound or affected, except
for purposes of clauses (c) and (d) such consents, approvals, authorizations
and filing, that, if not obtained or made, would not, and such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications and
accelerations as would not, individually or in the aggregate, have a material
adverse effect on any TCI System, TCI's Cable Business, any TCI Entity or the
TCI Member or on the ability of any TCI Entity or the TCI Member to perform its
obligations under this Agreement or the Transaction Documents to which any TCI
Entity or the TCI Member is a party.
6.4 Assets.
(a) TCI has exclusive and good title to (or, in the case of
Assets that are leased, valid leasehold interests in) the TCI Assets (other
than TCI Owned Real Property, TCI Leased Property and TCI Other Real Property
Interests, as to which representations and warranties in Section 6.6 apply).
The TCI Assets are free and clear of all Liens, except for (a) Permitted Liens
or (b) Liens described on SCHEDULE 6.4, all of which will be terminated,
released or, in the case of the rights of first refusal listed on SCHEDULE 6.4,
waived, as appropriate, at or prior to the Closing. Except as described on
SCHEDULE 1.70 (TCI Tangible Personal Property), the TCI Tangible Personal
Property is in good operating condition and repair (ordinary wear and tear
excepted).
(b) Except for items included in the TCI Excluded Assets, the
TCI Assets constitute all the assets necessary to permit the Company to conduct
TCI's Cable Business and to operate the TCI Systems substantially as they are
being conducted and operated on the date of this Agreement and in compliance in
all material respects with all applicable Legal Requirements, TCI System
Contracts, TCI System Licenses and TCI System Franchises and to perform all of
the Assumed Obligations and Liabilities.
(c) To the Knowledge of TCI, no third party has been granted
or applied for a cable television franchise or is providing or intending to
provide cable television services in any of the communities or unincorporated
areas currently served by TCI's Cable Business.
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6.5 TCI System Franchises, TCI System Licenses, TCI System Contracts
and TCI Other Real Property Interests.
(a) Except as described on SCHEDULES 1.60 (TCI Leased
Property), 1.63 (TCI Other Real Property Interests), 1.67 (TCI System
Contracts), 1.68 (TCI System Franchises), 1.69 (TCI System Licenses or 4.2 (TCI
Excluded Assets), (a) TCI is not bound or affected by any of the following that
relate primarily or in whole to TCI's Cable Business: (i) leases of real or
personal property; (ii) franchises for the construction or operation of cable
television systems or System Contracts of substantially equivalent effect;
(iii) other licenses, authorizations, consents or permits of the FCC or any
other Governmental Authority; (iv) material easements or rights of access; (v)
pole line agreements, underground conduit agreements, crossing agreements or
bulk or commercial service agreements; or (vi) System Contracts relating to the
operations of TCI's Cable Business other than those described in any other
clause of this Section which contemplate payments by or to TCI in any 12-month
period exceeding $10,000 individually or $50,000 in the aggregate or that are
not terminable by TCI without cost or penalty on not more than 90 days prior
written notice and (b) no Affiliate of TCI is a party to any documents listed
on such Schedules.
(b) Complete and correct copies of the TCI System Franchises
and TCI System Licenses have been delivered by the appropriate TCI Entity to
Fisher. The TCI System Franchises and TCI System Licenses are currently in
full force and effect and are valid under all applicable Legal Requirements
according to their terms. There is no legal action, governmental proceeding or
investigation, pending or to TCI's Knowledge threatened, to terminate, suspend
or modify any TCI System Franchise and TCI System License and TCI is in
material compliance with the terms and conditions of all the TCI System
Franchises and TCI System Licenses and with other applicable requirements of
all Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the TCI System Franchises and TCI System Licenses, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
(c) Complete and correct copies of all material TCI System
Contracts (including Contracts relating to Leased Property and Other Real
Property Interests described on SCHEDULE 1.63) have been provided to Fisher.
Such documents constitute the entire agreement with the other party. Except as
set forth on SCHEDULE 1.67, each such TCI System Contract is in full force and
effect and constitutes the valid, legal, binding and enforceable obligation of
TCI and TCI is not and to TCI's Knowledge, each other party thereto is not in
breach or default of any material terms or conditions thereunder.
6.6 Real Property. All the Assets consisting of TCI Owned Real
Property, TCI Leased Property and material TCI Other Real Property Interests
are described on SCHEDULES 1.60 (TCI Leased Property), 1.63 (TCI Other Real
Property Interests) and 1.64 (TCI Owned Real Property). Except as otherwise
disclosed on SCHEDULES 1.60 (TCI Leased Property), 1.63 (TCI Other Real
Property Interests) and 1.64 (TCI Owned Real Property), TCI holds title to the
TCI Owned Real Property free and clear of all Liens,
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other than Permitted Liens and has the valid and enforceable right to use and
possess such TCI Owned Real Property, subject only to the Permitted Liens; and
TCI has valid and enforceable leasehold interests in all TCI Leased Property
and, with respect to TCI Other Real Property Interests, has valid and
enforceable rights to use all TCI Other Real Property Interests subject only to
Permitted Liens. Except for routine repairs, all of the material improvements,
leasehold improvements and the premises of the TCI Owned Real Property and the
premises demised under the leases and other documents evidencing the TCI Leased
Property are in good condition and repair and are suitable for the purposes
used. Each parcel of TCI Owned Real Property and each parcel of TCI Leased
Property and any improvements thereon and their current use (a) has access to
and over public streets or private streets for which TCI has a valid right of
ingress and egress, (b) conforms in its current use and occupancy to all
material zoning requirements without reliance upon a variance issued by a
Governmental Authority or a classification of the parcel in question as a
nonconforming use and (c) conforms in its current use to all restrictive
covenants, if any, or other Liens affecting all or part of such parcel. Except
where the failure of the representations made in this sentence to be true and
correct would not have a material adverse effect on any TCI Assets comprising a
TCI System, all buildings, towers, guy wires and anchors, earth-receiving
dishes and related facilities used in the operations of the TCI Systems are
located entirely on the TCI Owned Real Property or TCI Leased Property, and
together with all pole attachments, cable plant and cable installations,
equipment and facilities used in connection with the TCI Systems are
maintained, placed and located in accordance with the provisions of all
applicable Legal Requirements, deeds, leases, licenses, permits or other
legally enforceable arrangements.
6.7 Environmental.
(a) To TCI's Knowledge, the TCI Owned Real Property and TCI
Leased Property comply in all material respects with and has previously been
operated in compliance in all material respects with all Environmental Laws.
TCI has not either directly or indirectly, (i) generated, stored, used,
treated, handled, discharged, released or disposed of any Hazardous Substances
at, on, under, in or about, to or from or in any other manner affecting, any
TCI Owned Real Property or TCI Leased Property, (ii) transported any Hazardous
Substances to or from any TCI Owned Property or TCI Leased Property or (iii)
undertaken or caused to be undertaken any other activities relating to the TCI
Owned Real Property or TCI Leased Property, which could reasonably give rise to
any liability under any Environmental Law and, to TCI's Knowledge, no other
present or previous owner, tenant, occupant or user of any TCI Owned Real
Property or TCI Leased Property or any other Person has committed or suffered
any of the foregoing. To TCI's Knowledge, no release of Hazardous Substances
outside the TCI Owned Real Property or TCI Leased Property has entered or
threatens to enter any TCI Owned Real Property or TCI Leased Property, nor is
there any pending or threatened Litigation based on Environmental Laws which
arises from any condition of the land adjacent to or immediately surrounding
any TCI Owned Real Property
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or TCI Leased Property. No Litigation based on Environmental Laws which
relates to any TCI Owned Real Property or TCI Leased Property or any operations
or conditions on it (A) has been asserted or conducted in the past or is
currently pending against or with respect to TCI or, to TCI's Knowledge, any
other Person, or (B) to TCI's Knowledge, is threatened or contemplated.
(b) To TCI's Knowledge, (i) except as disclosed on SCHEDULE
6.7(B), no aboveground or underground storage tanks are currently or have been
located on any TCI Owned Real Property or TCI Leased Property, (ii) no TCI
Owned Real Property or TCI Leased Property has been used at any time as a
gasoline service station or any other facility for storing, pumping, dispensing
or producing gasoline or any other petroleum products or wastes and (iii) no
building or other structure on any TCI Owned Real Property or TCI Leased
Property contains asbestos, asbestos-containing material or material presumed
to be asbestos-containing material under any Environmental Law.
(c) The appropriate TCI Entity has provided Fisher with
complete and correct copies of (i) all studies, reports, surveys or other
written materials in such party's possession or to which such party has access
relating to the presence or alleged presence of Hazardous Substances at, on,
under or affecting the TCI Owned Real Property or TCI Leased Property, (ii) all
notices (other than general notices made by general publication) or other
materials in such party's possession or to which such party has access that
were received from any Governmental Authority having the power to administer or
enforce any Environmental Laws relating to current or past ownership, use or
operation of the TCI Owned Real Property or TCI Leased Property or activities
at the TCI Owned Real Property or TCI Leased Property and (iii) all materials
in such party's possession or to which such party has access relating to any
Litigation, allegation by any private third party concerning any Environmental
Law.
6.8 Compliance with Legal Requirements.
(a) The ownership, leasing and use of the TCI Assets as they
are currently owned, leased and used and the conduct of TCI's Cable Business
and the operation of the TCI Systems as they are currently conducted and
operated do not violate or infringe in any material respect any Legal
Requirements currently in effect (other than Legal Requirements described in
Section 6.8(d), as to which the representations and warranties set forth in
that subsection shall apply). TCI has received no notice of any violation by
TCI or TCI's Cable Business of any Legal Requirement applicable to the
operation of TCI's Cable Business as currently conducted, or the TCI Systems as
currently operated and to its Knowledge, there is no existing fact,
circumstance or condition that could reasonably form the basis for an
allegation of any such violation.
(b) A valid request for renewal has been duly and timely filed
under Section 626 of the Communications Act with the proper Governmental
Authority with respect to all TCI System Franchises that have expired prior to
or will expire within 36 months after the date of this Agreement.
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(c) TCI has complied and TCI's Cable Business is in
compliance, in all material respects, with the specifications set forth in Part
76, Subpart K of the rules and regulations of the FCC, Section 111 of the U.S.
Copyright Act of 1976 and the applicable rules and regulations thereunder and
the applicable rules and regulations of the U.S. Copyright Office, the Register
of Copyrights, the Copyright Royalty Tribunal and the Communications Act,
including provisions of any thereof pertaining to signal leakage, to utility
pole make ready and to grounding and bonding of cable television systems (in
each case as the same is currently in effect), and all other applicable Legal
Requirements relating to the construction, maintenance, ownership and operation
of the TCI Assets, the TCI Systems and TCI's Cable Business.
(d) Notwithstanding the foregoing, to TCI's Knowledge, each
TCI System is in compliance in all material respects with the provisions of the
1992 Cable Act as such Legal Requirements relate to the operation of TCI's
Cable Business. TCI has complied in all material respects with the must carry
and retransmission consent provisions of the 1992 Cable Act as they relate to
the TCI Systems. TCI has used reasonable good faith efforts to establish rates
charged to subscribers, effective since September 1, 1993, that are or were
allowable under the 1992 Cable Act and any authoritative interpretation thereof
now or then in effect, whether or not such rates are or were subject to
regulation at that date by any Governmental Authority, including any local
franchising authority and/or the FCC, unless such rates were not subject to
regulation pursuant to a specific exemption from rate regulation contained in
the 1992 Cable Act other than the failure of any franchising authority to have
been certified to regulate rates. Notwithstanding the foregoing, TCI makes no
representation or warranty that the rates charged to subscribers would be
allowable under any rules and regulations of the FCC or any authoritative
interpretation thereof, promulgated after the date of the Closing. TCI has
delivered to Fisher complete and correct copies of all FCC Forms 393, 1200,
1205, 1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the TCI
Systems, copies of all other FCC Forms filed by TCI and of all correspondence
with any Governmental Authority relating to rate regulation generally or
specific rates charged to subscribers with respect to TCI Systems, including
copies of any complaints filed with the FCC with respect to any rates charged
to subscribers of the TCI Systems, and any other documentation supporting an
exemption from the rate regulation provisions of the 1992 Cable Act claimed by
TCI with respect to any of the TCI Systems. TCI has received no notice from
any Governmental Authority with respect to an intention to enforce customer
service standards pursuant to the 1992 Cable Act and TCI has not agreed with
any Governmental Authority to establish customer service standards that exceed
the customer service standards promulgated pursuant to the 1992 Cable Act.
Except as set forth on SCHEDULE 6.8, TCI has not made any Cost of Service
Election with respect to any of the TCI Systems.
6.9 Patents, Trademarks and Copyrights. TCI has timely and
accurately made all requisite filings and payments with the Register of
Copyrights with respect to TCI's Cable Business. The appropriate TCI Entity
has delivered to Fisher complete and
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correct copies of all current reports and filings for the past three years,
made or filed pursuant to copyright rules and regulations with respect to TCI's
Cable Business. TCI does not possess any patent, patent right, trademark or
copyright related to or material to the operation of the TCI Systems and TCI is
not a party to any license or royalty agreement with respect to any such
patent, trademark or copyright, except for licenses respecting program material
and obligations under the Copyright Act of 1976 applicable to cable television
systems generally. The TCI Systems and TCI's Cable Business have been operated
in such a manner so as not to violate or infringe upon the rights, or give rise
to any rightful claim of any Person for copyright, trademark, service mark,
patent or license infringement or the like.
6.10 Financial Statements; Undisclosed Liabilities; Absence of Certain
Changes or Events. Each of the TCI Entities have delivered to Fisher complete
and correct copies of its respective (a) internally generated balance sheets
and related statements of income for and as of the year ended December 31,
1996, and (b) unaudited balance sheets and the related unaudited statements of
income for each quarter ending on and after March 31, 1997 (all of such
financial statements and notes being hereinafter referred to as "TCI's
Financial Statements"). TCI's Financial Statements are in accordance with the
books and records of the respective TCI System, were prepared in accordance
with generally accepted accounting principles, applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of such TCI System at the dates and for the periods indicated, subject, in the
case of unaudited TCI Financial Statements, only to standard year-end
adjustments and the omission of footnotes. The balance sheet as of March 31,
1997 of each TCI Entity is herein called a "TCI Balance Sheet." At the date
of each TCI Balance Sheet, each TCI Entity had no material liabilities required
by generally accepted accounting principles to be reflected or reserved against
therein that were not fully reflected or reserved against on such TCI Balance
Sheet, other than liabilities as set forth on SCHEDULE 6.10. Except as set
forth on SCHEDULE 6.10, since the date of each TCI Balance Sheet: (a) neither
such TCI Entity nor the TCI Member has incurred any obligation or liability
(contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of business, the performance of which will not, to TCI's
Knowledge, individually or in the aggregate, have a material adverse effect on
the financial condition of such TCI Entity or the TCI Member or the results of
operations of TCI's Cable Business; (b) there has been no material adverse
change in the TCI Assets comprising any TCI System or in the business,
condition, financial or otherwise, or liabilities of TCI's Cable Business or
any TCI System and, to TCI's Knowledge, no fact or condition exists or is
contemplated or threatened which would result in such a change in the future;
and (c) TCI's Cable Business has been conducted only in the ordinary course of
business consistent with past practice. For the purpose of this Agreement, the
impact on TCI of events which affect the cable industry as a whole in Arizona,
Oklahoma and Utah or the United States, shall not be considered in determining
whether there has been a material adverse change in the business, condition,
financial or otherwise or liabilities of TCI's Cable Business or any TCI
System.
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6.11 Litigation. Except as set forth in SCHEDULE 6.11: (a) there is
no Litigation pending or, to TCI's Knowledge, threatened, by or before any
Governmental Authority or private arbitration tribunal against TCI which, if
adversely determined, would materially adversely affect the financial condition
or operations of TCI's Cable Business, TCI Systems, the TCI Assets or the
ability of TCI to perform its obligations under this Agreement, or which, if
adversely determined, would result in the modification, revocation,
termination, suspension or other limitation of any of the TCI System
Franchises, TCI System Licenses, TCI System Contracts or leases or other
documents evidencing the TCI Leased Property or the TCI Other Real Property
Interests; and (b) there is not in existence any Judgment requiring TCI to take
any action of any kind with respect to the TCI Assets or the operation of the
TCI Systems, or to which TCI (with respect to the TCI Systems), the TCI Systems
or the TCI Assets are subject or by which they are bound or affected.
6.12 Tax Returns; Other Reports. TCI has duly and timely filed all
federal, state, local and foreign Tax returns and other Tax reports required to
be filed by TCI, and has timely paid all Taxes which have become due and
payable, whether or not so shown on any such return or report, the failure of
which to be filed or paid could adversely affect or result in the imposition of
a Lien upon the TCI Assets, except such amounts as are being contested
diligently and in good faith and are not in the aggregate material. TCI has
received no notice of, nor does TCI have any Knowledge of, any deficiency,
assessment or audit, or proposed deficiency, assessment or audit from any
taxing Governmental Authority which could affect or result in the imposition of
a Lien upon the TCI Assets.
6.13 Employment Matters.
(a) SCHEDULE 6.13(A) contains a complete and correct list of
the names and positions of all employees engaged in TCI's Cable Business as of
the date set forth on SCHEDULE 6.13(A). TCI has complied in all material
respects with all applicable Legal Requirements relating to the employment of
labor, including, WARN, ERISA, continuation coverage requirements with respect
to group health plans and those relating to wages, hours, collective
bargaining, unemployment insurance, worker's compensation, equal employment
opportunity, age and disability discrimination, immigration control and the
payment and withholding of Taxes.
(b) Each employee benefit plan (as defined in Section 3(3) of
ERISA) or any multiemployer plan (as defined in Section 3(37) of ERISA) with
respect to which TCI or any of its ERISA Affiliates has any liability or in
which any employees or agents, or any former employees or agents, of TCI or any
of its ERISA Affiliates participate is set forth in SCHEDULE 6.13(B) (the "TCI
Plans"). Neither TCI, any of its ERISA Affiliates nor any TCI Plan is in
material violation of any provision of the Code or ERISA. No "reportable
event" (as defined in Section 4043 of ERISA) has occurred and is continuing
with respect to any TCI Plan and no "prohibited transaction" (as defined in
Section 406 of
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ERISA) has occurred with respect to any TCI Plan which reasonably could result
in material liability to TCI or any of its ERISA Affiliates. No material
"accumulated funding deficiency" or "withdrawal liability" (as defined in
Section 302 of ERISA) exists with respect to any of the TCI Plans. After the
Closing, the Company will not be required, under ERISA, the Code or any
collective bargaining agreement, to establish, maintain or continue any Plan
currently maintained by TCI or any of its ERISA Affiliates.
(c) Except as set forth on SCHEDULE 6.13(C), there are no
collective bargaining agreements applicable to any Person employed by TCI that
renders services in connection with the TCI Systems and TCI has no duty to
bargain with any labor organization with respect to any such Person. There are
not pending any unfair labor practice charges against TCI, any demand for
recognition or any other effort of or request or demand from, a labor
organization for representative status with respect to any Person employed by
TCI that renders services in connection with the TCI Systems. Except as
described on SCHEDULE 6.13(C), TCI has no employment Contracts, either written
or oral, with any employee of the TCI Systems and none of the employment
Contracts listed on SCHEDULE 6.13(C) requires TCI or will require the Company
to employ any Person after the Closing.
6.14 TCI Systems Information. SCHEDULE 6.14 sets forth a materially
true and accurate description of the following information relating to TCI's
Cable Business as of the most recent monthly report generated by TCI in the
ordinary course of business containing the information required to prepare such
SCHEDULE 6.14, provided that such date is no earlier than two months prior to
the date of this Agreement:
(a) the approximate number of miles of plant included in the
TCI Assets;
(b) the number of subscribers and subscriber equivalents
served by the TCI Systems;
(c) the approximate number of single family homes and
residential dwelling units passed by the TCI Systems;
(d) a description of basic and optional or tier services
available from the TCI Systems, the rates charged by TCI for each and the
number of subscribers and subscriber equivalents receiving each optional or
tier service;
(e) the stations and signals carried by the TCI Systems and
the channel position of each such signal and station; and
(f) the cities, towns, villages, townships, boroughs and
counties served by the TCI Systems.
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6.15 Bonds; Letters of Credit. Except as set forth on SCHEDULE 6.15,
there are no franchise, construction, fidelity, performance, or other bonds,
guaranties in lieu of bonds or letters of credit posted by TCI in connection
with its operation or ownership of any of the TCI Systems or TCI Assets.
6.16 Finders and Brokers. Neither the TCI Entities nor TCI has
employed any financial advisor, broker or finder or incurred any liability for
any financial advisory, brokerage, finder's or similar fee or commission in
connection with the transactions contemplated by this Agreement for which
Fisher or the Company could be liable.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Member as follows:
7.1 Organization, Standing and Authority. The Company is a limited
liability company duly organized and validly existing under the laws of the
State of Colorado. As of the Closing the Company shall be duly qualified to
conduct business in all such foreign jurisdictions in which such qualification
shall be necessary for the conduct of its Cable Business and the ownership of
the Assets being contributed by the Members. The Company has all requisite
power (a) to acquire, own, lease, and use the Assets and operate the Business,
and (b) to execute, deliver, and perform this Agreement and the documents
contemplated hereby according to their respective terms.
7.2 Authorization and Binding Obligation. The execution, delivery
and performance of this Agreement and the other agreements contemplated hereby
by the Company have been duly authorized by all necessary action on the part of
the Company. This Agreement has been duly executed and delivered by the
Company and constitutes its legal, valid, and binding obligation, enforceable
against it in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization moratorium or similar laws
now or hereafter in effect relating to the enforcement of creditors' rights
generally or by principles governing the availability of equitable remedies.
7.3 Absence of Conflicting Agreements. Subject to obtaining the
Required Consents and the expiration or earlier termination of the waiting
period under the HSR Act, the execution, delivery, and performance of this
Agreement and the documents contemplated hereby (with or without the giving of
notice, the lapse of time, or both): (a) does not require the consent of any
third party; (b) will not conflict with the Company's operating agreement; and
(c) will not conflict with, result in a breach of, or constitute a default
under, any applicable Legal Requirements applicable to the Company, or any
contract or agreement to which the Company is a party or by which the Company
may be bound, such that the Company could not acquire or operate the Assets.
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7.4 Claims and Legal Actions. There is no claim, legal action,
arbitration, governmental investigation or other legal, administrative or tax
proceeding, nor any order, decree or judgment, in progress or pending, or to
the Knowledge of the Company, threatened, against or adversely affecting the
Company, such that the Company could not acquire or operate the Assets.
7.5 Sprint Spectrum. On the Closing Date, the Company will not own,
manage or otherwise control any business which engages in the wireless or
wireline business or provides wireless or wireline services.
SECTION 8. COVENANTS
8.1 Access to Premises and Records. Between the date of this
Agreement and the Closing Date each Party will give to the other and its
counsel, accountants and other representatives full access during normal
business hours to all the premises and books and records of its Cable Business
and to all its Assets and Systems' personnel; and will furnish to the other and
such representatives all such documents, financial information and other
information regarding its Cable Business and its Assets as the other from time
to time reasonably may request; provided that no investigation will affect or
limit the scope of any of the representations, warranties, covenants and
indemnities of the other in this Agreement or in any Transaction Document or
limit liability for any breach of any of the foregoing.
8.2 Continuity and Maintenance of Operations; Certain Deliveries and
Notices. Except as the other Party may otherwise consent in writing, between
the date of this Agreement and the Closing, each of the TCI Member and the TCI
Entities, as applicable, with respect to TCI's Cable Business, the TCI Systems
and the TCI Assets, and Fisher with respect to Fisher's Cable Business, the
Fisher Systems and the Fisher Assets:
(a) will conduct its Cable Business and operate its Systems
only in the usual, regular and ordinary course and consistent with past
practices and, to the extent consistent with such conduct and operation, use
its commercially reasonable efforts to (i) preserve its current business intact
in all material respects, including preserving existing relationships with
franchising authorities, suppliers, customers and others having business
dealings with those Systems, unless the Parties mutually agree otherwise, (ii)
keep available the services of its employees and agents providing services in
connection with its Cable Business and (iii) continue making marketing,
advertising and promotional expenditures with respect to its Cable Business;
(b) will maintain those Assets in good repair, order and
condition, ordinary wear and tear excepted, will maintain equipment and
inventory for those Systems at normal historical levels consistent with past
practices, but, as of the Closing Date, there shall not be less than that
amount of equipment and inventory necessary to
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operate those Systems for a period of 30 days after Closing assuming normal use
and operations; will maintain in full force and effect, policies of insurance
with respect to its Cable Business, in such amounts and with respect to such
risks as customarily maintained by operators of cable television systems of the
size and geographic location of those Systems and will maintain its books,
records and accounts with respect to those Assets and the operation of those
Systems in the usual, regular and ordinary manner on a basis consistent with
past practices;
(c) except with respect to Excluded Assets, will not (i)
modify, terminate, renew, suspend or abrogate any System Contract, not
including any retransmission consent, programming or multiple dwelling, bulk
billing or commercial service System Contracts, other than in the ordinary
course of business; (ii) modify, terminate, renew, suspend or abrogate any
retransmission consent, programming or multiple dwelling, bulk billing or
commercial service System Contract, System Franchise, lease or document
evidencing Leased Property or Other Real Property Interests or System Licenses;
(iii) engage in any marketing, subscriber installation, disconnection or
collection practices that are inconsistent with its past practices; (iv)
decrease the rate charged for any level of Basic Services, Expanded Basic
Services, or any Pay TV or add, delete, retier or repackage any programming
services except to the extent required under the 1992 Cable Act or any other
Legal Requirement; provided however, if rates are decreased in order to so
comply, the party decreasing the rates will provide the other with copies of
any FCC forms (even if not filed with any Governmental Authority) that such
party used to determine that the new rates were required; (v) make any Cost of
Service Election; (vi) enter into any agreement with or commitment to any
competitive access providers with respect to its Systems; (vii) sell, transfer
or assign any portion of its Assets other than sales in the ordinary course of
business or permit the creation of a Lien, other than a Permitted Lien, on any
Asset; or (viii) engage in any hiring or employee compensation practices that
are inconsistent with past practices, except for changes in such practices
implemented by such party and its Affiliates on a company-wide basis;
(d) will promptly deliver to the other true and complete
copies of all monthly and quarterly financial statements and operating reports
and any reports with respect to the operation of its Cable Business prepared by
or for such Party at any time from the date of this Agreement until the
Closing;
(e) will give or cause to be given to the other and its
counsel, accountants and other representatives, as soon as reasonably possible
but in any event prior to the date of submission to the appropriate
Governmental Authority, copies of all FCC Forms 1200, 1205, 1210, 1215, 1220,
1225, 1235 and 1240 or any other FCC forms required to be filed with any
Governmental Authority under the 1992 Cable Act with respect to rates and
prepared with respect to any of its Systems, such forms to be reasonably
satisfactory in form and substance to the other;
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(f) will duly and timely file a valid notice of renewal under
Section 626 of the Cable Act with the appropriate Governmental Authority with
respect to any System Franchise that will expire within 36 months after any
date between the date of this Agreement and the Closing Date; and
(g) will promptly notify the other of any fact, circumstance,
event or action by it or otherwise which, if known at the date of this
Agreement, would have been required to be disclosed by it in or pursuant to
this Agreement.
8.3 Employees.
(a) The Company may, but shall have no obligation to employ or
offer employment to any employee of either Party's Cable Business. Not more
than 60 days after the date of this Agreement, each Party shall provide to the
Company and the other Party a list of all active employees of their respective
Systems excluding all employees subject to a collective bargaining agreement or
represented by a labor organization, if any, as of a recent date, showing then-
current positions and rates of compensation. Within 30 days after receipt of
this list, the Company will provide to each Party in writing a list of
employees that the Company or its Affiliates may desire to employ following the
Closing (subject to the satisfaction of the Company's conditions for
employment). As of the Closing Date, each Party shall terminate the
employment of all employees who were employed incidental to the conduct of such
Party's Cable Business.
(b) Each Party will pay to all employees employed in its
respective Cable Business all compensation, including salaries, commissions,
bonuses, deferred compensation, severance, insurance, vacation (except for
accrued vacation included in the adjustments calculated pursuant to Section
3.1(c) to be carried over pursuant to Section 8.3(g)), sick pay and other
compensation or benefits to which they are entitled for periods through and
including the Closing Time, including, without limitation, all amounts, if any,
payable on account of the termination of their employment. Each Party agrees
to cooperate in all reasonable respects with the Company to allow the Company
to evaluate and interview employees of its Cable Business in order to make
hiring decisions. Such cooperation shall include, but not be limited to,
allowing the Company to contact employees during normal business hours and
making personnel records available.
(c) Each Party will be responsible for the maintenance and
distribution of benefits accrued under any employee benefit plan (as defined in
ERISA) maintained by such Party pursuant to the provisions of any Legal
Requirement and of such plans. The Company will not assume any obligation or
liability for any such accrued benefits or any fiduciary or administrative
responsibility to account for or dispose of any such accrued benefits under any
employee benefit plans maintained by any Party.
(d) All claims and obligations under, pursuant to or in
connection with any welfare, medical, insurance, disability or other employee
benefit plans of either Party
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or arising under any Legal Requirement affecting employees of such Party
incurred through and including the Closing Date or resulting from or arising
from events or occurrences occurring or commencing through and including the
Closing Date will remain the responsibility of such Party, whether or not such
employees are hired by the Company after the Closing. The Company will not
have and will not assume any obligation or liability under or in connection
with any such plan maintained by the either Party.
(e) Each Party will remain solely responsible for, and will
indemnify and hold harmless the Company from and against all Losses arising
from or with respect to, all salaries and all severance, vacation (except for
accrued vacation included in the adjustments calculated pursuant to Section
3.1(c)), medical, sick, holiday, continuation coverage and other compensation
or benefits to which its employees may be entitled, whether or not such
employees may be hired by the Company, as a result of their employment by it
through and including the Closing Time, the termination of their employment at
the Closing Time, the obligation, if any, to notify and/or bargain with any
labor organization, the consummation of the transactions contemplated hereby or
pursuant to any applicable Legal Requirement (including, without limitation,
WARN) or otherwise relating to their employment through and including the
Closing Time.
(f) Each Party will retain full responsibility and liability
for offering and providing "continuation coverage" of any "qualified
beneficiary" who is covered by a "group health plan" sponsored or contributed
to by such party and who has experienced a "qualifying event" or is receiving
"continuation coverage" through and including the Closing Date. "Continuation
coverage," "qualified beneficiary," "group health plan," and "qualifying event"
all shall have the meanings given such terms under Code Section 4980B.
(g) Notwithstanding anything to the contrary herein, the
Company shall (i) credit each employee of either Party who is offered
employment by the Company prior to the Closing Date and becomes an employee of
the Company after the Closing Time (a "Hired Employee") the lesser of the
amount of vacation accrued by him or her as an employee of such Party through
and including the Closing Time or the amount of accrued vacation permitted to
be accrued by employees of the Company in accordance with the Company's
standard practices; (ii) permit each Hired Employee to participate in the
Company's employee benefit plans to the same extent as similarly situated
employees of the Company and their dependents; (iii) give each Hired Employee
credit for his or her past service with such Party (including past service with
any prior owner or operator of such Party) for purposes of eligibility and
vesting under the Company's employee benefit and other plans to the same extent
as other similarly situated employees of the Company; and (iv) not subject any
Hired Employee to any waiting periods or limitations on benefits for pre-
existing conditions under the Company's employee benefit plans, including any
group health and disability plans, except to the extent such employees were
subject to such limitations under such Party's employee benefit plans.
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(h) If the Company discharges without cause within 90 days
after the Closing any Hired Employee and such Hired Employee would have been
entitled to severance payments pursuant to either Party's severance benefits
plan, as applicable, if such Hired Employee had been discharged without cause
by such Party at the Closing Time, then the Company shall pay severance
benefits to such Hired Employee in accordance with the applicable Party's
severance benefit plan to the extent such plan would have paid severance to
such Hired Employee.
(i) Nothing in this Section 8.3 or elsewhere in this Agreement
shall be deemed to make any employee of the Parties a third party beneficiary
of this Agreement.
8.4 Leased Vehicles; Other Capital Leases. Each Party will pay the
remaining balances on any leases for vehicles included in its Tangible Personal
Property and will deliver title to such vehicles free and clear of all Liens
(other than Permitted Liens) to the Company at the Closing.
8.5 Required Consents, Estoppel Certificates, Franchise Renewal.
(a) Each Party will use its commercially reasonable efforts to
obtain in writing as promptly as possible and at its expense, all the Required
Consents and any other consent, authorization or approval required to be
obtained by such Party in connection with the transactions contemplated by this
Agreement, reasonably satisfactory in form and substance to the other, and
deliver to the other copies of such Required Consents and such other consents,
authorizations or approvals promptly after they are obtained by such Party;
provided however, that each Party will afford the other Party the opportunity
to review, approve and revise the form of Required Consent prior to delivery to
the Party whose consent is sought. Each Party will cooperate with the other
Party to obtain all Required Consents, but neither Party will be required to
accept or agree or accede to any modifications or amendments to, or the
imposition of any condition to the transfer of, any of the System Franchises,
System Licenses, System Contracts or leases or documents evidencing Leased
Property or Other Real Property Interests of its Cable Business that are not
acceptable to the other in its sole discretion. Notwithstanding the foregoing,
as soon as practicable after the date of this Agreement, but in any event no
later than 20 days after the date of this Agreement, the parties will cooperate
with each other to complete, execute and deliver, or cause to be completed,
executed and delivered to the appropriate Governmental Authority, an FCC Form
394 with respect to each System Franchise as to which such Form 394 is
required.
(b) Each Party will use commercially reasonable efforts to
obtain and cooperate with the other Party to obtain renewals or extensions of
any System Franchise for which a valid notice of renewal pursuant to the formal
renewal procedures established by Section 626 of the Cable Act has not been
timely delivered to the appropriate
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Governmental Authority for a period expiring no earlier than three years after
the Closing Date.
(c) Notwithstanding the foregoing, no Party will have any
further obligation to obtain Required Consents: (i) with respect to license
agreements relating to pole attachments where the licensing Party will not
consent to an assignment of such license agreement but requires that the
proposed assignee enter into a new agreement with such licensing authority, in
which case such Party shall use its commercially reasonable efforts to enter
into such agreement prior to the Closing or as soon as practicable thereafter
and the Party to the license agreement will cooperate with and assist the other
Party in obtaining such agreements; provided however that the proposed
assignee's commercially reasonable efforts shall not require it to take any
action of the type that such Party is not required to take pursuant to Section
8.5; and (ii) for any business radio license which such Party reasonably
expects can be obtained within 120 days after the Closing and so long as a
temporary authorization is available to the other Party under FCC rules with
respect thereto.
8.6 Transfer Taxes. All transfer and similar Taxes and sales, use or
excise Taxes arising from or payable by reason of the transfer of any of the
TCI Assets and the Fisher Assets will be shared by TCI and Fisher pro rata,
based on the Ownership Interests (as defined in the Operating Agreement) of
each Member in the Company.
8.7 Ancillary Agreements. At Closing, the Company shall enter into
the following ancillary agreements, in form and substance satisfactory to the
Company and the other parties thereto:
(a) Programming Supply Agreement. The Company shall enter
into, and TCI shall cause its Affiliate, Satellite Services, Inc. ("SSI"), to
enter into, a programming supply agreement (the "Programming Supply
Agreement"), pursuant to which the Company shall receive the benefits of any
programming or purchasing agreements available to TCI to the extent the Company
may receive such benefits pursuant to SSI's programming or purchasing
agreements.
(b) Ad Sales Agreement. The Company and TCI Media Services,
Inc. ("Media Services") shall enter into an advertising representation
agreement pursuant to which Media Services will provide ad sales services to
the Company ("Media Services Agreement").
8.8 @Home Services. The Company agrees to utilize @Home as the
exclusive internet provider for the Systems if the Company determines that it
is economic to provide internet access via the Systems.
8.9 Updated Schedules. Not less than 10 Business Days prior to
Closing, each Party will deliver to the other revised copies of each of the
Schedules prepared by it,
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except for the employee schedules (regardless of whether the original schedule
is as of a certain date) which shall have been updated and marked to show any
changes occurring between the date of this Agreement and the date of delivery;
provided however that for purposes of such Party's representations and
warranties and covenants in this Agreement, all references to the Schedules
will mean the version of the Schedules attached to this Agreement on the date
of signing, and provided further that if the effect of any such updates to
Schedules is to disclose any one or more additional properties, privileges,
rights, interests or claims as Assets, the Company, at or before Closing, will
have the right (to be exercised by written notice to the Parties) to cause any
one or more of such items to be designated as and deemed to constitute Excluded
Assets for all purposes under this Agreement. Without changing the result set
forth in the preceding sentence that a Party's updated Schedules do not serve
to update such Party's representations and warranties, the updated Schedules
delivered pursuant to this Section shall be accompanied by an officer's
certificate of the Party delivering such Schedules, certifying that the
information set forth in such Schedules is true and accurate in all material
respects as of the date of delivery thereof and that all information required
to be given in the Schedules "as of the date of this Agreement" has been
updated to the date of delivery of the updated Schedules or other date
permitted to be specified in such Schedules.
8.10 Use of Names and Logos. For a period of 180 days after the
Closing, the Company will be entitled to use the trademarks, trade names,
service marks, service names, logos and similar proprietary rights of any party
hereto to the extent incorporated in or on the Assets transferred to it at the
Closing, provided that the Company will exercise reasonable efforts to remove
all such names, marks, logos and similar proprietary rights from the Assets by
such date as is reasonably practicable following the Closing.
8.11 Transitional Billing Services. Fisher and TCI will each provide
to the Company, upon request, access to and the right to use its billing system
computers, software and related fixed assets in connection with the Systems for
a period of up to 90 days following the Closing to allow for conversion of
existing billing arrangements ("Transitional Billing Services"). The Company
will notify either Party at least 10 days prior to the Closing as to whether it
desires Transitional Billing Services. All Transitional Billing Services, if
any, that are requested by the Company will be provided on reasonable terms and
conditions; provided however, that the amount to be paid by the Company will
not exceed the cost to the applicable Party of providing such Transitional
Billing Services. Each Party will notify the Company, at least 45 days prior
to the Closing, of the cost to such Party of providing such Transitional
Billing Services.
8.12 Initial Contribution. The Initial Contribution shall have taken
place prior to the Closing Date.
8.13 Roll-Up. All conditions, approvals or consents required to be
obtained prior to the consummation of the Roll-Up, including any HSR approvals,
shall have been
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obtained, and the Roll-Up accomplished, prior to or simultaneously with the
Closing Date.
8.14 Company Financing. The Company shall secure such financing as
shall be necessary for it to pre-pay (a) $93,000,000, representing TCI Assumed
Debt, and (b) $18,750,000, representing Fisher Assumed Debt, subject to
adjustments pursuant to the terms hereof. Such financing shall be obtained by
the Company on such terms as Fisher deems commercially reasonable.
8.15 Confidentiality and Publicity.
(a) Each Party will use commercially reasonable efforts to
assure that any non-public information that such Party may obtain from the
other in connection with this Agreement with respect to the other's Cable
Business and Systems will be kept confidential and, unless and until the
Closing occurs, such Party will not disclose, and will cause its employees,
consultants, advisors and agents not to disclose, any such information to any
other Person (other than its directors, officers and employees and
representatives of its advisers and lenders whose knowledge thereof is
necessary in order to facilitate the consummation of the transactions
contemplated hereby) or use, and will cause its employees, consultants,
advisors and agents not to use, such information to the detriment of the other;
provided that (i) such Party may use and disclose any such information once it
has been publicly disclosed (other than by such Party in breach of its
obligations under this Section) or which rightfully has come into the
possession of such Party (other than from the other Party) and (ii) to the
extent that such Party may, in the reasonable opinion of its counsel, be
compelled by Legal Requirements to disclose any of such information, such Party
may disclose such information if it will have used all reasonable efforts, and
will have afforded the other Party the opportunity, to obtain an appropriate
protective order or other satisfactory assurance of confidential treatment, for
the information compelled to be disclosed. The obligation by either Party to
hold information in confidence pursuant to this Section will be satisfied if
such Party exercises the same care with respect to such information as it would
exercise to preserve the confidentiality of its own similar information. In
the event of termination of this Agreement, each Party will use all reasonable
efforts to cause to be delivered to the other, and retain no copies of, any
documents, work papers and other materials obtained by such Party or on its
behalf from the other, whether so obtained before or after the execution
hereof.
(b) Neither Party will issue any press releases or make any
other public announcement, any oral or written statements to Fisher's and TCI's
employees concerning this Agreement and the transactions contemplated hereby,
except as required by applicable Legal Requirements, without the prior written
consent and approval of the other, which consent and approval may not be
unreasonably withheld.
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8.16 Bulk Transfers. Fisher and TCI each waives compliance by the
other with Legal Requirements relating to bulk transfers applicable to the
transactions contemplated hereby.
8.17 Lien Searches. Each Party will obtain at its expense, the
results of a lien search conducted by a professional search company of records
in the offices of the secretaries of state in each state and county clerks in
each county where there exist any of its Owned Real Property or Tangible
Personal Property, and in the state and county where such Party's principal
offices are located, including copies of all financing statements or similar
notices or filings (and any continuation statements) discovered by such search
company.
8.18 Further Assurances. At or after the Closing, each of Fisher and
TCI at the request of the other, will promptly execute and deliver, or cause to
be executed and delivered, to the other all such documents and instruments, in
addition to those otherwise required by this Agreement, in form and substance
reasonably satisfactory to the other as the other may reasonably request in
order to carry out or evidence the terms of this Agreement or to collect any
accounts receivable or other claims included in the Fisher Assets or the TCI
Assets. Without limiting the generality of the foregoing, Fisher and TCI will
take, or cause to be taken, all actions consistent with the terms of this
Agreement.
8.19 Consents. If and to the extent Fisher or TCI shall have waived
satisfaction of the condition to Closing set forth in Section 9.1(e) or Section
9.2(e), respectively, subsequent to the Closing, each of TCI with respect to
the TCI Systems and the TCI Assets and Fisher with respect to the Fisher
Systems and the Fisher Assets will continue to use commercially reasonable
efforts to obtain in writing as promptly as possible any Required Consent which
was not obtained on or before the Closing and will deliver copies of the same,
reasonably satisfactory in form and substance, to the other. The obligations
set forth in this Section will survive the Closing and will not be merged in
the consummation of the transactions contemplated hereby.
8.20 Company Name. Fisher shall either (a) change the name of the
Company, or (b) create a "doing business as" name pursuant to which the Company
will market its services and/or products. In either case, such name shall be
acceptable to both Members.
SECTION 9. CONDITIONS PRECEDENT
9.1 Conditions to Fisher's Obligations. The obligations of Fisher to
consummate the transactions contemplated by this Agreement will be subject to
the satisfaction, at or before the Closing, of the following conditions, which
may be waived by Fisher in writing.
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(a) Accuracy of Representations and Warranties. The
representations and warranties of TCI in this Agreement and in any Transaction
Document, if specifically qualified by materiality, are true in all respects
and, if not so qualified, are true in all material respects at and as of the
Closing with the same effect as if made at and as of the Closing.
(b) Performance of Agreements. TCI Member and the TCI
Entities have performed in all material respects all obligations and agreements
and complied in all material respects with all covenants in this Agreement and
in any Transaction Document to be performed and complied with by them at or
before the Closing.
(c) Deliveries. TCI has delivered the items and documents
required to be delivered by it pursuant to this Agreement and any Transaction
Document, including those required under Section 10.2.
(d) Legal Proceedings. No action, suit or proceeding is
pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would (i) prohibit the Company's ownership or
operation of all or a material portion of any TCI System, TCI's Cable Business
or the TCI Assets, (ii) compel the Company to dispose of or hold separate all
or a material portion of any TCI System, TCI's Cable Business or the TCI Assets
as a result of any of the transactions contemplated by this Agreement or any
Transaction Document, (iii) if determined adversely to the Company's interest,
materially impair the ability of the Company to realize the benefits of the
transactions contemplated by this Agreement or any Transaction Document or have
a material adverse effect on the right of the Company to exercise full rights
of ownership of the TCI Systems or (iv) prevent or make illegal the
consummation of any transactions contemplated by this Agreement or any
Transaction Document.
(e) Consents. Fisher has received evidence, in form and
substance reasonably satisfactory to it, that the TCI Required Consents have
been obtained.
(f) No Material Adverse Change. There has not been any
material adverse change in the TCI Assets or the financial condition or
operations of TCI's Cable Business or the TCI Systems since the date of this
Agreement.
(g) Subscribers. The TCI Systems are serving at least 86,786
Equivalent Basic Subscribers.
(h) Documents and Records. TCI has delivered to Fisher all
TCI Books and Records, including a list of all pending subscriber hook-ups,
disconnect and repair orders, supply orders and any other lists reasonably
necessary to the operation of the TCI Systems. Delivery of the foregoing will
be deemed made to the extent such TCI
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Books and Records are then located at any of the offices included in the TCI
Owned Real Property or TCI Leased Property and made available to Fisher.
(i) HSR Act. All filings required under the HSR Act with
respect to the Roll-Up have been made and the applicable waiting period has
expired or been earlier terminated.
(j) Franchise Renewals. Any TCI System Franchise for which a
valid notice of renewal pursuant to the formal renewal procedures established
by Section 626 of the Cable Act has not been timely delivered to the
appropriate Governmental Authority has been renewed or extended for a period
expiring no earlier than three years after the Closing Date.
(k) Company Document. The Operating Agreement shall have been
duly executed and delivered by TCI Member.
(l) Ancillary Agreements. TCI shall have caused to be
executed and delivered to the Company the Programming Supply Agreement and the
Media Services Agreement.
(m) Company Financing. The Company shall have secured the
financing referred in accordance with Section 8.13.
9.2 Conditions to TCI's Obligations. The obligations of TCI to
consummate the transactions contemplated by this Agreement will be subject to
the satisfaction, at or before the Closing, of the following conditions, which
may be waived by TCI in writing.
(a) Accuracy of Representations and Warranties. The
representations and warranties of Fisher in this Agreement and in any
Transaction Document, if specifically qualified by materiality, are true in all
respects and, if not so qualified, are true in all material respects at and as
of the Closing with the same effect as if made at and as of the Closing.
(b) Performance of Agreements. Fisher has performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants in this Agreement and in any Transaction Document
to be performed and complied with by it at or before the Closing.
(c) Deliveries. Fisher has delivered the items and documents
required to be delivered by it, pursuant to this Agreement and any Transaction
Documents, including those required under Section 10.3.
(d) Legal Proceedings. No action, suit or proceeding is
pending or threatened by or before any Governmental Authority and no Legal
Requirement has been
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enacted, promulgated or issued or become or deemed applicable to any of the
transactions contemplated by this Agreement by any Governmental Authority,
which would (i) prohibit the Company's ownership or operation of all or a
material portion of any Fisher System, Fisher's Cable Business or the Fisher
Assets, (ii) compel the Company to dispose of or hold separate all or a
material portion of any Fisher System, Fisher's Cable Business or Fisher Assets
as a result of any of the transactions contemplated by this Agreement or any
Transaction Document, (iii) if determined adversely to the Company's interest,
materially impair the ability of the Company to realize the benefits of the
transactions contemplated by this Agreement or any Transaction Document or have
a material adverse effect on the right of the Company to exercise full rights
of ownership of the Fisher Systems or (iv) prevent or make illegal the
consummation of any transactions contemplated by this Agreement or any
Transaction Document.
(e) Consents. TCI has received evidence, in form and
substance reasonably satisfactory to it, that the Fisher Required Consents have
been obtained.
(f) No Material Adverse Change. There has not been any
material adverse change in the Fisher Assets or the financial condition or
operations of the Fisher Systems since the date of this Agreement.
(g) Subscribers. The Fisher Systems are serving at least
27,116 Equivalent Basic Subscribers.
(h) Documents and Records. Fisher has delivered to TCI all
Fisher Books and Records, including a list of all pending subscriber hook-ups,
disconnect and repair orders, supply orders and any other lists reasonably
necessary to the operation of the Fisher Systems. Delivery of the foregoing
will be deemed made to the extent such Fisher Books and Records are then
located at any of the offices included in the Fisher Owned Real Property or
Fisher Leased Property and made available to TCI.
(i) HSR Act. All filings required under the HSR Act with
respect to the Roll-Up have been made and the applicable waiting period has
expired or been earlier terminated.
(j) Franchise Renewals. Any Fisher System Franchise for which
a valid notice of renewal pursuant to the formal renewal procedures established
by Section 626 of the Cable Act has not been timely delivered to the
appropriate Governmental Authority have been renewed or extended for a period
expiring no earlier than three years after the Closing Date.
(k) Company Document. The Operating Agreement shall have been
duly executed and delivered by Fisher.
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(l) Ancillary Agreements. The Company shall have executed and
delivered the Programming Supply Agreement and the Media Services Agreement.
(m) Financing. The Company shall have secured financing in
accordance with Section 8.13 and a Keep Well Agreement in the form of Exhibit
9.2(b) shall have been executed by the banks providing such financing.
SECTION 10. THE CLOSING
10.1 The Closing; Time and Place. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at a date (the
"Closing Date") and time mutually determined by TCI and Fisher, which Closing
Date shall be within ten days after the date on which all conditions set forth
in Sections 9.1 and 9.2 have either been satisfied or waived in writing by the
Party entitled to the benefit of such condition.
10.2 TCI's Delivery Obligations. At the Closing, TCI will deliver or
cause to be delivered to Fisher and/or the Company, as appropriate, the
following.
(a) Bill of Sale and Assignment and Assumption Agreement. The
executed Bill of Sale and Assignment and Assumption Agreement in the form of
EXHIBIT 10.2(A) and such other instruments of transfer, assignment or
assumption, in form and substance mutually satisfactory to TCI and Fisher, as
Fisher may reasonably require to further document the transfer and assignment
of the TCI Assets to the Company and the Company's assumption of the Assumed
Obligations and Liabilities.
(b) Deeds. A special warranty deed in a form reasonably
acceptable to Fisher (and complying with applicable state laws) with respect to
each parcel of TCI Owned Real Property, duly executed and acknowledged and in
recordable form, warranting to defend title to such TCI Owned Real Property in
the peaceable possession of the Company against all Persons claiming by,
through or under TCI, subject however, to any Permitted Liens.
(c) Lien Releases. Evidence satisfactory to Fisher that all
Liens (other than Permitted Liens) affecting or encumbering the TCI Assets have
been terminated, released or waived, as appropriate, or original, executed
instruments in form satisfactory to Fisher effecting such terminations,
releases or waivers.
(d) Vehicle Titles. Title certificates to all vehicles
included among the TCI Assets, endorsed for transfer of title to the Company,
and separate bills of sale therefor or other transfer documentation, if
required by the laws of the States in which such vehicles are titled.
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(e) Evidence of Authorization Actions. Certified resolutions
or other evidence reasonably satisfactory to Fisher that TCI Member and the TCI
Entities have taken all action necessary to authorize the execution of this
Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby.
(f) FIRPTA Certificate. FIRPTA Non-Foreign Seller Certificate
certifying that TCI is not a foreign person within the meaning of Section 1445
of the Code reasonably satisfactory in form and substance to Fisher.
(g) Officer's Certificates. A certificate or certificates
executed by an executive officer of TCI Member and the TCI Entities dated the
date of the Closing, reasonably satisfactory in form and substance to Fisher
certifying that the conditions specified in Sections 9.1(a) and 9.1(b) have
been satisfied.
(h) Ancillary Documents. The Programming Supply Agreement and
the Media Services Agreement, duly executed by TCI or its Affiliate.
(i) Other. Such other documents and instruments as may be
necessary to effect the intent of this Agreement and the Transaction Documents
and consummate the transactions contemplated hereby and thereby.
10.3 Fisher's Delivery Obligations. At the Closing, except as
otherwise provided below, Fisher will deliver or cause to be delivered to TCI
and/or the Company, as appropriate, the following.
(a) Bill of Sale and Assignment and Assumption Agreement. The
executed Bill of Sale and Assignment and Assumption Agreement in the form of
EXHIBIT 10.3(A) and such other instruments of transfer, assignment or
assumption, in form and substance mutually satisfactory to Fisher and TCI, as
TCI may reasonably require to further document the transfer and assignment of
the Fisher Assets to the Company and the Company's assumption of the Assumed
Obligations and Liabilities.
(b) Deeds. A special warranty deed in a form reasonably
acceptable to TCI (and complying with applicable state laws) with respect to
each parcel of Fisher Owned Real Property, duly executed and acknowledged and
in recordable form, warranting to defend title to such Fisher Owned Real
Property in the peaceable possession of the Company against all Persons
claiming by, through or under Fisher, subject however, to any Permitted Liens.
(c) Lien Releases. Evidence satisfactory to TCI that all
Liens (other than Permitted Liens) affecting or encumbering the Fisher Assets
have been terminated, released or waived, as appropriate, or original, executed
instruments in form satisfactory to TCI effecting such terminations, releases
or waivers.
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(d) Vehicle Titles. Title certificates to all vehicles
included among the Fisher Assets, endorsed for transfer of title to the Company
and separate bills of sale therefor or other transfer documentation, if
required by the laws of the states in which such vehicles are titled.
(e) Evidence of Authorization Actions. Certified resolutions
of Fisher or other evidence reasonably satisfactory to TCI that Fisher has
taken all action necessary to authorize the execution of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby.
(f) FIRPTA Certificate. FIRPTA Non-Foreign Seller Certificate
certifying that Fisher is not a foreign person within the meaning of Section
1445 of the Code reasonably satisfactory in form and substance to TCI.
(g) Officer's Certificate. A certificate executed by an
executive officer of Fisher dated the date of the Closing, reasonably
satisfactory in form and substance to TCI certifying that the conditions
specified in Sections 9.2(a) and 9.2(b) have been satisfied.
(h) Other. Such other documents and instruments as may be
necessary to effect the intent of this Agreement and consummate the
transactions contemplated hereby.
10.4 Deliveries by the Company. As a condition to each Party's
performance of their obligations hereunder, prior to or on the Closing Date,
the Company has delivered or is delivering to the Parties, in form and
substance reasonably satisfactory to the Parties:
(a) Assumption Agreement. Appropriate assumptions agreements,
in form and substance reasonably satisfactory to each Party, pursuant to which
the Company shall assume and undertake to perform each Party's obligations
arising after the Closing Time and assume and perform the Assumed Obligations
and Liabilities;
(b) Ancillary Agreements. The Programming Supply Agreement
and the Media Services Agreement.
(c) Payment of TCI Debt and Fisher Debt. The payment of the
debt associated with the TCI Assets and Fisher Assets, respectively, as
provided for in Section 8.13, by wire transfer of immediately available funds
in accordance with wire transfer instructions provided by TCI and Fisher,
respectively.
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SECTION 11. TERMINATION AND DEFAULT
11.1 Termination Events. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time, by the mutual agreement of Fisher and TCI;
(b) by either Fisher or TCI at any time, if the other is in
material breach or default of any of its covenants, agreements or other
obligations herein or in any Transaction Document, or if any of its
representations herein or in any Transaction Document if specifically qualified
by materiality, is not true in all respects or, if not qualified by
materiality, is not true in all material respects when made or when otherwise
required by this Agreement or any Transaction Document to be true, if the non-
breaching Party provides the breaching Party with prompt written notice that
provides a reasonably detailed explanation of the facts and circumstances
surrounding such breach or default; provided that such Party shall have no
right to terminate if (i) the breaching Party cures such breach or default
within 30 days after its receipt of such written notice, unless such breach or
default cannot be cured within such 30-day period; or (ii) the breach or
default is capable of being cured prior to March 31, 1998 (the "Outside Closing
Date") and the breaching Party commences to cure such breach or default within
such 30-day period and diligently continues to take all action reasonably
necessary to cure such breach or default prior to the Outside Closing Date and
such breach or default is cured prior to the Outside Closing Date;
(c) by either Fisher or TCI upon written notice to the other,
if any of the conditions to its obligations set forth in Sections 9.1 and 9.2,
respectively, are not satisfied on or before the Outside Closing Date for any
reason other than a material breach or default by such Party of its respective
covenants, agreements or other obligations under this Agreement, or if any of
its representations herein or in any Transaction Document, if specifically
qualified by materiality, is not true in all respects or, if not qualified by
materiality, is not true in all material respects when made or when otherwise
required by this Agreement or in any Transaction Document to be true; or
(d) as otherwise provided in this Agreement.
11.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 11.1, all obligations of the parties under this Agreement will
terminate, except for the obligations set forth in Sections 8.14 and 13.15.
Termination of this Agreement pursuant to Sections 11.1(a) or 11.1(b) will not
limit or impair any remedies that any of TCI or Fisher may have with respect to
a breach or default by the other of its covenants, agreements or obligations
under this Agreement.
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SECTION 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
12.1 Survival of Representations and Warranties. The representations
and warranties of TCI and Fisher in this Agreement and in the Transaction
Documents will survive until the first anniversary of the Closing Date, except
that (a) all such representations and warranties with respect to any Taxes,
rates, Environmental Law, ERISA, employment matters or copyright matters will
survive until 60 days after the expiration of the applicable statute of
limitations (including any extensions) for such Taxes, rates, Environmental
Law, ERISA, employment matters or copyright matters, respectively, and (b) the
representations and warranties as to title of the Assets in Sections 5.4(a) and
6.4(a), respectively, and as to title of Owned Real Property set forth in
Sections 5.6 and 6.6, respectively, and in the special warranty deed or deeds
delivered with respect to Owned Property will survive the Closing and the
delivery of such deeds and will continue in full force and effect without
limitation with the understanding that, notwithstanding any language contained
in any such deed, the representations and warranties as to title to Owned Real
Property set forth in Sections 5.6 and 6.6, respectively, will not be merged
into any such deed or other Transaction Document. The periods of survival of
the representations and warranties prescribed by this Section 12.1 are referred
to as the "Survival Period." The liabilities of each Party under its
respective representations and warranties will expire as of the expiration of
the applicable Survival Period; provided however that such expiration will not
include, extend or apply to any representation or warranty, the breach of which
has been asserted by a Party in a written notice to the other party before such
expiration or about which a Party has given the other Party written notice
before such expiration indicating that facts or conditions exist that, with the
passage of time or otherwise, can reasonably be expected to result in a breach
(and describing such potential breach in reasonable detail). The covenants and
agreements of each Party in this Agreement and in the Transaction Documents
will survive the Closing and will continue in full force and effect without
limitation.
12.2 Indemnification by TCI. From and after the Closing, TCI will
indemnify and hold harmless Fisher and the Company and their shareholders and
respective Affiliates, and the shareholders, officers, directors, employees,
agents, successors and assigns and any Person claiming by or through any of
them, as the case may be, from and against any and all Losses arising out of or
resulting from (a) any breach of any representation or warranty made by any TCI
Entity or TCI Member in this Agreement; (b) any breach of any covenant,
agreement or obligation of any TCI Entity or TCI Member contained in this
Agreement; (c) any act or omission of any TCI Entity or TCI Member with respect
to, or any event or circumstance related to, the ownership or operation of the
TCI Assets or the conduct of TCI's Cable Business, which act, omission, event
or circumstance occurred or existed prior to or at the Closing Time, without
regard to whether a claim with respect to such matter is asserted before or
after the Closing Time, including any matter described on SCHEDULE 6.11; (d)
any liability or obligation not included in the Assumed Obligations and
Liabilities and related to the TCI Assets; (e) any
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claim that the transactions contemplated by this Agreement violate WARN or any
Legal Requirement or any fraudulent conveyance laws of any jurisdiction; (f)
any claim relating to "continuation coverage" under Code Section 4980B with
respect to former employees of any TCI Entity or TCI Member at and after the
Closing Time or that Fisher or the Company is deemed to be a successor employer
of any TCI Entity or TCI Member under Code Section 4980B; (g) the presence,
generation, removal or transportation of a Hazardous Substance on or from any
of the TCI Owned Real Property or TCI Leased Property through and including the
Closing Time, including the costs of removal or clean-up of such Hazardous
Substance and other compliance with the provisions of any Environmental Laws
(whether before or after Closing), including anything listed on SCHEDULE
6.7(B); or (h) any rate refund or credit, penalty and/or interest payment with
respect thereto ordered by any Governmental Authority with respect to the TCI
Systems for periods through and including the Closing Time.
In the event that an indemnified item arises under both clause (a) and under
one or more of clauses (b) through (h) of this Section, Fisher's and the
Company's rights to pursue its claim under clauses (b) through (h), as
applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause (a).
12.3 Indemnification by Fisher. From and after the Closing, Fisher
will indemnify and hold harmless each TCI Entity, TCI Member and the Company
and their shareholders and respective Affiliates and the shareholders,
officers, directors, employees, agents, successors and assigns and any Person
claiming by or through any of them, as the case may be, from and against any
and all Losses arising out of or resulting from (a) any breach of any
representation or warranty made by Fisher in this Agreement; (b) any breach of
any covenant, agreement or obligation of Fisher contained in this Agreement;
(c) any act or omission of Fisher with respect to, or any event or circumstance
related to, the ownership or operation of the Fisher Assets or the conduct of
Fisher's Cable Business, which act, omission, event or circumstance occurred or
existed prior to or at the Closing Time, without regard to whether a claim with
respect to such matter is asserted before or after the Closing Time, including
any matter described on SCHEDULE 5.11; (d) any liability or obligation not
included in the Assumed Obligations and Liabilities and related to the Fisher
Assets; (e) any claim that the transactions contemplated by this Agreement
violate WARN or any similar Legal Requirement or any bulk transfer or
fraudulent conveyance laws of any jurisdiction; (f) any claim relating to
"continuation coverage" under Code Section 4980B with respect to former
employees of Fisher at and after the Closing Time or that TCI or the Company is
deemed to be a successor employer of Fisher under Code Section 4980B; (g) the
presence, generation, removal or transportation of a Hazardous Substance on or
from any of the Fisher Owned Real Property or Fisher Leased Property through
and including the Closing Time, including the costs of removal or clean-up of
such Hazardous Substance and other compliance with the provisions of any
Environmental Laws (whether before or after Closing); or (h) any rate refund or
credit, penalty and/or interest payment with respect
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<PAGE> 58
thereto ordered by any Governmental Authority with respect to the Fisher
Systems for periods through and including the Closing Time.
In the event that an indemnified item arises under both clause (a) and under
one or more of clauses (b) through (h) of this Section, TCI's and the Company's
rights to pursue its claim under clauses (b) through (h), as applicable, will
exist notwithstanding the expiration of the Survival Period applicable to such
claim under clause (a).
12.4 Indemnification by the Company. From and after the Closing, the
Company will indemnify and hold harmless Fisher, each TCI Entity, the TCI
Member and their shareholders and respective Affiliates and the shareholders,
officers, directors, employees, agents, successors and assigns and any Person
claiming by or through any of them, as the case may be, from and against any
and all Losses arising out of or resulting from (a) any breach of any
representation or warranty made by the Company in this Agreement; (b) any
breach of any covenant, agreement or obligation of the Company in this
Agreement; (c) any act or omission of the Company with respect to, or any event
or circumstance related to, the ownership or operation of the Assets or the
conduct of the Cable Business, which act, omission, event or circumstance
occurred or existed after the Closing Time; (d) the failure of the Company to
perform the Assumed Obligations and Liabilities.
12.5 Third Party Claims. Promptly after the receipt by any Party of
notice of any claim, action, suit or proceeding by any third party
(collectively, an "Action"), which Action is subject to indemnification under
this Agreement, such Party (the "Indemnified Party") will give reasonable
written notice to the Party from whom indemnification is claimed (the
"Indemnifying Party"). The Indemnified Party will be entitled, at the sole
expense and liability of the Indemnifying Party, to exercise full control of
the defense, compromise or settlement of any such Action unless the
Indemnifying Party, within a reasonable time after the giving of such notice by
the Indemnified Party, (a) admits in writing to the Indemnified Party the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this Section 12, (b) notifies the Indemnified Party in writing of
the Indemnifying Party's intention to assume such defense, (c) provides
evidence reasonably satisfactory to the Indemnified Party of the Indemnifying
Party's ability to pay the amount, if any, for which the Indemnified Party may
be liable as a result of such Action and (d) retains legal counsel reasonably
satisfactory to the Indemnified Party to conduct the defense of such Action.
The other Party will cooperate with the Party assuming the defense, compromise
or settlement of any such Action in accordance with this Agreement in any
manner that such Party reasonably may request. If the Indemnifying Party so
assumes the defense of any such Action, the Indemnified Party will have the
right to employ separate counsel and to participate in (but not control) the
defense, compromise or settlement of the Action, but the fees and expenses of
such counsel will be at the expense of the Indemnified Party unless (a) the
Indemnifying Party has agreed to pay such fees and expenses, (b) any relief
other than the payment of money damages is sought against the Indemnified Party
or (c) the Indemnified Party will have
-55-
<PAGE> 59
been advised by its counsel that there may be one or more defenses available to
it which are different from or additional to those available to the
Indemnifying Party, and in any such case that portion of the fees and expenses
of such separate counsel that are reasonably related to matters covered by the
indemnity provided in this Section 12 will be paid by the Indemnifying Party.
No Indemnified Party will settle or compromise any such Action for which it is
entitled to indemnification under this Agreement without the prior written
consent of the Indemnifying Party, unless the Indemnifying Party has failed,
after reasonable notice, to undertake control of such Action in the manner
provided in this Section 12.5. No Indemnifying Party will settle or compromise
any such Action (a) in which any relief other than the payment of money damages
is sought against any Indemnified Party or (b) in the case of any Action
relating to the Indemnified Party's liability for any Tax, if the effect of
such settlement would be an increase in the liability of the Indemnified Party
for the payment of any Tax for any period beginning after the Closing Date,
unless the Indemnified Party consents in writing to such compromise or
settlement.
SECTION 13. MISCELLANEOUS PROVISIONS
13.1 Parties Obligated and Benefited. Subject to the limitations set
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other Party, no Party will
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement, provided that a Party may, without the consent of any
other Party, assign or delegate its rights or obligations under this Agreement
to any of its Affiliates, and such assignee will be substituted for such Party
under this Agreement as though it were the original Party to this Agreement.
13.2 Notices. Any notice, request, demand, waiver or other
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier
or, if receipt is confirmed, by telecopier:
To TCI at:
TCI American Cable Holdings III, L.P.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: William R. Fitzgerald
Telecopy: (303) 488-3219
-56-
<PAGE> 60
With a copy similarly addressed to the attention of Karla L.
Tartz:
To Fisher at:
Fisher Communications Associates, L.L.C.
5655 South Yosemite Street, Suite 304
Englewood, CO 80111
Attention: William K. Fisher
Telecopy: 303-721-0854
with a copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attn: Gregory J. Schmitt, Esq.
Telecopy: 214-855-4300
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery, which in
the case of deliveries by telecopier will be the date of the sender's
confirmation.
13.3 Right to Specific Performance. The Parties acknowledge that the
unique nature of the Assets renders money damages an inadequate remedy for the
breach by the Parties of its obligations under this Agreement, and the Parties
agree that in the event of such breach, the Parties will upon proper action
instituted by either of them, be entitled to a decree of specific performance
of this Agreement.
13.4 Waiver. This Agreement or any of its provisions may not be
waived except in writing. The failure of any Party to enforce any right
arising under this Agreement on one or more occasions will not operate as a
waiver of that or any other right on that or any other occasion.
13.5 Captions. The section and other captions of this Agreement are
for convenience only and do not constitute a part of this Agreement.
13.6 CHOICE OF LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
UNDER IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH
THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICTS OF LAWS
RULES OF COLORADO.
-57-
<PAGE> 61
13.7 Terms. Terms used with initial capital letters or otherwise
defined in this Agreement will have the meanings specified, applicable to both
singular and plural forms, for all purposes of this Agreement. The word
"include" and derivatives of that word are used in this Agreement in an
illustrative sense rather than limiting sense.
13.8 Rights Cumulative. All rights and remedies of each of the
Parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
13.9 Time. Time is of the essence under this Agreement. If the last
day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
13.10 Late Payments. If either Party fails to pay the other any
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the annual rate publicly announced from
time to time by The Bank of New York as its prime rate (the "Prime Rate") plus
2%, adjusted as and when changes in the Prime Rate are made.
13.11 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original.
13.12 Entire Agreement. This Agreement (including the Transaction
Documents and the Schedules and Exhibits referred to in this Agreement, which
are incorporated in and constitute a part of this Agreement) contains the
entire agreement of the Parties and supersedes all prior oral or written
agreements and understandings with respect to the subject matter. This
Agreement may not be amended or modified except by a writing signed by the
Parties.
13.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
rights of the Person intended to be benefited by such provision or any other
provisions of this Agreement.
13.14 Construction. This Agreement has been negotiated by the Parties
and their respective legal counsel, and legal or equitable principles that
might require the construction of this Agreement or any provision of this
Agreement against the Party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
-58-
<PAGE> 62
13.15 Expenses. Except as otherwise expressly provided in this
Agreement, each Party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
13.16 Risk of Loss. The risk of any loss or damage to the Fisher
Assets or TCI Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) will be borne by Fisher or TCI, respectively, at all
times through and including the Closing Time. If any such loss or damage is
sufficiently substantial so as to preclude and prevent resumption of normal
operations of any material portion of a System or the replacement or
restoration of the lost or damaged property within 20 days from the occurrence
of the event resulting in such loss or damage, Fisher or TCI as appropriate,
will immediately notify the other in writing of that fact and the other, at any
time within 10 days after receipt of such notice, may elect by written notice
to the notifying Party to either (a) waive such defect and proceed toward
consummation of the transaction in accordance with terms of this Agreement or
(b) terminate this Agreement. If the other elects to so terminate this
Agreement, both parties will stand fully released and discharged of any and all
obligations under this Agreement. If the other elects to consummate the
transactions contemplated by this Agreement notwithstanding such loss or damage
and does so, all insurance proceeds payable as a result of the occurrence of
the event resulting in such loss or damage (to the extent not used to replace
or restore such lost or damaged property), except for any proceeds from
business interruption insurance relating to the loss of revenue for the period
through and including the Closing Date, will be delivered by the notifying
Party to the other or the rights to such proceeds will be assigned by the
notifying Party to the other if not yet paid over to the notifying Party, and
the notifying Party will pay to the other an amount equal to the difference
between the amount of such insurance costs and the full replacement cost of the
damaged or lost Assets.
If, prior to the Closing, any part of or interest in the Fisher
Assets or the TCI Assets is taken or condemned as a result of the exercise of
the power of eminent domain, or if a Governmental Authority having such power
informs Fisher or TCI that it intends to condemn all or any part of a Party's
Assets (such event being called, in either case, a "Taking"), then the other
Party may terminate this Agreement. If the other Party does not elect to
terminate this Agreement, then (a) the other Party will have the sole right, in
the name of the Party, if the other Party so elects, to negotiate for, claim,
contest and receive all damages with respect to the Taking, (b) the Party will
be relieved of its obligation to convey to the other Party the Assets or
interests that are the subject of the Taking, (c) at the Closing the Party will
assign to the other Party all of the Party's rights to all damages payable with
respect to the Taking and (d) following the Closing, the Party will give the
other Party such further assurances of such rights and assignment with respect
to the Taking as the other Party may from time to time reasonably request.
13.17 Tax Consequences. No party to this Agreement makes any
representation or warranty, express or implied, with respect to the Tax
implications of any aspect of this
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<PAGE> 63
Agreement on any other party to this Agreement, and all parties expressly
disclaim any such representation or warranty with respect to any Tax
consequences arising under this Agreement. Each party has relied solely on its
own Tax advisors with respect to the Tax implications of this Agreement.
13.18 Commercially Reasonable Efforts. For purposes of this Agreement,
"commercially reasonable efforts" will not be deemed to require a Party to
undertake extraordinary measures, including the initiation or prosecution of
legal proceedings or the payment of amounts in excess of normal and usual
filing fees and processing fees, if any.
The parties have executed this Agreement as of the day and year first
above written.
TEMPO CABLE, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
COMMUNICATIONS SERVICES, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI CABLEVISION OF OKLAHOMA, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI OF KANSAS, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
WENTRONICS, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
-60-
<PAGE> 64
TCI CABLEVISION OF UTAH, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI CABLEVISION OF ARIZONA, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------------
Name: William R. Fitzgerald
Title: Vice President
TULSA CABLE TELEVISION, INC.
By: /s/ WILLIAM R. FITZGERALD
-------------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI AMERICAN CABLE HOLDINGS III, L.P.
By: Cablevision of Arizona Partner,
Inc.
By: /s/ WILLIAM R. FITZGERALD
--------------------------------
Name: William R. Fitzgerald
Title: Vice President
FISHER COMMUNICATIONS
ASSOCIATES, L.L.C.
By: Fisher Capital Partners,
Ltd., its Member
By: Fisher Capital
Corporation, its
General Partner
By: /s/ WILLIAM K. FISHER
----------------------
Name: William K. Fisher
Title: Vice President
PREMIER MEDIA, LLC
By: Fisher Communications Associates,
L.L.C., Manager
By: Fisher Capital Partners,
Ltd., its Member
By: Fisher Capital
Corporation, its
General Partner
By: /s/ WILLIAM K. FISHER
--------------------------
Name: William K. Fisher
Title: Vice President
-61-
<PAGE> 65
EXHIBIT A
ASSET CONTRIBUTION AGREEMENT
FISHER SYSTEMS
* Cedarville, AR
* Highway 71, AR
* Lake Alma, AR
* Rudy, AR
* Winslow, AR
* Excelsior, AR
* Mountainburg, AR
* Prairie Grove, AR
* West Fork, AR
* Lavaca, AR
* Ely, NV
* McGill, NV
* Ruth, NV
* Eureka, NV
* Wendover/W. Wendover, UT
* Fillmore, UT
* Milford, UT
* Minersville, UT
* DeQueen/Horatio, AR
* Mansfield/Huntington, AR
* Murfreesboro, AR
* Wright City, OK
* Valliant, OK
* Pea Ridge, AR
* Gravette, AR
* Centerton, AR
* Rogers, AR
* LittleFlock, AR
* Avoca, AR
* Benton County, AR
* Lincoln, AR
* Beaver Lake, AR
* Prairie Creek, AR
* Allen, OK
* Calvin, OK
* Clayton, OK
* Howe, OK
* McCurtain, OK
* Midland, Sugar Loaf, Witchervle, AR
* Panama, Shady Point, OK
* Pocola, OK
* Porum Landing, OK
* Stuart, Arpelar, Haywd, OK
* Talihina, OK
* Wetumka, OK
A-1
<PAGE> 66
* Wister, OK
* Blevins/McCaskill, AR
* Center Point/Dierks, AR
* Pold Co., Cove, Hatfield, Grannis, AR
* Daisy, Kirby, New Hope, Salem, AR
* Fulton/McNab/Saratoga2/Tollette, AR
* Mineral Springs, AR
* Antlers, OK
* Bennington, OK
* Boswell, OK
* Caney, OK
* Rattan, OK
* Braggs, OK
* Cherokee Heights, Sportsmen, OK
* Mullberry/Dyer, AR
* Seligman, Washburn, MO
A-2
<PAGE> 67
EXHIBIT A
ASSET CONTRIBUTION AGREEMENT
TCI SYSTEMS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Franchise
Common System Headend Name(s) Communities Served Name of TCI Owner
Name by Headend Entity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Holdenville/ Okemah Holdenville, OK Holdenville, OK Tempo Cable, Inc.
Okemah, OK Okemah, OK
McAlester, OK Communications
McAlester, OK Alderson, OK Services, Inc.
Krebbs, OK
McAlester, OK
Pittsburg, OK
Seminole Communications
Konawa, OK Konawa, OK Services, Inc.
Maud, OK Maud, OK
Seminole, OK Seminole, OK
Wellston, OK Wellston, OK
Wewoka, OK Wewoka, OK
- ----------------------------------------------------------------------------------------------------
Henryetta, OK Chandler, OK Chandler, OK TCI Cablevision of
Oklahoma, Inc.
Henryetta, OK Dewar, OK
Henryetta, OK
Stroud, OK Stroud, OK
- ----------------------------------------------------------------------------------------------------
Muskogee, OK Haskell, OK Haskell, OK TCI Cablevision of
Oklahoma, Inc.
Muskogee, OK Muskogee, OK
Muskogee County, OK
Wagoner, OK (City)
Wagoner, OK Wagoner, OK
(outside township)
- ----------------------------------------------------------------------------------------------------
Okmulgee, OK Okmulgee, OK Okmulgee, OK Communications
Okmulgee County, OK Services, Inc.
- ----------------------------------------------------------------------------------------------------
Stigler, OK Stigler, OK Haskell County, OK Tempo Cable, Inc.
Stigler, OK
Whitefield, OK
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 68
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Franchise
Common System Headend Name(s) Communities Served Name of TCI Owner
Name by Headend Entity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alva, OK Alva, OK Alva, OK TCI Cablevision of
Woods County, OK Oklahoma, Inc.
TCI Cablevision of
- ----------------------------------------------------------------------------------------------------
Enid, OK Enid, OK Enid, OK Oklahoma, Inc.
Garfield County (North
Enid, OK
Garfield (Town), OK
Vance AFB, OK
- ----------------------------------------------------------------------------------------------------
Stillwater, OK Cushing, OK Cushing, OK TCI of Kansas, Inc.
TCI of Kansas, Inc.
Perry, OK Noble County, OK
Perry, OK TCI of Kansas, Inc.
Stillwater, OK Payne County, OK
Perkins, OK
Stillwater, OK
- ----------------------------------------------------------------------------------------------------
Grove, OK Grove, OK Delaware County, OK Communications
Grove, OK Services, Inc.
Osage, OK
Pawhuska, OK Pawhuska, OK Pawhuska, OK Communications
Services, Inc.
- ----------------------------------------------------------------------------------------------------
Moab, UT Moab, UT Grand, UT Wentronics, Inc.
Moab, UT
- ----------------------------------------------------------------------------------------------------
Price/Monticello, UT Blanding, UT Blanding, UT TCI Cablevision of
Utah, Inc.
Castle Dale, UT Castle Dale, UT TCI Cablevision of
Emery County, UT Utah, Inc.
Huntington, UT
Orangeville, UT
Centerfield, UT Centerfield, UT TCI Cablevision of
Gunnison, UT Utah, Inc.
Duchesne, UT Duchesne, UT TCI Cablevision of
Utah, Inc.
Mt. Pleasant, UT Fairview, UT TCI Cablevision of
Mt. Pleasant, UT Utah, Inc.
Sanpete, UT
Spring City, UT
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 69
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Franchise
Common System Headend Name(s) Communities Served Name of TCI Owner
Name by Headend Entity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Price/Monticello, UT Price, UT Carbon County, UT TCI Cablevision of
(continued) Helper, UT Utah, Inc.
Price, UT
Wellington, UT
Richfield, UT Richfield, UT TCI Cablevision of
Utah, Inc.
Roosevelt, UT Roosevelt, UT TCI Cablevision of
Utah, Inc.
Salina, UT Aurora, UT TCI Cablevision of
Redmond, UT Utah, Inc.
Salina, UT
Sevier, UT
East Carbon, UT East Carbon, UT TCI Cablevision of
Sunnyside, UT Utah, Inc.
Ephraim, UT Ephraim, UT TCI Cablevision of
Manti, UT Utah, Inc.
- ----------------------------------------------------------------------------------------------------
Price/Monticello, UT Ferron, UT Ferron, UT TCI Cablevision of
(continued) Utah, Inc.
Kanab, UT Kanab, UT TCI Cablevision of
Utah, Inc.
Monticello, UT Monticello, UT TCI Cablevision of
Utah, Inc.
Moroni, UT Fountain Green, UT TCI Cablevision of
Moroni, UT Utah, Inc.
Fredonia, AZ Fredonia, AZ TCI Cablevision of
Arizona, Inc.
- ----------------------------------------------------------------------------------------------------
Bristow, OK Bristow, OK Bristow, OK Tulsa Cable Television,
Inc.
- ----------------------------------------------------------------------------------------------------
Drumright, OK Drumright, OK Drumright, OK Tulsa Cable Television,
Inc.
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE> 70
EXHIBIT 10.2(b)
EXHIBIT 10.3(b)
to that certain Asset Contribution Agreement dated as of September 25, 1997,
among
Fisher Communications Associates, L.L.C., a Colorado limited liability company
and
Tempo Cable, Inc., an Oklahoma corporation, Communications Services, Inc., a
Kansas corporation, TCI Cablevision of Oklahoma, Inc., a Colorado corporation,
TCI of Kansas, Inc., a Kansas corporation, Wentronics, Inc., a New Mexico
corporation, TCI Cablevision of Utah, Inc., a Utah corporation, TCI Cablevision
of Arizona, an Arizona corporation, Tulsa Cable Television, Inc., an Oklahoma
corporation, TCI American Cable Holdings, L.P., a Colorado limited partnership,
BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT
This Bill of Sale and Assignment and Assumption Agreement (this
"Assignment") is made as of ____________, 199_ by ____________, a ____________
[partnership] [limited liability company] ("[TCI] [Fisher]"), in favor of
Premier Media, LLC, a Colorado limited liability company (the "Company ").
This Assignment is entered into pursuant to the terms of the Asset
Exchange Agreement dated as of ____________, 1997 by and among Fisher
Communications Associates, L.L.C., a Colorado limited liability company, Tempo
Cable, Inc., an Oklahoma corporation, Communications Services, Inc., a Kansas
corporation, TCI Cablevision of Oklahoma, Inc., a Colorado corporation, TCI of
Kansas, Inc., a Kansas corporation, Wentronics, Inc., a New Mexico corporation,
TCI Cablevision of Utah, Inc., a Utah corporation, TCI Cablevision of Arizona,
an Arizona corporation, Tulsa Cable Television, Inc., an Oklahoma corporation,
TCI American Cable Holdings, L.P., a Colorado limited partnership (the
"Agreement"). Capitalized terms not otherwise defined in this Assignment shall
have the meanings given to such terms in the Agreement.
In consideration of the foregoing premises, the transactions
contemplated by the Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, [TCI] [Fisher] does
hereby grant, bargain, sell, transfer, assign and convey unto the Company, its
successors and assigns, all of the right, title and interest of [TCI] [Fisher]
in and to the [TCI] [Fisher] Assets.
TO HAVE AND TO HOLD the [TCI] [Fisher] Assets unto the Company, and its
successors and assigns, forever, and [TCI] [Fisher] hereby warrants and agrees
to defend title to the same against all claims of any Person.
The grant, bargain, sale, transfer, assignment and conveyance of the
[TCI] [Fisher] Assets will not include any of the [TCI] [Fisher] Excluded
Assets.
[TCI] [Fisher] reasserts the representations and warranties pertaining
to the
10.2(b)/10.3(b)-1
<PAGE> 71
Assets that are contained in the Agreement, all of which representations and
warranties are incorporated herein by this reference as if set forth in full
herein, subject to the limitations set forth in the Agreement regarding the
survival of, and the liability for breach of, such representations and
warranties. No provision set forth in this Assignment shall be deemed to
enlarge, alter or amend the terms or provisions of the Agreement. In the event
of any conflict between the provisions of this Assignment and the provisions of
the Agreement, the Agreement shall control.
In consideration of the foregoing premises, the transactions
contemplated by the Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company does
hereby assume and agree to observe, comply with, and perform in accordance with
the terms of each, the Company Assumed Obligations and Liabilities. The
Company does not assume or have any responsibility for any liabilities or
obligations associated with the [TCI] [Fisher] Excluded Assets.
This assumption by the Company is made solely for the benefit of [TCI]
[Fisher] and no third party shall have any right to enforce its terms or to
rely on it.
Specifically excluded from this Assignment is any right, title or
interest which is by law or contract non-assignable without the consent of the
other party or parties thereto, unless and until such consent has been given,
whereupon the assignment of such right, title or interest shall be
automatically effective.
The validity, performance, and enforcement of this Assignment and all
Transaction Documents, unless expressly provided to the contrary, shall be
governed by the laws of the State of Colorado, without giving effect to the
principles of conflicts of law of such state.
IN WITNESS WHEREOF, the undersigned has executed this Assignment
effective as of the date first written above.
[TCI] [FISHER]:
--------------------------------
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
PREMIER MEDIA, LLC
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
10.2(b)/10.3(b)-2
<PAGE> 72
EXHIBIT 9.2(b)
to that certain Asset Contribution Agreement dated as of September 25, 1997,
among
Fisher Communications Associates, L.L.C., a Colorado limited liability company
and
Tempo Cable, Inc., an Oklahoma corporation, Communications Services, Inc., a
Kansas corporation, TCI Cablevision of Oklahoma, Inc., a Colorado corporation,
TCI of Kansas, Inc., a Kansas corporation, Wentronics, Inc., a New Mexico
corporation, TCI Cablevision of Utah, Inc., a Utah corporation, TCI Cablevision
of Arizona, an Arizona corporation, Tulsa Cable Television, Inc., an Oklahoma
corporation, TCI American Cable Holdings, L.P., a Colorado limited partnership,
FORM OF KEEP WELL AGREEMENT
[Agent]
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of _________ as from
time to time in effect (the "Credit Agreement") among Premier Media, LLC (the
"Borrower"), the banks referred to therein (the "Banks") and
_____________________, as agent for the Banks (the "Agent"). Tempo Cable, Inc.,
Communications Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah, Inc., TCI Cablevision
of Arizona, Inc., Tulsa Cable Television, Inc. (collectively "TCI"), agree
with the Agent for the benefit of the Banks as follows:
1. Definitions. Capitalized terms used in this letter will
have the same meanings as set forth in the Credit Agreement for purposes of
this letter. In addition, the following terms will have the following
meanings:
(a) "Keep Well Advances" will have the meaning specified in
Section 2.
(b) "'Keep Well Commitment" means $56,000,000.
(c) "'Keep Well Termination Date" means ______.
9.2(b)-1
<PAGE> 73
(d) "Keep Well Triggering Event" means (i) a failure by
Borrower to make any principal payment when due under the Credit Agreement or
(ii) if the amounts due under the Credit Agreement are accelerated as a result
of nonpayment or bankruptcy of Borrower.
(e) "Unfunded Keep Well" means at any time the amount of the
Keep Well Commitment less the aggregate amount of all Keep Well Advances
previously made by TCI hereunder.
2. Commitment to Make Keep Well Advances. If a Keep Well Triggering
Event occurs, TCI will, within five Business Days after written request by the
Agent, make an advance of funds (a "Keep Well Advance") to Borrower in an
amount equal to the principal amount then due under the Credit Agreement to the
extent Borrower does not have other funds available for such purpose; provided,
however, that TCI will not at any time be obligated to make any Keep Well
Advance in an amount which exceeds the then Unfunded Keep Well. Each Keep Well
Advance will be made as a loan from TCI to the Borrower and each such loan will
be evidenced by a promissory note of the Borrower payable to TCI, with the
repayment of such loan to be subordinated to amounts owed to the Banks under
the Credit Agreement [pursuant to the terms of the Subordination Agreement].
Promptly after each Keep Well Advance, TCI will deliver to the Agent the
promissory note evidencing such Keep Well Advance, together with such
supporting documentation as may be necessary to establish that such Keep Well
Advance was made and the amount thereof.
3. Termination of Obligation to Make Keep Well Advances. This
Agreement and the obligation of TCI to make Keep Well Advances hereunder will
terminate on the earliest of (a) the advance by TCI of the full amount of the
Keep Well Commitment and the delivery of all documentation relating to the Keep
Well Advances required by Section 2, (b) both (i) the payment in full of all
loans and all other obligations owing to the Banks arising under the Credit
Agreement, and (ii) the termination or expiration of the commitments of the
Banks to make any loans to Borrower under the Credit Agreement, (c) the Keep
Well Termination Date or (d) the date any amendment, renewal, extension or
other modification of the Credit Agreement that could have an adverse effect on
TCI under this letter becomes effective (except with the prior written consent
of TCI).
4. Further Assurances. TCI will execute and deliver to the Banks
such further instruments and take such further action as the Banks may at any
time or times reasonably request in order to carry out the provisions and
intent of this Agreement.
9.2(b)-2
<PAGE> 74
5. Notices. All communications and notices hereunder will be in
writing and given as provided in the Credit Agreement, with notices to to the
Agent or Banks to be sent to the places therein specified and with notices to
TCI to be sent as follows:
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111-3000
Attn: William R. Fitzgerald
Telephone: (303) 267-4720
Telecopy: (303) 267-6672
Copies: Similarly addressed, Attention: Legal Department
6. Substitution Rights. At the request of TCI, the Banks will
release one or more of the entities defined as "TCI" under this letter from any
further obligations hereunder so long as the net worth of the entities
remaining as obligors (including for this purpose any additional TCI affiliates
which agree in writing to be bound as an obligor hereunder) is not less than
$______ (less the aggregate amount of all Keep Well Advances previously made by
TCI). In addition, TCI may transfer its assets so long as after giving effect
to such transfer TCI will continue to have a net worth not less than $______.
The foregoing substitution rights may be evidenced by a new keep well agreement
among the parties hereto and any additional TCI Affiliates, which new agreement
will be on the same or similar terms as this Agreement.
7. General. This Agreement may be executed in any number of
counterparts which together will constitute one and the same instrument and
will be governed by and construed in accordance with the internal laws of the
State of Colorado. Neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought. The headings in this Agreement are for
reference only and will not limit or otherwise affect the meaning hereof. The
provisions of this Agreement will inure to the benefit of Agent, the Banks and
their respective successors and assigns and will be binding upon TCI and its
successors and assigns, except that TCI will not be able to delegate or assign
any of its duties or obligations hereunder (other than as permitted by Section
6) without the prior written consent of the Banks, which will not be withheld
unreasonably.
If the foregoing corresponds with your understanding of our
agreement, kindly sign this letter in the appropriate space below, whereupon
this letter will become a binding agreement between you and each of the
undersigned.
9.2(b)-3
<PAGE> 75
TEMPO CABLE, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
COMMUNICATIONS SERVICES, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI CABLEVISION OF OKLAHOMA, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI OF KANSAS, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
WENTRONICS, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TCI CABLEVISION OF UTAH, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
9.2(b)-4
<PAGE> 76
TCI CABLEVISION OF ARIZONA, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
TULSA CABLE TELEVISION, INC.
By:
-------------------------------
Name: William R. Fitzgerald
Title: Vice President
The foregoing is accepted:
[AGENT]
By:
--------------------------------
Name:
-----------------------
Title:
-----------------------
9.2(b)-5
<PAGE> 1
EXHIBIT 10.80
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
PEAK CABLEVISION, LLC
September 25, 1997
<PAGE> 2
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
PEAK CABLEVISION, LLC
This AMENDED AND RESTATED OPERATING AGREEMENT is made as of this 25th
day of September, 1997 by TCI American Cable Holdings III, L.P., a Colorado
limited partnership ("TCI"), and Fisher Communications Associates, L.L.C., a
Colorado limited liability company ("Fisher"). In consideration of the mutual
promises and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto agree as
follows with respect to the administration and regulation of the affairs of the
Company:
ARTICLE 1: FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on September 25, 1997, by
filing Articles of Organization with the Colorado Secretary of State pursuant
to the Act and on behalf of the initial Members of the Company.
1.2 COMPANY NAME. The business of the Company will be conducted
under the name "Peak Cablevision" or any other name determined by the Company
in accordance with applicable law.
1.3 OFFICE AND AGENT. The initial registered office of the Company
in Colorado is located at 1675 Broadway, Suite 1200, Denver, Colorado 80202,
and its initial registered agent is CT Corporation System. The Company may
subsequently change its registered office or registered agent in Colorado in
accordance with the Act.
1.4 FOREIGN QUALIFICATION. After formation of the Company under the
Act, the Company will apply for any required certificate of authority to do
business in any other state or jurisdiction where it conducts business, as
appropriate.
1.5 TERM. The Company begins its existence on the date its Articles
of Organization are filed with the Colorado Secretary of State and continues
until its Dissolution.
1
<PAGE> 3
1.6 DEFINITIONS. Terms used with initial capital letters will have
the meanings specified in EXHIBIT A, applicable to both singular and plural
forms, for all purposes of this Agreement.
ARTICLE 2: PURPOSES AND POWERS
2.1 PURPOSES. The purposes of the Company shall be, to the extent
permitted under applicable law, to engage in the business, directly or
indirectly, through interests in one or more subsidiaries, of: (a) acquiring,
developing, owning, operating, managing, and selling the cable television
systems and other assets to be contributed to the Company by the Members
pursuant to the Contribution Agreement; (b) acquiring, developing, owning,
operating, managing and selling, or investing in, additional cable television
systems; (c) acquiring, developing, owning, operating, managing and selling, or
investing in, businesses related to the operation of cable television systems;
(d) managing cable television systems; (e) conducting other businesses as
determined by the unanimous Vote of the Members; and (f) engaging in all
activities and transactions incidental to the foregoing (including owning or
leasing real property and incurring debt).
2.2 POWERS. The Company has all of the powers granted to a limited
liability company under the Act, as well as all powers necessary or convenient
to achieve its purposes and to further its business.
2.3 EFFECT ON COMPANY POWERS. The listing of the purposes of the
Company in Section 2.1 shall not be construed to limit or impair the
limitations on actions that may be taken by the Company as set forth in Section
4.4 or any of the other limitations expressly set forth in this Agreement.
ARTICLE 3: MANAGERS
3.1 MANAGEMENT. Except as specifically provided in Sections 4.3 and
4.4 (relating to the retained voting rights of the Members) or in the
Management Agreement, all management rights are vested in the Managers. These
management rights may be delegated, in whole or in part, to other Persons
(including delegation of day-to-day management authority).
3.2 NUMBER AND APPOINTMENT OF MANAGERS. Until this Agreement is
amended by the Members, there will be four Managers. The four initial Managers
are William R. Fitzgerald and Marvin Jones (who are elected by the Class A
Ownership Interests) and William K. Fisher and Blake F. Fisher (who are elected
by the Class B Ownership Interests).
3.3 MAJORITY ACTION. Except as specifically provided in Section 4.4,
all decisions required to be made by the Managers shall require majority Vote
of the Managers. All such decisions may be made with or without a meeting and
the Managers may act in person, by
2
<PAGE> 4
telephone or any other method of communication by which all Managers
participating in the meeting can hear each other at the same time. Any
decision made by the Managers may, but need not, be set forth in writing.
3.4 ELECTION. Two Managers shall be elected by the affirmative Vote
of Members owning a majority of the Class A Ownership Interests held by all
Members, and two Managers shall be elected by the affirmative Vote of Members
owning a majority of the Class B Ownership Interests held by all Members. Each
Manager shall hold office until any one of the following occurs: (a) pursuant
to Section 4.3, another individual is elected as a Manager by the Class A or
Class B Ownership Interests (as the case may be) either at a meeting or by
written consent; (b) the Manager becomes legally incapacitated or dies; or (c)
the Manager is removed pursuant to Section 3.9.
3.5 QUALIFICATIONS. A Manager must be a natural person who is 18
years of age or older, but need not be a Member. In addition, the Managers
shall be persons whose appointment will not cause the Ownership Interests to be
deemed "voting securities" for purposes of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
3.6 DUTIES. Each Manager will perform all duties as a Manager in
good faith, in a manner reasonably believed to be in the best interests of the
Company, and with such care as an ordinarily prudent person in a like position
would use under similar circumstances. Unless a Manager has knowledge that
would cause such reliance to be unwarranted, a Manager in performing managerial
duties on behalf of the Company may rely on information, opinions, reports or
statements of the following: (a) one or more employees or agents of the
Company whom the Manager reasonably believes to be reliable and competent in
the matters presented; (b) any attorney, public accountant or other person as
to matters which the Manager reasonably believes to be within such Person's
professional or expert competence; and (c) any committee authorized by the
Act.
3.7 AUTHORITY. Each Manager is an agent of the Company for the
purpose of the Company's business. The act of a Manager binds the Company,
including acts for apparently carrying on in the usual way the business of the
Company, unless (a) such act is in contravention of the Articles; (b) such act
is in contravention of this Agreement; or (c) the Manager otherwise lacks
authority to act for the Company and the Person with whom the Manager is
dealing has knowledge of this lack of authority. A Manager has no authority
to do any act in contravention of the Articles or this Agreement.
3.8 REIMBURSEMENT. Upon compliance with such policies and
procedures as the Company may from time to time adopt, a Manager will be
reimbursed by the Company for all
3
<PAGE> 5
reasonable expenses incurred on behalf of the Company in connection with the
Company's business.
3.9 REMOVAL. A Manager elected by a Class may only be removed at
any time, with or without cause, by the affirmative Vote of Members of that
Class owning a majority of the Class A or Class B Ownership Interests (as the
case may be) held by all Members. Accordingly, the Members holding Class A
Ownership Interests elect (and may remove) two Managers, and the Members
holding Class B Ownership Interests may elect (and may remove) two Managers.
ARTICLE 4: MEMBERS
4.1 INITIAL MEMBERS. The initial Members of the Company are TCI and
Fisher.
4.2 OWNERSHIP INTERESTS. Upon making the Formation Contributions
set forth in Section 5.1, TCI will have an initial Ownership Interest of 66.7%
and Fisher will have an initial Ownership Interest of 33.3%. The Ownership
Interests in the Company are divided into two classes, Class A and Class B.
All of the Class A Ownership Interests are initially held by TCI, and all of
the Class B Ownership Interests are initially held by Fisher. The Class A and
Class B Ownership Interests are identical in all respects except that each
Class votes as a separate voting group on the election and removal of Managers.
Subsequently, upon any Transfer of an Ownership Interest or otherwise, the
Ownership Interests will be determined in accordance with this Agreement and
the Company will amend Exhibit B by a written instrument placed in the Company
records.
4.3 CLASS RIGHTS. Notwithstanding the powers granted to a Manager
under the Act, the appointment and removal of a Manager as provided in Section
3.4 is reserved to the Members acting as separate classes, requiring the
affirmative action of Members owning a majority of the Class A or Class B
Ownership Interests (as the case may be) held by all Members.
4.4 UNANIMOUS APPROVAL. Notwithstanding any provision in this
Agreement to the contrary, the following actions by the Company will require
the affirmative approval of all Members:
(a) the adoption of the annual operating and capital
plans and budgets;
(b) a fundamental change in the Company's business from
that set forth in Section 2.1;
(c) the acquisition or disposition of cable systems, or
other material assets;
4
<PAGE> 6
(d) becoming a party to any consolidation, merger,
recapitalization or other form of reorganization;
(e) the liquidation, dissolution or filing for bankruptcy
of the Company;
(f) amending the Articles or this Agreement;
(g) initiating or settling any material litigation that
is not in the ordinary course of business (for purposes of this clause,
material means an amount equal to at least 10% of the total Fair Market Value
of the assets of the Company at the time of the proposed taking of such
action);
(h) entering into any transaction with any Affiliate or
any Member unless the transaction is on terms no less favorable to the Company
than could have been obtained in a comparable arms'-length transaction with a
Person that is not an Affiliate of a Member;
(i) the redemption or repurchase of Ownership Interests
in the Company;
(j) incurring any Indebtedness, or consummating any
transaction, including, the execution of any loan agreement or issuance of any
note or other debt instrument (whether secured or unsecured), such that
immediately after the incurrence of such Indebtedness or consummation of such
transaction, the Company's Operating Cash Flow Ratio would exceed 6.5 to 1;
(k) making a call for Additional Contributions;
(l) changing the Company's outside audit and accounting
firm from KPMG Peat Marwick to any other accounting firm; and
(m) any indirect action that would require such approval
if taken directly by the Company.
4.5 DUTIES. Each Member agrees to exercise the management rights
retained under this Article in good faith, in a manner reasonably believed to
be in the best interests of the Company, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
4.6 REIMBURSEMENT. Upon compliance with such policies and procedures
as the Company may from time to time adopt, the Members will be reimbursed by
the Company for all
5
<PAGE> 7
reasonable expenses incurred on behalf of the Company in connection with the
Company's business.
4.7 NO COMPENSATION. Except pursuant to the Management Agreement or
upon the affirmative Vote of all of the Members, no Member (including any
Member who is also a Manager) or Affiliate of a Member shall be paid
compensation for services rendered to the Company other than the Preferred
Return or such Member's share of Profits.
4.8 EFFORTS OF MEMBERS. Each Member shall devote such time and effort
to the affairs of the Company as such Member determines to be necessary or
desirable to promote the successful operation of the Company.
4.9 OTHER ACTIVITIES. The Members may engage in or possess interests
in other business ventures of any nature and description, independently or with
others, and whether or not such businesses are in competition with the business
of the Company, and neither the Company nor any other Member will have any
right by virtue of this Agreement in such independent ventures.
4.10 RELATED-PARTY CONTRACTS. The Members acknowledge and agree that
the Company will enter into a management agreement with Fisher or an Affiliate
of Fisher. Any other related-party contract (including any agreement with a
Member or an Affiliate of a Member) is permitted under this Agreement (and does
not violate any conflict-of-interest or other legal restriction) as long as any
such contract is approved by the unanimous Vote of the Members. While TCI and
Fisher are the only Members, such approval may be evidenced by their or their
Affiliates' joint signature on any such related-party contract.
4.11 ADDITIONAL MEMBERS. Additional Members of the Company may be
admitted incident to the contribution of money or other property to the Company
(or otherwise) only upon the affirmative Vote of all Members, effective upon a
date specified.
ARTICLE 5: CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
5.1 INITIAL CONTRIBUTION. Simultaneously with the execution of this
Agreement, the Members shall each contribute to the Company its respective
Formation Contribution (the "Formation Contributions") in cash in the amount
set forth in Exhibit C attached hereto. At the Closing (as defined in the
Contribution Agreement), the Members shall each contribute to the Company its
respective Initial Contributions (the "Initial Contributions"). Exhibit C sets
forth the Fair Market Value of the Initial Contributions of the Members,
subject to adjustment pursuant to the provisions of the Contribution Agreement.
6
<PAGE> 8
5.2 ADDITIONAL CONTRIBUTIONS. Except upon the affirmative Vote of
all Members and upon such terms and conditions as all Members may agree to in
writing, no Additional Contribution will be required from any Member unless
otherwise required by law.
5.3 NO WITHDRAWAL. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all or any part of such
Member's capital from the Company or, when such withdrawal of capital is
permitted, to demand a distribution of property other than money.
5.4 NO INTEREST ON CAPITAL. Except for the Preferred Return, no
Member will be entitled to receive interest on such Member's Capital
Contribution or Capital Account.
5.5 LOANS BY MEMBERS. If the Company borrows money from any Member
or any Affiliate of a Member, such amount shall be repaid with Interest on
demand, or with Interest and upon such other terms as the Company and such
Member or Affiliate may agree; provided that, the terms of such loan may not be
less favorable to the Company than the terms available from an unrelated
lender. Any such advance or loan will be treated as Indebtedness of the
Company, and will not be treated as a Capital Contribution by a Member. If any
Member or Affiliate pays money pursuant to any letter of credit, guarantee or
other surety arrangement for the benefit of the Company, such payment of money
will be deemed to be a loan made by such Person to the Company.
5.6 NO DRAWING ACCOUNTS. The Company will not maintain a drawing
account for any Member. All Distributions to Members will be governed by
Article 7 (relating to Distributions) and by Article 14 (relating to
Liquidation).
5.7 CAPITAL ACCOUNTS. The Company will maintain a separate Capital
Account for each Member. Credits and charges to capital accounts will be made
in accordance with the ?704(b) Regulations. The initial balance of each
Member's Capital Account shall equal the Initial Contributions.
5.8 TRANSFER. If all or any part of an Ownership Interest is
transferred in accordance with this Agreement, the Capital Account of the
Transferor that is attributable to the transferred interest will carry over to
the Transferee.
ARTICLE 6: ALLOCATION OF PROFITS AND LOSSES
6.1 GENERAL ALLOCATION RULE.
(a) Except as provided in Section 6.2, and after giving
effect to the special allocations set forth in Section 6.3 below, the Profits
or Losses of the Company, including items
7
<PAGE> 9
of income, gain, loss and deduction for each Fiscal Year, will be allocated to
the Members in proportion to their Ownership Interests.
(b) Notwithstanding Section 6.1(a), no Member shall be
allocated Losses or items of loss or deduction pursuant to Section 6.1(a) to
the extent such allocation would cause such Member to have an Adjusted Capital
Account Deficit at the end of any fiscal year. In the event Losses or items of
loss or deduction cannot be allocated pursuant to Section 6.1(a) as a result of
the limitation contained in this Section 6.1(b), then such Losses or items of
loss or deduction shall be allocated to the other Members in proportion to
their Ownership Interests, to the maximum amount permissible under this Section
6.1(b).
6.2 ALLOCATIONS UPON DISSOLUTION. Upon the Dissolution of the
Company or upon the sale of all or substantially all of the Company's assets,
but subject to Section 6.3, (a) Profits shall be allocated to the Members as
follows and in the following order of priority: (i) until no Member has a
deficit Capital Account; (ii) in proportion to the Members' Unrecovered
Contributions until each Member's Capital Account is equal to the sum of its
Unrecovered Contribution; (iii) in proportion to the Members' Unpaid Preferred
Returns until each Member's Capital Account is equal to its Unrecovered
Contribution and Unpaid Preferred Return; and (iv) any remaining Profits shall
be allocated ninety percent (90%) to the Members (in proportion to their
Ownership Interests) and ten percent (10%) to Fisher; and (b) Losses shall be
allocated to the Members as follows and in the following order of priority: (i)
until each Member's Capital Account is equal to the sum of its Unpaid Preferred
Return and Unrecovered Contribution; (ii) in proportion to the Members'
Unrecovered Contribution until each Member's Capital Account is equal to its
unpaid Preferred Return; (iii) in proportion to the Members' Unpaid Preferred
Return until each Member's Capital Account is equal to zero; and (iv) to the
Members in proportion to their Ownership Interests.
6.3 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(a) MINIMUM GAIN CHARGEBACK. If, during the Company's
fiscal year, there is a net decrease in the Company's minimum gain (as
determined under Section 1.704-2(d) of the Regulations), then items of income
and gain of the Company shall be allocated to each Member in an amount equal to
such Member's share of the net decrease in partnership minimum gain determined
in accordance with Section 1.704-2(g) of the Regulations, at the end of such
fiscal year in accordance with Section 1.704-2(f) of the Regulations. This
provision is intended to comply with the "minimum gain chargeback" requirement
in the above referenced Regulations Sections and shall, to the extent possible,
be interpreted consistently therewith. If during a Company taxable year there
is a net decrease in partner nonrecourse debt minimum gain (as defined in
Section 1.704-2(g) of the Regulations), then any Member with a share of that
partner nonrecourse minimum debt gain (determined under Section 1.704-2(i)(5)
of the Regulations) as of the beginning of the year must be allocated items of
income and gain of the Company for the year equal to that Member's share of the
net decrease in the partner
8
<PAGE> 10
nonrecourse debt minimum gain in compliance with Section 1.704-2(i)(4) of the
Regulations.
(b) QUALIFIED INCOME OFFSET. If any Member unexpectedly
receives any adjustments, allocations, or distributions described in sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to each such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of
such Member as quickly as possible, provided that an allocation pursuant to
this Section 6.3(b) shall be made if and only to the extent that such Member
would have Adjusted Capital Account Deficit after all other allocations
provided for in this Article 6 have been tentatively made as if this Section
6.3(b) were not in the Agreement.
(c) GROSS INCOME ALLOCATION. If any Member has an
Adjusted Capital Account Deficit at the end of any Company Fiscal Year, each
such Member shall be specially allocated items of Company income and gain in
the amount of such excess as quickly as possible; provided, however, that an
allocation pursuant to this Section 6.3(c) shall be made if and only to the
extent that such Member would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article 6 have been tentatively made
as if this Section 6.3(c) and Section 6.3(b) hereof were not in the Agreement.
(d) MEMBER NONRECOURSE DEDUCTIONS. Notwithstanding the
general rule on allocation of Losses, any Member Nonrecourse Deductions of the
Company attributable to any Member nonrecourse liability (which is nonrecourse
to the Company, but for which one or more Members or related parties bear the
economic risk of loss) will be determined and allocated (in accordance with the
Section 752 Regulations and the Section 704(b) Regulations) to those Members
bearing the economic risk of loss for the liability.
(e) NONRECOURSE DEDUCTIONS. Notwithstanding the general
rule on allocation of Losses, any Nonrecourse Deductions of the Company
attributable to any nonrecourse liability (as defined in Section 1.704-2(b)(3)
of the Regulations) will be determined and allocated (in accordance with the
Section 752 Regulations and the Section 704(b) Regulations) to the Members in
proportion to their Ownership Interests.
6.4 INTENTIONS OF THE MEMBERS. It is the intent of the Members
that the allocations provided in Article 6 of this Agreement will result in
their respective positive Capital Account balances being equal to the
distributions required pursuant to Section 14.2 of the Agreement. However, if
after giving effect to the allocations required in Article 6, the Capital
Account
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<PAGE> 11
balances of the Members are not equal to the distributions required under
Section 14.2 of the Agreement and notwithstanding anything herein to the
contrary, (i) all distributions required under Section 14.2 of the Agreement
shall be made to the Members pursuant to Section 14.2; and (ii) the allocation
provisions of Article 6 shall be amended by the Managers if and to the extent
necessary to produce positive Capital Account balances equal to the
distributions required pursuant to Section 14.2 of the Agreement.
6.5 ECONOMIC EFFECT. Notwithstanding any other provision herein
to the contrary, no allocation of Profits, Losses, or items of income, gain,
loss and deduction will be made to a Member if the allocation would not have
"economic effect" under section 1.704-1(b)(2)(ii) of the Regulations or
otherwise would not be in accordance with the Members? interests in the Company
within the meaning of section 1.704-1(b)(3) or section 1.704-2(b)(1) of the
Regulations. A majority of the Managers will have the authority to reallocate
any item in accordance this Section 6.5; provided, however, that (a) no such
change shall have a material adverse effect upon the amount of cash or other
property distributable to any Member, (b) each Member shall have 30 days prior
notice of such proposed modification and (c) the Company shall have received an
opinion of tax counsel to the Company that such modification is necessary to
comply with section 704(b) of the Code.
6.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and
deduction of the Company for Federal income tax purposes for a Fiscal Year will
be allocated, as nearly as is practicable, in accordance with the manner in
which such items are reflected in the allocations of Profits and Losses among
the Members for such Fiscal Year. To the extent possible, principles identical
to those that apply to allocations for Federal income tax purposes will apply
for state and local income tax purposes.
6.7 TRANSFER. If any Transfer of an Ownership Interest occurs
during any Fiscal Year, the books of the Company will be closed as of the
effective date of Transfer. The Profits or Losses allocable to the transferred
Ownership Interest which are attributed to the period from the first day of
such Fiscal Year through the effective date of Transfer will be allocated to
the Transferor, and the Profits or Losses attributed to the period commencing
on the effective date of Transfer will be allocated to the Transferee. In lieu
of an interim closing of the books of the Company and with the agreement of the
Transferor and Transferee, the Company may agree to allocate Profits and Losses
for such Fiscal Year between the Transferor and Transferee based on a daily
proration of items for such Fiscal Year or any other reasonable method of
allocation (including an allocation of extraordinary Company items, as
determined by the Company, based on when such items are recognized for Federal
income tax purposes).
6.8 CONTRIBUTED PROPERTY. As required by the Code, all items of
income, gain, loss and deduction with respect to property (other than cash or
cash equivalents) contributed or
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deemed contributed to the Company will, solely for tax purposes, be allocated
among the Members so as to take into account the variation between the tax
basis of the property and its Fair Market Value at the time of contribution.
All tax allocations made under this provision will be made in accordance with
Section 704(c) of the Code and Regulations Section 1.704- 3(b).
6.9 TAX CREDITS. Any tax credit, and any tax credit recapture, will
be allocated to the Members in the same ratio that the Federal income tax basis
of the asset (to which such tax credit relates) is allocated to the Members
under the Section 46 Regulations, and if no basis is allocated, in the same
manner as Profits are allocated to the Members under Section 6.1(a).
ARTICLE 7: DISTRIBUTIONS
7.1 CASH RESERVES. The Company will establish and maintain
reasonable cash reserves for (a) operating expenses (other than depreciation,
amortization or similar non-cash allowances); (b) capital improvements; and (c)
debt service. The amount of such reserves will be as the Company may from time
to time determine, and such amount will be allowed as a deduction in
determining Net Operating Cash Flow.
7.2 PRORATA DISTRIBUTIONS. The Company will make all Distributions
of Net Operating Cash Flow and Net Sales Cash to the Members as follows and in
the following order of priority:
(a) to the Members pro rata in proportion to their
respective Unrecovered Contribution amounts until each of their Unrecovered
Contribution amounts is reduced to zero;
(b) to the Members pro rata in proportion to their
respective Unpaid Preferred Return amounts until each of their Unpaid Preferred
Return amounts is reduced to zero; and
(c) to the Members pro rata in proportion to their
Ownership Interests.
Any available amount of Net Operating Cash Flow and Net Sales Cash may be
distributed to the Members on or before the 10th day of the month following its
receipt, subject to any restrictions imposed by any credit facilities entered
into by the Company. The Company will make Distributions to the Members in
each Fiscal Year, pro rata in an amount equal to each Members income tax
liability related to its Ownership Interest.
7.3 NONPRORATA DISTRIBUTIONS. The Members intend that all
Distributions will be made to the Members in proportion to their Ownership
Interests. In the event any Distribution is not made in proportion to their
Ownership Interests, any excess Distribution to a Member will be treated as an
advance or loan made by the Company to such Member, payable to the Company with
Interest and on demand.
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7.4 PAYMENT. Any Distribution will be made to a Member only if such
Person owns an Ownership Interest on the date of Distribution, as reflected on
the books of the Company.
7.5 WITHHOLDING. If required by the Code or by state or local law,
the Company will withhold any required amount from Distributions to a Member
for payment to the appropriate taxing authority. Any amount so withheld from a
Member will be treated as a Distribution by the Company to such Member. Each
Member agrees to timely file any agreement that is required by any taxing
authority in order to avoid any withholding obligation that would otherwise be
imposed on the Company.
7.6 IN KIND DISTRIBUTIONS. Any property (other than cash or cash
equivalents) distributed in kind will be deemed sold at its Fair Market Value
on the date of such Distribution, with any gain or loss on such deemed sale
allocated to the Members and credited or charged to Capital Accounts in
accordance with the provisions of Articles 5 and 6.
7.7 DISTRIBUTION LIMITATION. Notwithstanding any other provision of
this Agreement, the Company will not make any Distribution to the Members if,
after the Distribution, the liabilities of the Company (other than liabilities
to Members on account of their Ownership Interests) would exceed the Fair
Market Value of the Company's assets. With respect to any property subject to
a liability for which the recourse of creditors is limited to the specific
property, such property will for this purpose be included in assets only to the
extent the property's Fair Market Value exceeds its associated liability, and
such liability will be excluded from the Company's liabilities.
ARTICLE 8: RESTRICTIONS ON SALE AND TRANSFER OF PARTNERSHIP
INTERESTS AND OTHER MATTERS
8.1 LIMITATION ON TRANSFERS. Except as set forth below, no Member
may sell, assign, transfer or otherwise dispose of, or pledge, hypothecate or
otherwise encumber all or any part of its Ownership Interest, the Profits and
Losses and Distributions therefrom, or any part thereof (whether voluntarily,
involuntarily or by operation of law) unless approved by each Member, provided
however, that TCI may sell or transfer any of its Ownership Interest to Tele-
Communications, Inc., or any of its Affiliates and Fisher may transfer any of
its Ownership Interests to Fisher Capital Partners, Ltd. or any of its
Affiliates, including its partners or lineal descendants of such partners,
provided that each such Transferee, prior to such sale or transfer, becomes a
party to this Agreement and agrees to be bound by the terms and conditions
hereof. Upon becoming a party to this Agreement in compliance with the terms
hereof, any Transferee shall be substituted fully for, and shall enjoy the same
rights and be subject to the same obligations as, its predecessor hereunder.
Any attempt to transfer or encumber any Ownership
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Interest or Profits and Losses and Distributions therefrom (whether
voluntarily, involuntarily or by operation of law), other than as provided for
above, without the approval of each Member shall be void.
8.2 BUY-SELL AGREEMENT. At any time after the seventh anniversary of
the formation of the Company, either TCI or Fisher (as applicable, the
"Initiating Member") shall have the right to initiate a buy-sell procedure by
giving written notice (the "Offer Notice") to the other party (the
"Non-Initiating Member") that it desires to purchase the Non-Initiating
Member's Ownership Interest for a price equal to the Non-Initiating Member's
Adjusted Capital Account Value or sell its Ownership Interest to the
Non-Initiating Member for a price equal to the Initiating Member's Adjusted
Capital Account Value. Within thirty (30) days of the Offer Date (the
"Election Date"), the Non-Initiating Member shall elect either (a) to buy the
Initiating Member's Ownership Interest, for an amount equal to the Initiating
Member's Adjusted Capital Account Value, (b) to sell the Non-Initiating
Member's Ownership Interest to the Initiating Member, for an amount equal to
the Non-Initiating Member's Adjusted Capital Account Value, or (c) neither
purchase the Initiating Member's Ownership Interest or sell its Ownership
Interest. If the Non-Initiating Member elects to purchase the Initiating
Member's Ownership Interest, the Ownership Interest of the Initiating Member
shall be purchased by the Non- Initiating Member at the price and upon the
terms and conditions set forth in the Offer Notice. If the Non-Initiating
Member elects to sell its Ownership Interest, the Ownership Interest of the
Non-Initiating Member shall be purchased by the Initiating Member at the price
and upon the terms and conditions set forth in the Offer Notice. Any sale and
purchase of Ownership Interests in accordance with the provisions of this
Section 8.2 shall be closed at the principal office of the Company at 2:00
p.m., Mountain Standard Time, within twelve months after the Offer Date, and
all requisite documents, instruments and papers shall be signed at the offices
of the Company on the day fixed for such closing. All expenses and fees,
including legal fees, incurred in connection with any such closing shall be
paid ratably by the selling and purchasing Members. The parties will use good
faith efforts to effect any transaction pursuant to the procedures set forth in
this Section in a tax-efficient manner, such as a tax-deferred reorganization.
8.3 SALE OR SPLIT-UP PROCEDURE. If the Non-Initiating Member does not
elect to be either a buyer or a seller pursuant to Section 8.2, within 30 days
of the Election Date, the Initiating Member has the right to initiate a
procedure for (a) the sale of all, but not less than all, of the Company
systems pursuant to clause 8.3.1 below (the "Sale"), or (b) the distribution of
the Company assets to the Members pursuant to clause 8.3.2 below (the "Split-Up
Procedure").
8.3.1 SALE. If the Initiating Member chooses the Sale
option, it shall deliver written notice thereof to the Non-Initiating Member
within 30 days after the Election Date ("Sale Notice"). Thereafter, the
Initiating Member shall seek offers for all, but not less than all, of the
systems from Third Parties. The Non-Initiating Member shall have the right to
match any Third
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Party Offer that is at or below the Stated Value. Once an offer has been
accepted by the Initiating Member (on behalf of the Company), the parties will
work together to sell the systems to the Third Party buyer (or the
Non-Initiating Member if it can and does match an offer) and then liquidate the
Company pursuant to Article 14. The sale must be completed within twelve
months from the date of the Sale Notice. All costs relating to the Sale,
including brokers and attorneys fees, shall be borne by the Initiating Member.
8.3.2 SPLIT-UP PROCEDURE. If the Initiating Member
chooses the Split-Up Procedure it shall give written notice thereof to the
Non-Initiating Member within thirty (30) days after the Election Date (the
"Split-Up Notice"). Thereafter, within sixty (60) days of the Split-Up Notice,
the Non-Initiating Member shall divide the assets and liabilities (including
expenses of liquidation) of the Company into two (2) equal groups. In order to
equalize the two groups, the Non-Initiating Member shall add cash, notes
payable to the Company, or stock to one group. The Initiating Member will
select the group of assets and liabilities it desires to take within ninety
(90) days of the Split-Up Notice, and the Non-Initiating Member will receive
the remaining group of assets and liabilities. The debt associated with the
assets of the Company shall be used to adjust the equal group of assets in
order to reflect the actual Ownership Interests of the Members, which Ownership
Interests shall equal the applicable Member's Capital Account balance adjusted
by restating the Capital Accounts of the Members to reflect the Fair Market
Value of the assets of the Company and allocating the unrealized profits and
losses in accordance with the provisions of Article 6. The Company will then
be dissolved pursuant to Article 13.
8.4 ASSIGNMENT OF INTEREST IN DISTRIBUTIONS. Notwithstanding the
provisions of Section 8.1, and except as required by law, a Member may assign
all or a portion of its interest in its right to receive Distributions to any
Person without the consent of the other Member. An assignee of an interest in
Distributions does not become an additional or a substituted Member.
8.5 CALCULATION OF FAIR MARKET VALUE. For purposes of this Article
8, Fair Market Value shall be calculated in the following manner. For a period
not to exceed 30 days, the Members shall negotiate in good faith with each
other to determine the Fair Market Value of the Company. If the parties fail
to agree upon the Fair Market Value then each Member shall select a nationally
recognized investment banking firm to evaluate the Company assets and to
determine the gross fair market value of the Company's assets as of the
immediately preceding quarter ending prior to the Offer Notice. If the
difference between the two values is 3% or less of the lower value, then the
Fair Market Value of the Company will be the average of the two appraisal
values. If the difference between the two values is more than 3% of the lower
value, the two appraisers selected by the Members will select a third qualified
appraiser who will determine the gross fair market value of the Company's
assets as of the immediately preceding quarter ending prior to the Offer
Notice. The Fair Market Value of the Company will be equal to the average of
the two appraisals that are closest to one another. If the highest and lowest
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appraisals are equidistant from the middle appraisal, then such Fair Market
Value of the Company shall be equal to the middle appraisal. Each Member will
bear the expenses of the investment banking firm that it selects, and if a
third investment banking firm is used, the Members will share the expense of
the third firm equally.
ARTICLE 9: MEETINGS OF MEMBERS
9.1 ANNUAL MEETING. Unless the Company determines (whether by Vote
or otherwise) that an annual meeting is not necessary or desirable, the annual
meeting of the Members will be held on the first Monday in March in each year
at 10:00 a.m. (local time) or at such other time as determined by any Member or
Members owning eighty percent (80%) of the Ownership Interests held by all
Members by Notice to all other Members. The purpose of the annual meeting is
to review the Company's operations for the preceding Fiscal Year and to
transact such business as may come before the meeting. The failure to hold any
annual meeting has no adverse effect on the continuance of the Company.
9.2 SPECIAL MEETINGS. Special meetings of the Members, for any
purpose or purposes, may be called by any Member or Members owning at least 10%
of the Ownership Interests held by all Members by Notice to all other Members.
9.3 PLACE. The place of meeting for any meeting of the Members will
be as determined by the affirmative vote of Members owning at least 80% of the
Ownership Interests held by all Members. If no designation is made, or if a
special meeting is otherwise called, the place of meeting will be the Company's
registered office in Colorado.
9.4 NOTICE. Notice of any annual meeting determined by resolution of
the Members or of any special meeting must be given not less than five days nor
more than 30 days before the date of the meeting. Such Notice must state the
place, day, and hour of the meeting and, in the case of a special meeting, the
purpose for which the meeting is called.
9.5 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice
that is required to be given to such Member, whether before or after the time
stated in such Notice. Any Member who signs minutes of action (or written
consent or agreement) will be deemed to have waived any required Notice with
respect to such action.
9.6 RECORD DATE. For the purpose of determining Members entitled to
Notice of or to vote at any meeting of Members, the date on which Notice of the
meeting is first given will be the record date for the determination of
Members. Any such determination of Members entitled to vote at any meeting of
Members will apply to any adjournment of a meeting.
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9.7 QUORUM. A quorum at any meeting of Members shall consist of
Members owning at least 80% of the Ownership Interests held by all Members.
Any meeting at which a quorum is not present may adjourn the meeting to another
place, day and hour without further Notice.
9.8 MANNER OF ACTING. If a quorum is present, the affirmative Vote
of Members as set forth in Article 4 will be the act of the Company.
9.9 PROXIES. At meeting of Members, a Member may vote in person or
by written proxy given to another Member. Such proxy must be signed by the
Member or by a duly authorized attorney-in-fact and filed with the Company
before or at the time of the meeting. No proxy will be valid after eleven
months from the date of its signing unless otherwise provided in the proxy.
Attendance at the meeting by the Member giving the proxy will revoke the proxy
during the period of attendance.
9.10 MEETINGS BY TELEPHONE. The Members may participate in a meeting
by means of conference telephone or similar communications equipment by which
all Members participating in the meeting can hear each other at the same time.
Such participation will constitute presence in person at the meeting and waiver
of any required Notice.
9.11 ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken,
signed by Members owning total Ownership Interests sufficient for the
particular action as set forth in Article 4. Action so taken is effective when
sufficient Members approving the action have signed the consent, unless the
consent specifies a later effective date.
ARTICLE 10: LIABILITY OF A MEMBER
10.1 LIMITED LIABILITY. As provided in the Act, no Member or Manager
of the Company (including any Person who formerly held such status) is liable
under a judgment, decree or order of a court, or in any other manner, for any
debt, obligation or liability of the Company.
10.2 CAPITAL CONTRIBUTION. Each Member is liable to the Company for
(a) the Initial Contribution agreed to be made under Section 5.1 and any
Additional Contribution agreed to be made under Section 5.2 and (b) any Capital
Contribution or Distribution that has been wrongfully or erroneously returned
or made to such Person in violation of the Act, the Articles or this Agreement.
10.3 CAPITAL RETURN. Any Member who has received the return of all
or any part of a Capital Contribution in violation of the Act or this Agreement
is liable to the Company for a
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period of six years from the date of such Distribution for the amount of the
Capital Contribution wrongfully returned.
ARTICLE 11: INDEMNIFICATION
11.1 GENERAL. The Company will indemnify each Member and Manager
from any Liability incurred in any Proceeding to which such Person is made a
party because such Person was a Member or Manager, or acted or failed to act
with respect to management of the Company, if such Person acted in good faith,
in a manner he or she reasonably believed to be in the best interests of the
Company and with such care as an ordinarily prudent person in a like position
would use under similar circumstances. Notwithstanding the preceding sentence,
and unless the Liability was reasonably incurred in the ordinary and proper
conduct of the Company's business or for the preservation of its business or
property, the Company may indemnify a Member or Manager only if the Company
authorizes the indemnification in the specific case after a determination that
such Person has met the standard of conduct described above.
11.2 EXCEPTION. Notwithstanding the general rule stated in Section
11.1, the Company will not indemnify any Member or Manager in connection with
any Proceeding by (or in right of) the Company in which such Person was
determined liable to the Company or determined to have received an improper
personal benefit.
11.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses
incurred by a Member or Manager who is a party to a Proceeding and unless the
Section 11.2 exception applies, the Company may provide funds to such Person in
advance of the final disposition of the Proceeding if such Person furnishes the
Company with his or her written affirmation of a good-faith belief that he or
she has met the standard of conduct described in Section 11.1, and such Person
agrees in writing to repay the advance if it is subsequently determined that he
or she has not met such standard of conduct.
11.4 INSURANCE. The indemnification provisions of this Article do
not limit a Member's or Manager's right to recover under any insurance policy
maintained by the Company. If, with respect to any Liability, any Member or
Manager receives an insurance policy indemnification payment which, together
with any indemnification payment made by the Company, exceeds the amount of
such Liability, then such Person will immediately repay such excess to the
Company.
11.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company
will indemnify and advance expenses to a Member or Manager, the Company may
indemnify and advance expenses to any officer, employee or agent of the
Company. In addition, the Company, in its complete discretion, may indemnify
and advance expenses to any Company employee or agent to a greater extent than
a Member or Manager.
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ARTICLE 12: ACCOUNTING, REPORTING, PROGRAMMING AND OTHER DISCOUNTS
12.1 FISCAL YEAR. For income tax and accounting purposes, the Fiscal
Year of the Company will end on December 31 in each year (unless otherwise
required by the Code).
12.2 ACCOUNTING METHOD. For income tax and accounting purposes, the
Company will use the accrual receipts and disbursements method of accounting
(unless otherwise required by the Code).
12.3 TAX ELECTIONS. The Company will have the authority to make such
tax elections, and to revoke any such election, as a majority of the Managers
may from time to time determine. Notwithstanding the preceding sentence,
following any Transfer (within the meaning of ?754 of the Code) of a 10% or
more Ownership Interest in a single transaction, the Company will make the
election under ?754 of the Code upon the timely written request of either the
Transferor or the Transferee. In addition, the Company may make the ?754
election if a majority of the Managers determines that such election is in the
best interests of the Company or any Member.
12.4 RETURNS. The Company will cause the preparation and timely
filing of all tax returns required to be filed by the Company pursuant to the
Code, as well as all other tax returns required in each jurisdiction in which
the Company does business. Copies of the returns shall be furnished to the
Members for review and approval as soon as possible after the end of the Fiscal
Year. Information required for the preparation of each Member's income tax
returns shall be furnished to the Members as soon as possible after the close
of the Fiscal Year.
12.5 TAX MATTERS PARTNER. Fisher is hereby designated Tax Matters
Partner for the Company. Each Member shall have the right to participate in
(a) any administrative proceeding relating to the determination of items at the
Company level and (b) any discussions with the Internal Revenue Service
relating to the allocations pursuant to Article 6 and no settlement or
compromise of any issue related to said allocations will be made without the
consent of all affected Members. The Tax Matters Partner shall not enter into
any extension of the period of limitations for making assessments on behalf of
the Members without first obtaining the consent of a majority of the Managers.
Any reasonable cost or expense incurred by the Tax Matters Partner in
connection with its duties, including the preparation for or pursuance of
administrative or judicial proceedings, shall be paid by the Company.
12.6 AUDITORS. KPMG Peat Marwick shall be the Company's outside audit
and accounting firm and shall handle all accounting functions for the Company.
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12.7 REPORTS. As soon as is practicable after the close of each
calendar month and quarter (in any event no later than the fifteenth day after
the end of such month or quarter, as applicable), the Managers shall provide
each Member with the consolidated profit and loss statements, balance sheets
and cash flow statements of the Company. In addition, the Managers shall
provide each Member with system statistical information (i.e., homes passed,
EBUs and premium subscribers by service) on or before the fifteenth day after
the end of such month. The Company books will be closed at the end of each
Fiscal Year and statements shall be prepared showing the financial condition of
the Company and its Profits or Losses from operations. As soon as practicable
after the close of each Fiscal Year (and in any event by March 15 following the
end of each Fiscal Year), the Managers shall provide each Member with audited
income statements, balance sheets and cash flow statements.
12.8 BOOKS AND RECORDS. The following records of the Company will be
kept at the Company's registered office in Colorado, and will be available for
inspection and copying by any Member at such Person's expense, during ordinary
business hours upon reasonable notice:
(a) A current list of the full name and last known
mailing address of each Member (and Manager, if any), both past and present;
(b) A copy of the Articles and of this Agreement, as
amended (as well as any signed powers of attorney pursuant to which any such
document was signed);
(c) Copies of the Company's Federal, state and local
income tax returns and reports, and copies of any Company financial statements,
for the three most recent years;
(d) Minutes, or minutes of action, of every annual and
special meeting of the Members; and
(e) To the extent not contained in this Agreement, any
agreement or understanding among the Members which concerns required or agreed
Capital Contributions, the agreed value and timing of such contributions, the
time or event which may terminate membership in the Company, the method for
determining Distributions, or any right to receive a return of any Capital
Contribution.
12.9 INFORMATION. Any Member has the right to inspect and copy the
Company books and records as provided in Section 12.8 and to have a formal
accounting of Company affairs whenever circumstances render it just and
reasonable. In addition, subject to reasonable standards as established by the
Company from time to time, and upon reasonable demand for any purpose
reasonably related to the Member's interest as a Member, any Member has the
right to
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obtain from the Company all information in the Company's possession relating to
the state of the Company's business and its financial condition.
12.10 BANKING. The Company may establish one or more bank or
financial accounts and safe deposit boxes. The Company may authorize one or
more individuals to sign checks on and withdraw funds from such bank or
financial accounts and to have access to such safe deposit boxes, and may place
such limitations and restrictions on such authority as the Company deems
advisable.
12.11 PROGRAMMING AND @ HOME.
(a) TCI will provide, or cause to be provided,
programming to the Company provided that the Company enters into a supply
agreement with Satellite Services, Inc. ("SSI"), an affiliate of TCI (the "SSI
Agreement"). For each of the systems contributed by TCI (the "TCI Systems"),
the Company commits to continued carriage of any programming services listed on
Exhibit D to the SSI Agreement which were carried by the TCI Systems on the
Closing Date. The Company commits to continued carriage of Starz and Encore on
the TCI Systems on the same terms and conditions set forth in the Agreement in
Principle dated May 21, 1997 between Liberty Media Corporation and
Tele-Communications, Inc. The Members shall use their reasonable best efforts
to cause the Company to carry Starz and Encore on the remaining systems. The
cost for receiving SSI programming shall be equal to 1.5% of the total cost of
programming purchased by the Company through SSI.
(b) Promptly following the Closing (but in any event not
later than the thirtieth day following the Closing), the Company shall create
two single-member limited liabilities companies; the sole member of each such
limited liability company shall be the Company. Upon such formation the
Company shall grant to one of such limited liability companies the sole and
exclusive right to offer, provide and distribute, and to conduct all operations
relating to, all residential and work-related internet services (the "Internet
Services") using the cable television plant and assets of the TCI Systems (the
"TCI Internet Company") and the other of such companies the sole and exclusive
right to offer, provide and distribute, and to conduct the operations relating
to the Internet Services using the cable television plant and assets of the
systems contributed by Fisher (the "Fisher Internet Company"). In connection
with the foregoing, the Company hereby grants to the TCI Internet Company and
the Fisher Internet Company access to, and the right to use, all equipment,
plant and assets necessary to operate the Internet Services. Both the TCI
Internet Company and the Fisher Internet Company shall be managed by TCI. In
connection with the foregoing, the Company hereby agrees that @Home will be the
exclusive internet provider for the TCI Systems and the Fisher Systems.
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12.12 OTHER DISCOUNTS. To the extent allowable under the applicable
agreement, each Member shall use all reasonable efforts to make their
programming, equipment discounts and other contract arrangements, including,
without limitation, billing services, available to the Company on substantially
the same terms available to such Member. In connection with the foregoing, the
Company shall use CSG Systems, Inc. ("CSG") as its billing vendor and TCI shall
cause CSG to be the Company's billing vendor pursuant to the terms and rates
set forth in the Restated and Amended CSG Master Subscriber Management system
Agreement dated August 10, 1997 between CSG and TCI Cable Management
Corporation.
12.13 TELEPHONY RESTRICTIONS. Each Member represents and warrants
that, at the time of the contribution of its respective Systems, the Company is
not engaged in the wireless telephone business. For so long as TCI (or any of
its Affiliates) holds an interest in Sprint Spectrum Holdings Company, L.P.
(the "Sprint Partnership"), the Company will not conduct or market (i.e.,
"engage in" in its broadest sense) a wireless communications business. In
connection therewith, prior to January 31, 1999, (a) the Company will not offer
(or promote or package any of its products or services with or act as a sales
agent for) wireline services (local or long distance) under the brand name of
an incumbent LEC (all RBOCs, Frontier Corporation and GTE Corporation) or IXC
(AT&T Corp., MCI Communications Corporation, British Telecommunications plc,
Worldcom, Inc., Cable & Wireless plc, LCI International Inc. and Frontier
Corporation); (b) the Company will not make its distribution facilities
available to a third party in connection with offering local phone service to
residential customers without making the facilities similarly available to
Sprint Corporation ("Sprint"); however, the Company itself may offer local
phone service (subject to the restrictions in the preceding paragraph (a))
without offering its distribution facilities to Sprint; and (c) the Company
will not make its distribution facilities available to any incumbent LEC or IXC
for high speed data services without making its facilities similarly available
to Sprint; however, such facilities may be made available to other third
parties, including @Home, without such facilities being made available to
Sprint.
12.14 COOPERATION AS TO RATES AND FEES.
(a) If TCI is required following Closing pursuant to any Legal
Requirement, settlement or otherwise to reimburse to any subscribers of the
systems contributed by TCI any subscriber payments previously made by them,
including fees for cable television service, late fees and similar payments,
the Company agrees that it will make such reimbursement through the Company's
billing system on reasonable terms specified by TCI and TCI will provide such
funds for reimbursement to the Company for all such payments to be made by the
Company following Closing, along with the Company's reasonable costs and
expenses incurred in making such payments.
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(b) If TCI is permitted following Closing pursuant to any
Legal Requirement, settlement or otherwise to pass through to subscribers of
the systems contributed by TCI the amount of any "franchise fee on franchise
fee" or other amounts that TCI is required to pay with respect to the period
prior to Closing, the Company agrees that it will collect such amounts as
specified by TCI from subscribers of such systems and will promptly remit such
amounts to TCI, less the Company's reasonable costs and expenses incurred in
collecting such amounts.
ARTICLE 13: DISSOLUTION OF THE COMPANY
13.1 DISSOLUTION. Dissolution of the Company will occur upon
the earliest to occur of: (a) the sale of all or substantially all of the
Company's assets; (b) the bankruptcy, insolvency or appointment of a trustee or
receiver to manage the affairs of a Member; (c) the affirmative Vote of all of
the Members; and (d) December 31, 2012. Without the unanimous consent of all
Members, each Member agrees not to voluntarily withdraw as a Member and if any
such Member effects such a withdrawal in violation of this Agreement, the
Company may recover damages for breach of this Agreement.
ARTICLE 14: LIQUIDATION
14.1 LIQUIDATION. Upon Dissolution of the Company, the Company will
immediately proceed to wind up its affairs and liquidate. The Manager or
Managers, or if none, the Person owning the largest Ownership Interest, or if
such Person fails to act, any Person appointed by all of the Members, will act
as liquidating trustee or trustees. The winding up and Liquidation of the
Company will be accomplished in a businesslike manner as determined by the
liquidating trustee or trustees. A reasonable time will be allowed for the
orderly Liquidation of the Company and the discharge of liabilities to
creditors so as to enable the Company to minimize any losses attendant upon
Liquidation. Any gain or loss on disposition of any Company assets in
Liquidation will be allocated to Members and credited or charged to capital
accounts in accordance with the provisions of Articles 5 and 6. Any
liquidating trustee or trustees are entitled to reasonable compensation for
services actually performed, and may contract for such assistance in the
liquidation process as such Person or Persons deem necessary. As soon as
possible after Dissolution of the Company, the Company will file a statement of
intent to dissolve with the Colorado Secretary of State pursuant to the Act.
Until the filing of articles of dissolution as provided in Section 14.6, the
liquidating trustee or trustees may settle and close the Company's business,
prosecute and defend suits, dispose of its property, discharge or make
provision for its liabilities, and make distributions in accordance with the
priorities set forth in Section 14.2.
14.2 PRIORITY OF PAYMENT. The assets of the Company will be
distributed in Liquidation of the Company in the following order:
22
<PAGE> 24
(a) First, to creditors by the payment or provisions for
payment of the debts and liabilities of the Company (other than any loans or
advances that may have been made by any Member or Affiliate) and the expenses
of Liquidation.
(b) Second, to the setting up of any reserves that are
reasonably necessary for any contingent, conditional or unmatured liabilities
or obligations of the Company.
(c) Third, to the repayment of any loans or advances that
may have been made by any Member or Affiliate (proportionately if the amount
available for such repayment is insufficient for payment in full).
(d) Forth, to the Members in proportion to their
respective Unrecovered Contributions until their Unrecovered Contribution
amounts equal zero.
(e) Fifth, to the Members in proportion to their
respective Unpaid Preferred Returns until their Unpaid Preferred Return amounts
equal zero.
(f) Sixth, 90% to the Members (pro rata in proportion to
their respective Ownership Interests) and 10% to Fisher.
14.3 DISTRIBUTION TO MEMBERS. Distributions in Liquidation due to the
Members may be made by either or a combination of the following methods:
selling the Company assets and distributing the net proceeds, or by
distributing the Company assets to the Members at their net Fair Market Value
in kind. Any liquidating Distribution in kind to the Members may be made
either by a pro rata Distribution of undivided interests or, upon the unanimous
Vote of all Members, by non pro rata Distribution of specific assets at Fair
Market Value on the effective date of Distribution. Any Distribution in kind
may be made subject to, or require assumption of, liabilities to which such
property may be subject, but in the case of any non pro rata Distribution only
upon the express written agreement of the Member receiving the Distribution.
Distributions will be made in accordance with the time requirements set forth
in the ?704(b) Regulations. Each Member hereby agrees to save and hold
harmless the other Members from such Member's share of any and all such
liabilities which are taken subject to or assumed. Appropriate and customary
prorations and adjustments shall be made incident to any Distribution in kind.
The Members acknowledge that Section 14.2 may establish Distribution priorities
different from those set forth in the provisions of the Act applicable to
Distributions upon Liquidation, and the Members agree that they intend, to that
extent, to vary those provisions by this Agreement.
14.4 NO DEFICIT RESTORATION OBLIGATION. Except as otherwise
specifically provided in Sections 10.2 or 10.3, nothing contained in this
Agreement imposes on any Member an
23
<PAGE> 25
obligation to make an Additional Contribution in order to restore a deficit
Capital Account upon Liquidation of the Company. Furthermore, each Member will
look solely to the assets of the Company for the return of such Member's
Capital Contribution and Capital Account, and if the assets of the Company
remaining after the payment or discharge of the debts and liabilities of the
Company are insufficient to return such contributions, they will have no
recourse against any other Member pursuant to this Agreement.
14.5 LIQUIDATING REPORTS. A report will be submitted with each
liquidating Distribution to Members, showing the collections, disbursements and
Distributions during the period which is subsequent to any previous report. A
final report, showing cumulative collections, disbursements and Distributions,
will be submitted upon completion of the liquidation process.
14.6 ARTICLES OF DISSOLUTION. Upon Dissolution of the Company and the
completion of the winding up of its business, the Company will file articles of
dissolution (to cancel its Articles of Organization) with the Colorado
Secretary of State pursuant to the Act. At such time, the Company will also
file an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business.
14.7 WAIVER OF CERTAIN RIGHTS. Each Member agrees that irreparable
damage would occur if any such Person should bring an action in court to
dissolve the Company. Accordingly, each Member accepts the provisions under
this Agreement as such Person's sole entitlement on Dissolution of the Company
and waives and renounces (to the fullest extent permitted by law) such Person's
right to seek a judicial dissolution under the Act or to seek the appointment
by a court of a liquidating trustee for the Company.
ARTICLE 15: DISPUTE RESOLUTION
15.1 DISPUTES. Except for the specific performance remedy set forth
in Section 16.5, in the event a dispute of any kind arises in connection with
this Agreement (including any dispute concerning its construction, performance
or breach), the parties to the dispute (who may be any combination of the
Company and any one or more of the Members) will attempt to resolve the dispute
as set forth in Section 15.2 before proceeding to arbitration as provided in
Section 15.3. Each Member and the Company waive all rights to seek remedies in
any court (including the right to seek Dissolution by decree of court), and the
right to jury trial. All documents, discovery and other information related to
any such dispute, and the attempts to resolve or arbitrate such dispute, will
be kept confidential to the fullest extent possible.
15.2 NEGOTIATION. If a dispute arises, any party to the dispute will
give Notice to each other party. If the Company is not a party to the dispute,
Notice will also be given to the
24
<PAGE> 26
Company. After Notice has been given, the parties in good faith will attempt
to negotiate a resolution of the dispute.
15.3 ARBITRATION. If, within 30 days after the Notice is provided in
Section 15.2, a dispute is not resolved through negotiation or mediation,
either party to the dispute may require that the dispute will be arbitrated by
giving Notice to each other party. The parties to the dispute agree to be
bound by the selection of an arbitrator, and to settle the dispute exclusively
by binding arbitration in accordance with the following provisions:
(a) All parties to the dispute will collectively select
one arbitrator. If they fail to do so within 45 days after the Notice provided
in Section 15.3, one or more parties will request the American Arbitration
Association to submit a panel of five arbitrators who are qualified in such
matters from which the choice will be made. The party requesting the
arbitration will strike first, followed by alternative striking until one name
remains. (A similar procedure will be followed if there are more than two
parties.) The parties may by agreement reject one entire list, and request a
second list. If selection by the above method is not completed within 90 days
after the Notice provided in Section 15.3, or if there are more than four
parties, then an arbitrator will be selected by the American Arbitration
Association. The arbitrator so selected will then arbitrate the dispute in the
Denver, Colorado metropolitan area, and issue an award.
(b) To the extent consistent with the provisions of this
Article, the arbitration will be conducted under the Commercial Arbitration
Rules of the American Arbitration Association and in accordance with the
Colorado Arbitration Act. The arbitrator's decision will be made pursuant to
the relevant substantive law of the State of Colorado. The award of the
arbitrator will be final, binding and non-appealable. Judgment on the award
may be entered in any court, state or federal, having jurisdiction.
(c) The fees and expenses of the arbitrator, and the
other direct costs of the arbitration, will be shared by the parties to the
dispute in equal proportions. Each party to the dispute will bear all other
costs and expenses as provided in Section 16.10. If one or more Members are
included in the arbitration because of their membership or former membership in
the Company, such group will collectively be treated as one party to the
dispute (through the Company as a party).
ARTICLE 16: GENERAL PROVISIONS
16.1 AMENDMENT. This Agreement may only be amended by the
affirmative Vote of all of the Members. Any amendment will become effective
upon such approval, unless otherwise provided. Notice of any proposed
amendment must be given at least five days in advance of the meeting at which
the amendment will be considered (unless the approval is evidenced by duly
25
<PAGE> 27
signed minutes of action). Any duly adopted amendment to this Agreement is
binding upon, and inures to the benefit of, each Person who holds an Ownership
Interest at the time of such amendment, without the requirement that such
Person sign the amendment or any republication or restatement of this
Agreement. Notwithstanding the general power to amend, the Members may not
amend this Agreement (a) to unreasonably restrict a Member's right of access to
the Company's books and records as provided in Sections 12.8 and 12.9; (b) to
unreasonably reduce the duties of good faith and care as provided in Sections
3.6 and 4.5; (c) to vary any filing requirement set forth in the Act; or (d) to
restrict rights of, or impose duties on, Persons other than the Company, its
Members and Transferees, without their consent.
16.2 UNREGISTERED INTERESTS. Each Member (a) acknowledges that the
Ownership Interests are being offered and sold without registration under the
Securities Act of 1933, as amended, or under similar provisions of state law;
(b) acknowledges that such Member is fully aware of the economic risks of an
investment in the Company, and that such risks must be borne for an indefinite
period of time; (c) represents and warrants that such Member is acquiring an
Ownership Interest for such Person's own account, for investment, and with no
view to the distribution of the Ownership Interest; and (d) agrees not to
Transfer, or to attempt to Transfer, all or any part of such Ownership Interest
without registration under the Securities Act of 1933, as amended, and any
applicable state securities laws, unless the Transfer is exempt from such
registration requirements.
16.3 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any
right that such Person may have prior to Dissolution and Liquidation to
institute or maintain any action for partition with respect to any real
property owned by the Company.
16.4 WAIVERS GENERALLY. No course of dealing will be deemed to amend
or discharge any provision of this Agreement. No delay in the exercise of any
right will operate as a waiver of such right. No single or partial exercise of
any right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
16.5 EQUITABLE RELIEF. If any Person proposes to Transfer all or any
part of such Person's Ownership Interest in violation of the terms of this
Agreement, the Company or any Member may apply to any court of competent
jurisdiction for an injunctive order prohibiting such proposed Transfer except
upon compliance with the terms of this Agreement, and the Company or any Member
may institute and maintain any action or proceeding against the Person
proposing to make such Transfer to compel the specific performance of this
Agreement. Any attempted Transfer in violation of this Agreement is null and
void, and of no force and effect. The Person against whom such action or
proceeding is brought waives the claim or defense that an adequate
26
<PAGE> 28
remedy at law exists, and such Person will not urge in any such action or
proceeding the claim or defense that such remedy at law exists.
16.6 REMEDIES FOR BREACH. The rights and remedies of the Members set
forth in this Agreement are neither mutually exclusive nor exclusive of any
right or remedy provided by law, in equity or otherwise. Subject to the
dispute resolution provisions of Article 16, the Members agree that all legal
remedies (such as monetary damages) as well as all equitable remedies (such as
specific performance) will be available for any breach or threatened breach of
any provision of this Agreement.
16.7 ORIGINAL. This Agreement is signed in three original documents,
one to be placed in the Company records and one to be delivered to each initial
Member. A photocopy of this Agreement, as signed, will be delivered to each
Member (whether substitute or additional), and each such photocopy will be
deemed to be an original document.
16.8 NOTICES. All Notices under this Agreement will be in writing
and will be either delivered or sent addressed as follows: (a) if to the
Company, at the Company's registered office in Colorado, and (b) if to any
Member, at such Person's home or business address as then appearing in the
records of the Company. In computing time periods, the day of Notice will be
included. A day means a calendar day.
16.9 DEEMED NOTICE. All Notices given to any Person in accordance
with this Agreement will be deemed to have been duly given: (a) on the date of
actual receipt; (b) three days after being sent by registered or certified
mail, postage prepaid, return receipt requested; (c) when sent by confirmed
electronic facsimile transfer; or (d) one business day after having been sent
by a nationally recognized overnight courier service.
16.10 COSTS. If the Company or any Member retains counsel for the
purpose of enforcing or preventing the breach or any threatened breach of any
provision of this Agreement or for any other remedy relating to it, then the
prevailing party will be entitled to be reimbursed by the nonprevailing party
for all costs and expenses so incurred (including reasonable attorney's fees,
costs of bonds, and fees and expenses for expert witnesses) unless the
arbitrator or other trier of fact determines otherwise in the interest of
fairness.
16.11 INDEMNIFICATION. Each Member hereby indemnifies and agrees to
hold harmless the Company and each other Member from any liability, cost or
expense arising from or related to any act or failure to act of such Member
which is in violation of this Agreement.
16.12 PARTIAL INVALIDITY. Wherever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law. However, if for any
27
<PAGE> 29
reason any one or more of the provisions of this Agreement are held to be
invalid, illegal or unenforceable in any respect, such action will not affect
any other provision of this Agreement. In such event, this Agreement will be
construed as if such invalid, illegal or unenforceable provision had never been
contained in it.
16.13 ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding of the Members with respect to its subject matter, and it
supersedes all prior written and oral agreements. No amendment of this
Agreement will be effective for any purpose unless it is made in accordance
with Section 16.1.
16.14 BENEFIT. The contribution obligations of each Member will
inure solely to the benefit of the other Members and the Company, without
conferring on any other Person any rights of enforcement or other rights.
16.15 BINDING EFFECT. This Agreement is binding upon, and inures to
the benefit of, the Members and their permitted successors and assigns.
16.16 FURTHER ASSURANCES. Each Member agrees, without further
consideration, to sign and deliver such other documents of further assurance as
may reasonably be necessary to effectuate the provisions of this Agreement.
16.17 HEADINGS. Article and section titles have been inserted for
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
16.18 TERMS. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural include the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than a limiting sense.
16.19 GOVERNING LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Colorado. Any conflict
(or apparent conflict) between this Agreement and the Act will be resolved in
favor of this Agreement except as otherwise required by the Act.
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<PAGE> 30
In Witness Whereof, all of the initial Members have signed this Amended
and Restated Operating Agreement of Peak Cablevision, LLC, to be effective upon
formation of the Company, notwithstanding the actual date of signing.
January ___, 1998 TCI AMERICAN CABLE HOLDINGS III, L.P.
By: Cablevision of Arizona Partner,
Inc., its general partner
By: /s/ WILLIAM R. FITZGERALD
-----------------------------
Name: William R. Fitzgerald
Its: Vice President
January ___, 1998 FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd.
Its: Member
By: Fisher Capital Corporation
Its: General Partner
By: /s/ WILLIAM K. FISHER
-----------------------------
Name: William K. Fisher
Its: Vice President
29
<PAGE> 31
EXHIBIT A
DEFINITIONS
<TABLE>
<S> <C>
Act: the Colorado Limited Liability Company Act, as amended from time to time.
Additional Contribution: a capital contribution (other than the Initial Contribution) that a
Member makes to the Company, as described in Section 5.2.
Adjusted Capital Account Deficit shall mean, with respect to any Member, the deficit balance, if any, of
such Member?s Capital Account as of the end of the relevant fiscal year,
after giving effect to the following adjustments:
(a) Crediting to such Capital Account any amounts which such
Member is obligated to restore or is deemed to be obligated to
restore pursuant to the next to last sentence of section 1.704-
2(g)(1) of the Regulations and the next to last sentence of section
1.704-2(i)(5) of the Regulations; and
(b) Debiting to such Capital Account the items described in
paragraphs (4), (5) and (6) of section 1.704-1(b)(2)(ii)(d) of the
Regulations.
Adjusted Capital Account Value: equal to the applicable Member's Capital Account balance adjusted by
restating the Capital Accounts of the Members to reflect the Stated Value
of the assets of the Company and allocating the unrealized profits and
losses based on such Stated Value in accordance with the provisions of
Article 6.
Agreement: this Operating Agreement, as amended from time to time.
Affiliate: with respect to any Person, any Person controlling, controlled by or
under common control with such Person, including a Person controlled
separately by a Member or collectively by the Members; control means the
ownership, directly or indirectly, of at least 50% of the voting power or
equity ownership (whether beneficially or of record) of a Person.
</TABLE>
A-1
<PAGE> 32
<TABLE>
<S> <C>
Articles: the Articles of Organization of the Company as filed under the Act, as
amended from time to time.
Book Value: with respect to any asset of the Company, is the asset's adjusted tax
basis for federal income tax purposes, except as follows:
(a) The initial Book Value of any asset contributed to the Company by
a Member shall be the Fair Market Value of the asset as of the date
of contribution.
(b) The Book Value of each asset shall be its respective Fair Market
Value, as of (i) the issuance of an Ownership Interest in the Company
to a new or existing Member in exchange for a Capital Contribution,
(ii) the distribution by the Company to a Member in liquidation of
the Member's interest in the Company, and (iii) the liquidation of
the Company within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g).
(c) The Book Value of each asset distributed to any Member will be
the Fair Market Value of the asset as of the date of distribution.
(d) The Book Value of each asset will be increased or decreased to
reflect any adjustment to the adjusted basis of the asset under Code
Section 734(b) or 743(b), but only to the extent that the adjustment
is taken into account in determining Capital Accounts under section
1.704-1(b)(2)(iv)(m) of the Regulations, provided that the Book Value
will not be adjusted under this paragraph (d) to the extent that an
adjustment under paragraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment under this paragraph (d).
If the Book Value of an asset has been determined or adjusted pursuant to
paragraphs (a), (b) or (d) above, such Book Value shall thereafter be
adjusted by the depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses, in
</TABLE>
A-2
<PAGE> 33
<TABLE>
<S> <C>
accordance with section 1.704-1(b)(2)(iv)(g) of the Regulations.
Capital Account: shall mean an account established and maintained by the Company for each
of the Members in accordance with section 1.704-1(b)(2)(iv) of the
Regulations.
Capital Contribution: any contribution by a Member to the Company which is either a Formation
Contribution, an Initial Contribution or an Additional Contribution.
Capital Transaction: any sale, exchange, condemnation (including any eminent domain or similar
transaction), casualty, financing, refinancing or other disposition with
respect to any real or personal property owned by the Company or any
issuance of equity interests in the Company which is not in the ordinary
course of business.
Class A Ownership Interests: the Ownership Interests initially representing 66.7% of the Ownership
Interests in the Company initially held by TCI, which elects two
Managers; the term includes all Transferees of the Ownership Interests
initially held by TCI.
Class B Ownership Interests: the Ownership Interests initially representing 33.3% of the Ownership
Interests in the Company initially held by Fisher, which elects two
Managers; the term includes all Transferees of the Ownership Interests
initially held by Fisher.
Code: the Internal Revenue Code of 1986, as amended from time to time
(including corresponding provisions of subsequent revenue laws).
Company: the limited liability company formed under the Articles and operated
under this Agreement.
Contribution Agreement: the Asset Contribution Agreement, dated as of the date hereof between
Fisher Communications Associates, L.L.C., Tempo Cable, Inc.,
Communications Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah, Inc., TCI
Cablevision of Arizona, Inc., Tulsa Cable Television, Inc., TCI American
Cable Holdings III, L.P. and Peak Cablevision, LLC.
</TABLE>
A-3
<PAGE> 34
<TABLE>
<S> <C>
Dissolution: any of the events set forth in Section 13.1 which causes the Company to
dissolve.
Distribution: a distribution of money or other property made by the Company with
respect to an Ownership Interest.
Fair Market Value: as to any property, the price at which a willing seller would sell and a
willing buyer would buy such property having full knowledge of the
relevant facts, in an arm's-length transaction without time constraints,
and without being under any compulsion to buy or sell.
Fiscal Year: the fiscal and taxable year of the Company as determined under this
Agreement, including both 12-month and short taxable years.
Indebtedness: without duplication, all indebtedness of the Company for borrowed money
and all obligations of the Company as lessee under any capitalized lease.
Initial Contribution: the initial capital contribution that a Member makes to the Company, as
described in 5.1.
Interest: an amount determined at the prime rate quoted in the "Money Rates"
section of The Wall Street Journal, adjusted as of the day of any change
based on a 365-day year and compounded quarterly; provided that, if such
information is unavailable, the prime rate reference will be determined
by the selection by the Company of a reasonably comparable rate.
Liability: the obligation to pay any judgment, settlement, penalty, fine or
reasonable expense (including attorney's fees) incurred with respect to
any Proceeding.
Liquidation: the process of terminating the Company and winding up its business under
Article 14 after its Dissolution.
Management Agreement: the Management Agreement between the Company and Fisher, the form of
which is attached hereto as Exhibit D.
Managers: the Persons elected by the Members to manage the Company.
</TABLE>
A-4
<PAGE> 35
<TABLE>
<S> <C>
Member: a Person who is an initial Member of the Company, or who is subsequently
admitted as a substitute or an additional Member as provided in this
Agreement.
Member Nonrecourse Deductions: shall have the meaning ascribed to the term "partner nonrecourse
deductions" in Section 1.704-2(i) of the Regulations.
Net Operating Cash Flow: cash receipts of the Company from other than a Capital Transaction, less
payment of (a) operating expenses (other than depreciation, amortization
or similar non-cash allowances), (b) capital improvements and (c) debt
service, as adjusted for additions to (or reductions of) cash reserves
for any of the foregoing.
Net Sales Cash: cash receipts of the Company from a Capital Transaction, less payment or
reasonable reserves for commissions and other costs related to the
transaction and, in the case of a sale or other disposition, the payment
of all debt secured by such property that is not taken subject to or
assumed by the purchaser.
Nonrecourse Deductions: shall have the meaning ascribed to such term in Section 1.704-2(b)(1) of
the Regulations.
Notice: written notice, actually or deemed given pursuant to Section 16.9.
Offer Date: the date of the Offer Notice.
Operating Cash Flow Ratio: on any applicable date, the ratio of (i) the aggregate amount of
Indebtedness of the Company on such date to (ii) four times Net Operating
Cash Flow of the Company for the most recent fiscal quarter.
Ownership Interest: with respect to each Member or Transferee owning an interest in the
Company, all of the interests of such Person in the Company (including,
without limitation, an interest in Profits and Losses of the Company, a
capital account interest, and all other rights and obligations of such
Person under this Agreement), expressed as a percentage (carried to the
nearest one-thousandth of a percent if other than an even number),
divided into Class A and Class B Ownership Interests
</TABLE>
A-5
<PAGE> 36
<TABLE>
<S> <C>
as initially set forth on the attached Exhibit B, and as subsequently
changed in accordance with this Agreement.
Person: an individual, corporation, trust, partnership, limited liability
company, limited liability association, unincorporated organization,
association or other entity.
Preferred Return: a 12% non-compounded annual preferred return on each Members net Capital
Contribution.
Proceeding: any threatened, pending or completed action, suit or proceeding, whether
formal or informal, and whether civil, administrative, investigative or
criminal.
Profit and Loss shall mean, for each fiscal year of the Company (or other period for
which Profit or Loss must be computed), the Company's taxable income or
loss (not including items of income or loss or deduction specially
allocated pursuant to Section 6.3) determined in accordance with Code
Section 703(a), with the following adjustments:
(a) all items of income, gain, loss and deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be
included in computing taxable income or loss;
(b) any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in computing
taxable income or loss;
(c) any expenditures of the Company described in Code Section
705(a)(2)(B) (or treated as such pursuant to section
1.704-1(b)(2)(iv)(i) of the Regulations) and not otherwise taken into
account in computing Profit or Loss, shall be subtracted from taxable
income or loss;
(d) gain or loss resulting from any disposition of Company property
shall be computed by reference to the Book Value of the property;
(e) in lieu of the depreciation, amortization, or cost
</TABLE>
A-6
<PAGE> 37
<TABLE>
<S> <C>
recovery deductions allowable in computing taxable income or loss,
there shall be taken into account depreciation computed in accordance
with section 1.704-1(b)(2)(iv)(g) of the Regulations; and
(f) if the Book Value of an asset of the Company is adjusted pursuant
to paragraphs (b) or (d) of the definition of Book Value, the amount
of such adjustment shall be treated as gain or loss, respectively,
from the disposition of the asset and shall be taken into account in
computing Profits or Losses.
Regulations: the Treasury Regulations (including temporary regulations) promulgated
under the Code, as amended from time to time (including corresponding
provisions of succeeding regulations).
Stated Value: the price at which the Initiating Member will buy the Ownership Interests
of the Non-Initating Member or sell its Ownership Interest to the Non-
Initiating Member, such price to be stated in terms of one hundred
percent of the assets of the Company.
Tax Matters Partner: as defined in Code Section 6231(a)(7).
Third Party: with respect to any Member, a Person other than an Affiliate.
Third Party Offer: a bona fide, non-collusive, binding, arms'-length written offer from a
Third Party stated in terms of U.S. dollars.
Transfer: a sale, exchange, assignment or other disposition, whether voluntary or
by operation of law.
Transferee: a Person to whom an Ownership Interest is transferred in compliance with
this Agreement.
Transferor: a Person who transfers an Ownership Interest in compliance with this
Agreement.
Unpaid Preferred Return: shall mean, as to any Member as of any date, such Member's Preferred
Return reduced (but not below zero) by the Distributions to such Member
pursuant to Sections 7.2(b) and 14.2(e).
</TABLE>
A-7
<PAGE> 38
<TABLE>
<S> <C>
Unrecovered Contribution: shall mean, with respect to any Member, the aggregate amount of such
Member's Capital Contributions reduced (but not below zero) by the
Distributions to such Member pursuant to Sections 7.2(a) and 14.2(a).
Vote: the action of the Company by its Members, either in meeting assembled or
by written consent without a meeting.
</TABLE>
A-8
<PAGE> 39
EXHIBIT B
INITIAL OWNERSHIP INTERESTS
<TABLE>
<CAPTION>
OWNER STATUS CLASS OWNERSHIP
----- ------ ----- ---------
INTEREST
---------
<S> <C> <C> <C>
TCI American Cable Holdings III, Member A 66.7%
L.P.
Fisher Communications Associates, Member B 33.3%
L.L.C. -----
100%
</TABLE>
<PAGE> 40
EXHIBIT C
CAPITAL CONTRIBUTIONS
Formation Contributions:
<TABLE>
<S> <C>
TCI $ 66.70
Fisher 33.30
-------
$100.00
</TABLE>
II. Fair Market Value of Initial Contributions:
<TABLE>
<CAPTION>
TCI Fisher
<S> <C> <C>
Asset Value $123,677,730 $34,033,932
Assumed Debt* <93,000,000> <18,750,000>
------------ -----------
Total: 30,677,730 15,283,932
</TABLE>
*Subject to adjustment as set forth in the Contribution Agreement
<PAGE> 41
EXHIBIT D
MANAGEMENT AGREEMENT
FOR
PEAK CABLEVISION, LLC
THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of
______________, 1998, by and between Peak Cablevision, LLC, a Colorado limited
liability company ("Company"), and Fisher Communications Associates, LLC
("Fisher"), a Colorado limited liability company ("Manager").
The Company, of which TCI American Cable Holdings III, L.P. ("TCI")
and Fisher are Members, was formed to acquire, own and operate cable television
systems, fiber optic and related digital communication systems (collectively,
"Systems") and engage in related business activities, pursuant to the terms of
that certain Operating Agreement dated as of September 25, 1997 (the "Operating
Agreement").
The Company desires to enter into a Management Agreement with the
Manager in order to acquire, supervise, administer, manage and operate the
Systems and the Company's business, affairs and operations pursuant to and in
accordance with the terms and provisions of this Agreement and the Operating
Agreement.
THEREFORE, it is agreed as follows:
1. Appointment. The Company hereby appoints the Manager to supervise and
manage the financing, acquisition and operation of the Systems and the
Company's business, affairs and operations on the terms and conditions set
forth herein and in the Operating Agreement. It is expressly agreed that the
Manager's rights, duties and obligations shall be governed by both this
Agreement and the Operating Agreement. The Operating Agreement is expressly
made a part of this Agreement and is hereby incorporated by reference. Any
capitalized terms used herein and not defined shall have the meanings assigned
to them in the Operating Agreement.
2. Term. The term of this Agreement shall commence as of the date
hereof and continue until the dissolution and liquidation of the Company,
unless terminated earlier pursuant to the terms of this Agreement.
3. Duties of the Manager.
<PAGE> 42
3.1 The Manager is hereby granted authority to perform or cause to
be performed, on behalf of the Company, all acts related to the Systems, the
Company's business and operations, and any related properties and assets,
subject to the limitations set forth in Section 4 below. The Manager is hereby
authorized and agrees to use its commercially reasonable best efforts to take
any action consistent with and in furtherance of the terms of this Agreement or
the Operating Agreement, or any law or administrative enactment, which may be
required to supervise and manage the financing, acquisition and operation of
the Systems and the Company's business and operations.
3.2 The Manager shall be responsible for all administrative and
managerial matters affecting the Systems and the Company's business and
operations. Without limiting the generality of the provisions of Section 3.1 or
the previous sentence, the Manager is expressly authorized on behalf of the
Company to:
(a) prepare annual capital and operating budgets and
business plans for the Company and expend the capital and revenues of the
Company, pursuant to such annual operating and capital budgets and business
plans;
(b) cause the Company to make investments in
interest-bearing and noninterest-bearing bank deposits, money market funds,
government obligations, short term debt securities and short term commercial
paper, pending disbursement of the Company's funds or to provide a source
from which to meet contingencies;
(c) cause the Company to enter into all agreements and
contracts with third parties in the ordinary course of business, including
Affiliates of the Members, and terminate such agreements pursuant to the terms
thereof;
(d) maintain, at the expense of the Company, adequate
records and accounts of all operations and expenditures and furnish the Members
with the reports described in the Operating Agreement;
(e) cause the Company to incur debt to the Company's
trade creditors in the ordinary course of business;
(f) subject to Section 4.1(a) below, sell, lease, trade,
exchange or otherwise dispose of Company property in the ordinary course of
business;
(g) cause the Company to employ KPMG Peat Marwick to be
the Company's accountants and cause the Company to employ such other
consultants, attorneys, engineers, employees, escrow agents and others as may
be necessary for the Company's business and cause the Company to terminate such
employment in accordance with law;
2
<PAGE> 43
(h) subject to any other restrictions contained herein or
in the Operating Agreement, cause the Company to execute and deliver deeds,
deeds of trust, notes, leases, subleases, mortgages, bills of sale, financing
statements, security agreements and any and all other instruments necessary or
incidental to the conduct of the business and operations of the Company;
(i) render to the Members, at the Company's expense,
unaudited balance sheets and unaudited statements of the Company's profits and
losses for each fiscal month and quarter, prepared in accordance with generally
accepted accounting principals and procedures consistently applied;
(j) at the end of each fiscal year, cooperate with, and
cause the books and records of the Company to be made available to the
independent certified public accountants selected by the Manager to audit the
Company's books at the Company's expense, in accordance with, and pursuant to
the time frames set forth in, the Operating Agreement;
(k) prepare or cause to be prepared, at the Company's
expense, for review and filing by the Company, all national, federal, state and
local fiscal and tax reports as may be required, including, without limitation,
income tax withholding, social security and FICA reports, and cause all
payments and related professional service fees required therefor to be made on
behalf of the Company, all in accordance with the Operating Agreement and
applicable law;
(l) prepare or cause to be prepared by professionals
retained by the Company all applications, reports, statements and other
documents with appropriate national, federal, state and local regulatory
agencies or departments (including but not limited to the Federal
Communications Commission, Federal Aviation Administration, Equal Employment
Opportunity Commission, and national, federal and state agencies having similar
jurisdictions) as are necessary or required for operation of the Systems;
provided however, that the Company shall be responsible for all fees and
expenses of counsel, accountants and other outside consultants who prepare or
help prepare such applications, reports, statements and other documents;
(m) cause the Company to take out such insurance
policies, bonds or other sureties as are required by national, federal, state
or local law, by the requirements of the franchises of the Systems, as required
by any Company loan agreements or contracts, or as are customary in the normal
course of business in the cable television industry;
(n) cause the Company to collect all receipts and make
all disbursements, including payment of all taxes and franchise fees;
(o) cause the Company to make all repairs and
improvements to the Systems as are, in the reasonable opinion of the Manager,
desirable for the proper expansion and maintenance thereof;
3
<PAGE> 44
(p) cause the Company to enter into the necessary
franchise agreements, license agreements, pole attachment contracts, leases,
easements, rights of way, programming agreements, or other obligations
necessary for the operation of the Systems;
(q) cause the Company to maintain its franchises and
where appropriate, to renew its franchises and obtain all authorizations and
permits necessary or appropriate for the operation of the Systems;
(r) cause the Company to pay all employees of the
Company; and
(s) cause the Company to make all copyright filings.
4. Limitations on the Power of the Manager
4.1 The Manager shall not, without prior authorization of the
Members (with the vote for such actions determined pursuant to the terms of the
Operating Agreement):
(a) cause the Company to acquire any Systems or related
businesses or any other company, or sell, transfer or dispose of the Company's
assets, other than in accordance with the terms of the Operating Agreement;
(b) cause the Company to merge, consolidate, dissolve or
wind up, except as specifically provided for in the Operating Agreement;
(c) cause the Company to borrow from banks or other
lending institutions for any purpose of the Company except, as specifically
provided for in the Operating Agreement;
(d) execute and deliver on behalf of the Company any loan
agreements, except as specifically provided for in the Operating Agreement;
(e) cause the Company to issue any notes, debentures or
other debt instruments or grant any mortgage, pledge, encumbrance or
hypothecation of Company assets to secure repayment of borrowed sums or
replace, modify, extend or consolidate any mortgage, pledge, encumbrance or
hypothecation, except as may be in accordance with the terms of this Agreement
or the Operating Agreement;
(f) cause the Company to institute, defend or settle
litigation involving the Company or apply for injunctive relief or give
releases and discharges with respect to any of the foregoing, and any matters
incident thereto, except as specifically provided for in the Operating
Agreement;
(g) employ on behalf of the Company or cause the Company
to employ any brokers or finders;
4
<PAGE> 45
(h) cause the Company to enter into any contract with an
Affiliate of a Member, except as specifically provided for in the Operating
Agreement; and
(i) perform any other act which requires the unanimous
vote of the Members pursuant to Section 4.4 of the Operating Agreement.
4.2 The Manager shall not knowingly take any action which would
cause the Company to default in its obligations under any loan agreements.
4.3 In no event shall the Manager cause or permit the Company to
(a) commingle its funds with those of any other Person; (b) make loans to any
Member or to an Affiliate of any Member, except as provided for in the
Operating Agreement; or (c) pay expenses of the Members in connection with any
other business enterprise or transaction, or otherwise use Company funds for
other than a Company purpose, except as specifically provided for in the
Operating Agreement or in this Agreement.
5. Indemnification.
(a) Company. The Company shall indemnify and hold harmless the
Manager and its owners, agents and employees of and from any claims, losses,
liabilities and demands of every kind and nature whatsoever, including, without
limitation, the costs of defending any such claims, liabilities and demands,
including, without limitation, attorneys' and accountants' fees therefor,
arising in connection with the Manager's authorized activities set forth
herein; provided, however, that the Company shall not be required to indemnify
or hold harmless the Manager from any claims, losses, liabilities or demands
which arise from actions (or failures to act) which are performed in bad faith
and which arise out of willful misconduct, gross negligence or fraud by the
Manager, or any of its owners, agents or employees.
(b) Manager. The Manager shall indemnify and hold harmless the
Company and its owners, agents and employees of and from any claims, losses,
liabilities and demands of every kind and nature whatsoever, including, without
limitation, the costs of defending any such claims, liabilities and demands,
including, without limitation, attorneys' and accountants' fees therefore,
arising in connection with the Manager's actions (or failure to act) which are
performed in bad faith and which arise out of willful misconduct, gross
negligence or fraud by the Manager, or any of its owners, agents or employees.
6. Removal of Manager. The Manager may be removed by the Members and this
Agreement terminated by a majority of the Members upon the occurrence of any of
the following events (an "Event of Removal"):
5
<PAGE> 46
(a) the occurrence of an "Event of Default" under
any of the Company's loan agreements, as that term is defined in such loan
agreements (subject to any rights to cure time limits contained in such
agreements);
(b) the Manager breaches any of the terms of this
Agreement (subject to the right of the Manager to cure within 15 days after
notice of such breach is received by the Manager from any Member);
(c) the Manager violates any of the terms of the
Operating Agreement in its capacity as the Manager (subject to the right of the
Manager to cure within 15 days after notice of such breach is received by the
Manager from any Member);
(d) the Manager commits any act constituting
gross negligence or willful misconduct, or makes a material misrepresentation
to the Company or the Members; or
(e) the bankruptcy or dissolution of the Manager.
In the event of the Manager's removal, the Members shall select a new manager
of the Company, but the Manager or its successors in interest shall continue as
a Member of the Company in accordance with the terms of the Operating
Agreement.
7. Termination. This Agreement will be terminated upon the first to occur
of any of the following events: (a) the written consent to terminate of all
parties to this Agreement; or (b) an Event of Removal of the Manager if the
Members exercise their option to remove the Manager upon such Event of Removal.
In the event this Agreement is terminated pursuant to this Section 7, the
Company shall be relieved from any further obligation to pay the Manager
compensation hereunder, other than compensation and reimbursable expenses
accrued up to the date of such termination.
8. Compensation of Manager; Expenses.
8.1 As compensation for services rendered under this Agreement,
and subject to the provisions of any financing documents of the Company, the
Manager shall be paid an annual management fee, payable on a monthly basis,
equal to the gross revenues derived from the Systems, multiplied by three
percent (3.0%). Such fee shall be suspended and accrued during any period in
which the Company is in default under or has breached any of the terms of its
loan agreements, including but not limited to any default or breach with
respect to the payment of principal or interest under any such loan agreement,
or would be in default or breach of any of its loan agreements if the
management fee were paid. Accrued and unpaid management fees hereunder shall
be payable at such time as such default or breach has been cured or waived.
Such monthly portion of the management fee shall be due and payable on or
before the fifteenth day of the month following the month of service.
6
<PAGE> 47
8.2 All expenses incurred by the Manager in connection with the
performance of its duties hereunder shall be the responsibility of and borne by
the Company. All such expenses shall be due and payable on or before the
fifteenth day of the month following the incurrence of such expenses.
9. Miscellaneous.
9.1 All notices and communications hereunder shall be in writing
and shall be deemed to have been duly given to a party hereunder when delivered
in person, via messenger service or by telecopy to such party, or three (3)
business days after being deposited in the U.S. Mail, registered or certified,
with postage prepaid, addressed as follows (or such other address as the
parties may designate in writing):
If to the Manager: Fisher Communications Associates, L.L.C.
5655 South Yosemite Street
Suite 304
Englewood, CO 80111
Attn: William K. Fisher
Telecopy: 303-721-0854
with a copy to: Jenkens & Gilchrist, P.C.
1445 Ross Avenue
Suite 3200
Dallas, TX 75202
Attn: Gregory J. Schmitt, Esq.
Telecopy: 214-855-4300
If to the Company: Peak Cablevision, LLC
5655 South Yosemite Street
Suite 304
Englewood, CO 80111
Attn: William K. Fisher
Telecopy: 303-721-0854
with a copy to: Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attn: William R. Fitzgerald
Telecopy: 303-488-3219
with a copy simultaneously addressed to the attention of the Legal Department.
7
<PAGE> 48
9.2 No party hereto shall have the right to assign this Agreement
without the written consent of all other parties.
9.3 This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
9.4 This Agreement may not be modified, altered or amended in any
manner except by an agreement in writing, duly executed by all parties hereto.
9.5 The Manager and the Company shall not, by virtue of this
Agreement, be deemed partners or joint venturers, nor shall the Manager be
deemed to be the agent or employee of the Company. The Manager shall not, by
entering into and performing this Agreement, incur any liability for any of the
existing obligations, liabilities or debts of the Company, and the Manager
shall not, by acting hereunder assume or become liable for any of the future
obligations, debts, or liabilities of the Company.
9.6 All matters affecting the interpretation of this Agreement and
the rights of the parties hereto shall be governed by the laws of the State of
Colorado, without regard to its conflict of law principles.
9.7 Each of the respective rights and obligations of the parties
hereunder shall be deemed independent and may be enforced independently
irrespective of any of the other rights and obligations set forth herein. No
waivers, express or implied, by either party of any breach of any of the
covenants, agreements or duties hereunder of the other party shall be deemed to
be a waiver of any other breach thereof or the waiver of any other covenant
agreement or duty.
9.8 This Agreement and the Operating Agreement contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof, and the parties hereto hereby acknowledge that there have not been and
are no representations, warranties, covenants or understandings other than
those expressly set forth herein and therein which relate to the subject matter
hereof.
8
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Management Agreement as of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES,
L.L.C.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
PEAK CABLEVISION, LLC
By: TCI American Cable Holdings III,
L.P., its Member
By: Cablevision of Arizona Partner,
Inc., its general partner
By:
-------------------------------
Name: William R. Fitzgerald
Its: Vice President
9
<PAGE> 1
EXHIBIT 10.81
PROMISSORY NOTE
$1,200,000
January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay ECP Holdings, Inc. (the "Payee")
$1,200,000. Any unpaid amounts due and owing hereunder shall be due and
payable on January 31, 2006. Notwithstanding the foregoing, upon receipt of
any Distributions, Fisher shall immediately prepay this Note in an amount equal
to the lesser of (a) the outstanding principal amount and accrued interest, if
any, owing under this Note and (b) the amount of such Distributions. For
purposes of this Note, Distributions shall mean any and all cash distributions
related to Fisher's ownership interest in Peak Cablevision, LLC ("Peak") except
for those distributions made to Fisher to pay income tax liabilities related to
the taxable income of Peak's operations. Unless otherwise indicated herein,
this Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 2
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher ;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.82
PROMISSORY NOTE
$42,120 January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay American Televenture of
Minersville, Inc. (the "Payee") $42,120. Any unpaid amounts due and owing
hereunder shall be due and payable on January 31, 2006. Notwithstanding the
foregoing, upon receipt of any Distributions, Fisher shall immediately prepay
this Note in an amount equal to the lesser of (a) the outstanding principal
amount and accrued interest, if any, owing under this Note and (b) the amount of
such Distributions. For purposes of this Note, Distributions shall mean any and
all cash distributions related to Fisher's ownership interest in Peak
Cablevision, LLC ("Peak") except for those distributions made to Fisher to pay
income tax liabilities related to the taxable income of Peak's operations.
Unless otherwise indicated herein, this Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 2
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 3
EXHIBIT 10.83
PROMISSORY NOTE
$351,180
January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay TCI Cablevision of Utah, Inc.
(the "Payee") $351,180. Any unpaid amounts due and owing hereunder shall be due
and payable on January 31, 2006. Notwithstanding the foregoing, upon receipt of
any Distributions, Fisher shall immediately prepay this Note in an amount equal
to the lesser of (a) the outstanding principal amount and accrued interest, if
any, owing under this Note and (b) the amount of such Distributions. For
purposes of this Note, Distributions shall mean any and all cash distributions
related to Fisher's ownership interest in Peak Cablevision, LLC ("Peak") except
for those distributions made to Fisher to pay income tax liabilities related to
the taxable income of Peak's operations. Unless otherwise indicated herein,
this Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 4
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.83
PROMISSORY NOTE
$351,180
January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay TCI Cablevision of Utah, Inc.
(the "Payee") $351,180. Any unpaid amounts due and owing hereunder shall be due
and payable on January 31, 2006. Notwithstanding the foregoing, upon receipt of
any Distributions, Fisher shall immediately prepay this Note in an amount equal
to the lesser of (a) the outstanding principal amount and accrued interest, if
any, owing under this Note and (b) the amount of such Distributions. For
purposes of this Note, Distributions shall mean any and all cash distributions
related to Fisher's ownership interest in Peak Cablevision, LLC ("Peak") except
for those distributions made to Fisher to pay income tax liabilities related to
the taxable income of Peak's operations. Unless otherwise indicated herein,
this Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 2
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.84
PROMISSORY NOTE
$1,173,600
January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay Tempo Cable, Inc. (the "Payee")
$1,173,600. Any unpaid amounts due and owing hereunder shall be due and
payable on January 31, 2006. Notwithstanding the foregoing, upon receipt of
any Distributions, Fisher shall immediately prepay this Note in an amount equal
to the lesser of (a) the outstanding principal amount and accrued interest, if
any, owing under this Note and (b) the amount of such Distributions. For
purposes of this Note, Distributions shall mean any and all cash distributions
related to Fisher's ownership interest in Peak Cablevision, LLC ("Peak") except
for those distributions made to Fisher to pay income tax liabilities related to
the taxable income of Peak's operations. Unless otherwise indicated herein,
this Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 2
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.85
PROMISSORY NOTE
$233,100
January 15, 1998
FOR VALUE RECEIVED, the undersigned, Fisher Communications
Associates, L.L.C. ("Fisher"), promises to pay TCI Cablevision of Nevada, Inc.
(the "Payee") $233,100. Any unpaid amounts due and owing hereunder shall be due
and payable on January 31, 2006. Notwithstanding the foregoing, upon receipt of
any Distributions, Fisher shall immediately prepay this Note in an amount equal
to the lesser of (a) the outstanding principal amount and accrued interest, if
any, owing under this Note and (b) the amount of such Distributions. For
purposes of this Note, Distributions shall mean any and all cash distributions
related to Fisher's ownership interest in Peak Cablevision, LLC ("Peak") except
for those distributions made to Fisher to pay income tax liabilities related to
the taxable income of Peak's operations. Unless otherwise indicated herein, this
Note shall not bear interest.
Notwithstanding the due date of this Note or any other
provision hereof, this Note, the principal amount thereof and all other
obligations of Fisher hereunder will, at the option of Payee, immediately
become due and payable upon the occurrence of any of the following events:
1. Fisher fails to pay promptly in full any amount due
under this Note when it becomes due and payable; or
2. An event of default occurs under and as defined in
(a) the Management Agreement between Fisher and Peak, as amended or modified
from time to time, which is caused by the acts or omissions of Fisher, or (b)
any credit or loan agreement entered into by Peak, which results in the
acceleration of monies owed by Peak pursuant to the terms of such credit or
loan agreement; or
3. Fisher becomes insolvent or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due; or
Fisher applies for, consents to, or acquiesces in, the appointment of a
trustee, receiver or other custodian for it or for its property or make a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for Fisher or for a substantial part of Fisher's property and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of Fisher and
remains undismissed for 60 days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding is commenced in respect of
Fisher and is consented to or acquiesced in; or Fisher takes any corporate
action to authorize, or takes any corporate action in furtherance of, any of
the
<PAGE> 2
foregoing; or
4. Upon the liquidation or dissolution of Peak pursuant
to the terms of the Amended and Restated Operating Agreement of Peak
Cablevision, LLC ("Operating Agreement") dated as of September 25, 1997 between
TCI American Cable Holdings III, L.P. and Fisher;
5. Upon a sale of any of Fisher's Ownership Interests
(as defined in the Operating Agreement) in Peak.
If Fisher fails to pay the Principal when due, interest will
accrue on the full amount of such payment at an annual rate of 22% (or if less,
the highest rate legally permitted), compounded annually. In the event of any
action at law or suit in equity with respect to this Note, Fisher, in addition
to all other sums which it may be required to pay hereunder, will pay a
reasonable sum for attorneys' fees incurred by the holder hereof in connection
with such action or suit and all other costs of collection.
This Note will be governed by and construed in accordance with
the laws of the State of Colorado in all respects, including matters of
construction, validity and performance, will bind Fisher, its successors and
assigns, and will inure to the benefit of any holder hereof, its successors and
assigns. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
FISHER COMMUNICATIONS ASSOCIATES, L.L.C.
By: Fisher Capital Partners, Ltd., its member
By: Fisher Capital Corporation, its general partner
By: /s/ W. K. Fisher
-------------------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
A table of the subsidiaries of Tele-Communications, Inc. as of December 31, 1997, is set forth below, indicating as to each
the state or the jurisdiction of incorporation or organization and the names under which such subsidiaries do
business (Trade Names.)
Subsidiaries not included in the table are inactive or, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
<S> <C> <C>
Dry Creek Productions LLC CO
Encore Media Group LLC CO
Kearns-Tribune Corporation UT
STT Video Partners, L.P. [lp] DE
TCI CH, Inc. CO
TCI CM Holdings, Inc. CO
TCI Educational Technologies, Inc. CO
TCI Faroujda, Inc. CO
TCI Gameco Ventures, Inc. CO
TCI Game Technology Ventures, Inc. CO
TCI Gilbert Uplink, Inc. CO
TCI ICM I, Inc. DE
TCI ICM III, Inc. DE
TCI ICM IV, Inc. DE
TCI Interactive Media Group, Inc. CO
TCI Magma Holdings, Inc. CO
TCI Microunity Holdings, Inc. CO
TCI Music Holdings, Inc. CO
TCI Network Solutions, Inc. CO
TCI.Net, Inc. DE
TCI Online Services, Inc. CO
TCI Programming Holding Company III DE
TCI Source Services, Inc. CO
TCI Starz, Inc. CO
TCI Technology Management LLC DE
TCI Telephony Services of California, Inc. CO
TCI Telephony Services of Colorado, Inc. CO
TCI Telephony Services of Connecticut, Inc. CO People Link by TCI
TCI Telephony Services of Illinois, Inc. CO People Link by TCI
TCI Telephony Services of Minnesota, Inc. CO
TCI Telephony Services of Oklahoma, Inc. CO
TCI Telephony Services of Texas, Inc. CO People Link by TCI
TCI Telephony Services of Wisconsin, Inc. CO
</TABLE>
Page 1
<PAGE> 2
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Wireline Holdings, Inc. DE
TCI Wireline, Inc. DE
TCID Games, Inc. CO
TCID Virtual I/O, Inc. CO
TCID - WW, Inc. CO
TEMPO DBS, Inc. CO
UCT Investments (Colorado), Inc. CO
</TABLE>
Page 2
<PAGE> 3
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI CABLE INVESTMENTS, INC. DE
CCC-NJFT, Inc. CO
CCC Sub, Inc. CO
Country Cable Co. CO SCI Cable Partners
Country Cable II, Inc. CO
Country Cable III, Inc. CO
Kansas City Cable Partners [gp] CO American Cablevision of Kansas City
Kansas City Fiber Network, L.P. CA
KRC/CCC Investment Partnership [gp] CO
LCNI II, Inc. DE
LCNI, Inc. DE
Lenfest Communications, Inc. DE
Liberty Cable of Missouri, Inc. MO
Liberty Cable, Inc. CO
Liberty Capital Corp. WY
Liberty Evangola, Inc. WY
Liberty Holdings, Inc. WY
Liberty Lake II, Inc. CO
Liberty Lake, Inc. WY
Liberty Michigan, Inc. DE
Liberty MTC, Inc. WY
Liberty of Greenwich, Inc. CO
Liberty of South Dakota, Inc. CO
Liberty Programming Corporation WY
Liberty Tri-County, Inc. WY
LMC Cable AdNet II, Inc. WY
LMC Cable AdNet, Inc. PA
LMC Lenfest, Inc. CO
Sioux Falls Cable Television (gp) SD
TCI Atlantic, Inc. CO
TCI Holdings, Inc. CO
TCI Holdings, Inc. CO
TCI Holdings, Inc. CO
TCI TKR Limited Partnership CO
TKR Cable Co. of Warwick, Inc. DE
</TABLE>
Page 3
<PAGE> 4
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TKR Cable Co. of Ramapo, Inc. DE
TKR Cable Co. Wildwood, Inc. DE
TKR Cable Company (gp) CO
TKR Cable Company, LLC DE
TKR Cable Company, LLC DE
TKR Cable Partners (gp) CO
US Cable of Coastal-Texas, L.P. (lp) NJ
US Cable of Evangola (lp) NJ
US Cable of Lake County (lp) NJ TCI of Northeast Illinois, L.P.
US Cable of Tri-County, Ltd. NJ
</TABLE>
Page 4
<PAGE> 5
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI COMMUNICATIONS, INC. DE TCI Cablevision of Durango, Inc.
- ------------------------
Alabama T.V. Cable, Inc. AL
American Cable TV Investors 5, Ltd. [lp] CO American Cable TV of Lower Delaware
American Cable TV of St. Mary's County
American Microwave & Communications, Inc. MI
American Movie Classics Investment, Inc. CO
American TeleVenture of Minersville, Inc. CO
Ames Cablevision, Inc. IA TCI of Central Iowa
Antares Satellite Corporation CO
Athena Cablevision Corporation of Knoxville TN
Athena Cablevision of Tennessee and Kentucky, Inc. TN
Athena Realty, Inc. NV
Atlantic American Cablevision of Florida, Inc. FL TCI Cablevision of Pasco County
TCI Media Services
Atlantic American Cablevision, Inc. DE
Atlantic American Holdings, Inc. FL
Atlantic Cablevision of Florida, Inc. FL
Baton Rouge Cablevision Associates, L.P. [lp] CO
Bay Area Interconnect [gp] CA Bay Cable Advertising
BCA
Beatrice Cable TV Company NE TCI Cable of Beatrice
TCI of Kansas
Billings Tele-Communications, Inc. OR
Bob Magness, Inc. WY
Bresnan Communications Company Limited Partnership [lp] MI
Brigand Pictures, Inc. NY
Brookhaven Cable TV, Inc. NY TCI Cable of Brookhaven
Brookings Cablevision [gp] CO
Brookside Antenna Company OH
Cable Accounting, Inc. CO
Cable AdNet Partners [gp] DE Cable Adnet
Hudson Valley Cable Group
TCI Media Services
Cable Advertising Partners [gp] CA Adlink
</TABLE>
Page 5
<PAGE> 6
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Cable Network Television, Inc. NV
Cable Shopping Investment, Inc. CO
Cable Television Advertising Group, Inc. WY
Cable Television of Gary, Inc. IN
Cabletime, Inc. CO
Cablevision Associates of Gary Joint Venture [jv] IN
Cablevision IV, Ltd. (Corp) IA
Cablevision of Arcadia/Sierra Madre, Inc. DE
Cablevision of Arizona Partner, Inc. CO
Cablevision of Baton Rouge, Ltd. [lp] CO
Cablevision of Oklahoma Partner, Inc. CO
Cablevision of Texas Partner, Inc. CO
Cablevision of Utah Partner, Inc.
Cablevision V, Inc. IA
Cablevision VI, Inc. IA TCI Cablevision of the Rockies, Inc.
TCI of the Heartlands
Cablevision VII, Inc. IA TCI Cablevision of the Rockies, Inc.
TCI of the Heartlands
TCI of Eastern Iowa
TCI Media Services
Capital Region Cable Advertising Interconnect, L.P. [lp] NY Capital Region Cable Advertising Network
CAT Partnership [gp] DE
CATV Facility Co., Inc. CO
Channel 64 Acquisition, Inc. DE
Cincinnati Cable Advertising Interconnect, L.P. DE
Clinton Cablevision [gp] IA
Clinton TV Cable Company, Inc. IA
Coconut Creek Cable T.V., Inc. FL TCI of North Broward
Colorado Cablevision Company [lp] CO TCI of Colorado
Colorado Terrace Tower II Corporation CO
Command Cable of Eastern Illinois LP NJ TCI Cablevision of Southern Illinois
Communication Investment Corporation VA
Communications & Cable of Chicago, Inc. IL Chicago Cable TV
Communications Services, Inc. KS TCI Cablevision of Central Texas
TCI Cablevision of East Oklahoma
TCI Cablevision of North Texas
TCI Cablevision of Northeast Texas
</TABLE>
Page 6
<PAGE> 7
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Communications Services, Inc. (continued) KS TCI Cablevision of Oklahoma (CSI), Inc.
TCI Cablevision of Texas (CSI), Inc.
TCI Communications Services, Inc.
TCI Media Services
TCI of Arkansas
TCI of Arkansas (CSI), Inc.
TCI of Kansas (CSI), Inc.
TCI of Louisiana
TCI of Louisiana (CSI), Inc.
Community Cable Television (gp) WY TCI Cablevision of Southwest Texas
TCI Cablevision of West Oakland County
Community Realty, Inc. NV Nevada Community Realty, Inc.
Community Television Systems, Inc. DE TCI Cablevision of South Central
Connecticut
Connecticut Cable Advertising, L.P. DE
Consumer Entertainment Services, Inc. WY
Corsair Pictures, Inc. DE Brigand Pictures, Inc.
CSI Partner, Inc. CO
CSI Partner II, Inc.
Daniels Communication Partners Limited Partnership [lp] DE
Daniels Hauser-Holdings [gp] CO
Davis County Cablevision, Inc. UT
DCP-85, Ltd. [lp] CO
Direct Broadcast Satellite Services, Inc. DE
Discovery Programming Investment, Inc. CO
District Cablevision Limited Partnership [lp] DC TCI Media Services
East Arkansas Cablevision, Inc. AR TCI Lake Area
TCI Media Services
TCI of Arkansas
Eastex Microwave, Inc. TX
ECP Holdings, Inc. OK
Elbert County Cable Partners, L. P. [lp] CO TCI of Colorado
FAB Communications, Inc. OK
Falcon Communications, L.P. CA
Four Flags Cable TV [jv] MI
Four Flags Cablevision [jv] MI
General Communication, Inc.
General Communications and Entertainment Company, Inc. DE
</TABLE>
Page 7
<PAGE> 8
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Gill Bay Interconnect, Inc. CA
Greater Birmingham Interconnect [gp] AL GBI
Guide Investments, Inc. CO
Halcyon Communications Limited Partnership[lp] OK TCI Cablevision of East Oklahoma
TCI of Arkansas
Westark Cable
Halcyon Communications Partners [gp] OK
Harbor Communications Joint Venture [jv] WA
Harris County Cable TV, Inc. VA
Hawkeye Communications of Clinton, Inc. IA
Heritage Cable Partners, Inc. IA
Heritage Cablevision Associates, a Limited Partnership [lp] IA TCI of Bedford
TCI of Michiana
Heritage Cablevision of California, Inc. DE TCI Cablevision of San Jose
Heritage Cablevision of Colorado, Inc. CO TCI Cablevision of Southern Colorado,
Inc.
Heritage Cablevision of Dallas, Inc. IA Bay Cablevision
Cable Oakland
TCI Cablevision of California
TCI Cablevision of New Castle County
TCI Media Services
TCI of Colorado
TCI of Fort Collins
Heritage Cablevision of Delaware, Inc. DE
Heritage Cablevision of Maine II, Inc. ME
Heritage Cablevision of Massachusetts, Inc. MA TCI Cablevision of Andover
Heritage Cablevision of South East Massachusetts, Inc. MA
Heritage Cablevision of Tennessee, Inc. TN TCI of Colorado
Heritage Cablevision of Texas, Inc. IA TCI Cablevision of South Texas
Heritage Cablevision, Inc. TX
Heritage Cablevision, Inc. IA TCI Media Services
TCI of the Heartlands
TCI of Central Iowa
TCI of Southern Iowa
TCI of Northern Iowa
TCI of Eastern Iowa
Heritage Cablevue, Inc. DE TCI Cablevision of New England
Heritage Communications Products Corp. IA
</TABLE>
Page 8
<PAGE> 9
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Heritage Communications, Inc. IA
Heritage Investments, Inc. IA
Heritage Media Corporation
Heritage ROC Holdings Corp. IA
Heritage/Indiana Cablevision II, Inc. CO
Heritage/Indiana Cablevision, Inc. IA
Hillcrest Cablevision Company OH
Home Sports Network, Inc. CO
Independence Cable TV Company [jv] MI TCI Cablevision of Oakland County, Inc.
InterMedia Capital Management II, L.P. CA
Intermedia Capital Partners IV, L.P.(ICP-IV) CA
Intermedia Partners Limited Partnership (IP-I) CA
International Telemeter Corporation NV
IR-TCI Partners V, L. P. [lp] CO
Knox Cable T.V., Inc. TN
KTMA-TV, Inc. TX
LaSalle Telecommunications, Inc. IL Chicago Cable TV-IV
Liberty - CSI, Inc. CO
Liberty Cable Partner, Inc. WY
Liberty Capital Corp. WY
Liberty Command II, Inc. CO
Liberty Command, Inc. CO
Liberty of Northern Indiana, Inc. DE
Liberty of Paterson, Inc. NV
LVO Cable Properties, Inc. OK
LVOC Management, Inc. OK
Margate Video Systems, Inc. FL TCI Media Services
TCI of North Broward
Miami Tele-Communications, Inc. FL
Micro-Relay, Inc. MD
Mid-Kansas, Inc. KS
Mile Hi Cable Partners, L.P. [lp] CO TCI of Colorado
Mississippi Cablevision, Inc. MS TCI of North Mississippi
TCI of Kansas
Mountain Cable Network, Inc. NV Mountain Cable Advertising
TCI Media Services
Mountain States General Partner Co. CO
</TABLE>
Page 9
<PAGE> 10
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Mountain States Limited Partner Co. CO
Mountain States Video [gp] CO TCI Media Services
TCI of Colorado
Mountain States Video Communications Co., Inc. CO TCI of Colorado
Mountain States Video, Inc. CO TCI of Colorado
TCI Media Services
MSV Subsidiary, Inc. CO
Muskegon Cable TV Co. [gp] MI TCI Cablevision of Greater Michigan, Inc.
Narragansett Cablevision Corporation RI
Northern Video, Inc. MN TCI of Central Minnesota
Northwest Illinois Cable Corporation DE
Northwest Illinois TV Cable Co. DE TCI Cablevision of Galesburg/Monmouth
Northwest Illinois TV Cable Company [lp] IL
Ohio Cablevision Network, Inc. IA TCI Cablevision of Northwestern Ohio
Orlando Cable Advertising Interconnect, L.P. DE
Ottumwa Cablevision, Inc. IA TCI of Southen Iowa
Pacific Microwave Joint Venture [jv] CA
Pacific Northwest Interconnect [gp] NY Northwest Cable Advertising
TCI Media Services
TV Mart
Parkland Cablevision, Inc. FL TCI of North Broward
Pennsylvania Educational Communications Systems PA
Pittsburg Cable TV, Inc. KS TCI of Pittsburg
Portland Cable Advertising, L.P. [lp] DE
Preview Magazine Corporation NY
Robert Fulk, Ltd. DE
Robin Cable Systems of Sierra Vista, L.P. CA TCI of Southern Arizona
Robin Cable Systems of Tucson, an Arizona Limited Partnership AZ TCI Media Services
TCI of Tucson
Tucson Cablevision
S/D Cable Partners Ltd. [lp] CO TCI Cablevision of Princeton, L.P.
TCI Cablevision of Rock Falls, L.P.
San Leandro Cable Television, Inc. CA TCI Cablevision of Hayward
Santa Fe Cablevision Company NM TCI Cablevision of Santa Fe
TCI Media Services
Santa Fe Cablevision Co. [lp] NM
Satellite Services of Puerto Rico, Inc. DE
</TABLE>
Page 10
<PAGE> 11
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Satellite Services, Inc. DE
SCC Programs, Inc. IL
Semaphore Partners [gp] CO
Silver Spur Land and Cattle Co. WY Silver Spur Ranch
Skyview TV, Inc. MT
South Chicago Cable, Inc. IL Chicago Cable TV-V
TCI Chicago
South Florida Cable Advertising[gp] FL
Southwest TeleCable, Inc. TX
Southwest Washington Cable, Inc. WA
SSI 2, Inc. NV
St. Louis Tele-Communications, Inc. MO TCI Cablevision of St. Louis
Tampa Bay Cable Advertising Interconnect, L.P. FL
TC Systems Partner, Inc. CO
TCC Spectrum, Inc. DE
TCI-UC, INC. DE
TCI Adelphia Holding, LLC DE
TCI AIT, Inc. CO
TCI American Cable Holdings II, L.P. [lp] CO TCI of Northeast Illinois, L.P.
TCI American Cable Holdings, L.P. [lp] CO TCI of Washington
TCI American Cable Holdings III, L.P. [lp] CO
TCI American Cable Holdings IV, L.P. [lp] CO
TCI Baton Rouge Ventures, Inc. CO
TCI Cable Adnet, Inc. CO
TCI Cable Management Corporation CO TCI Media Services
TCI Cable Partners of St. Louis, L.P. CO TCI of Illinois
TCI of Missouri
TCI Cablevision Associates, Inc. DE
TCI Cablevision of Alabama, Inc. AL TCI Media Services
TCI Cablevision of Arizona, Inc. AZ TCI Customer Satisfaction Center
TCI Cablevision of Baker/Zachary, Inc. DE TCI of Louisiana
TCI Cablevision of California, Inc. CA TCI Media Services
TCI Cablevision of Canon City, Ltd. [lp] CO
TCI Cablevision of Colorado, Inc. CO TCI Customer Satisfaction Center
TCI Media Services
TCI of Colorado
TCI Cablevision of Dallas, Inc. TX TCI Media Services
</TABLE>
Page 11
<PAGE> 12
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Cablevision of Florida, Inc. FL TCI Media Services
TCI of Colorado
TCI Southeast - South Region
TCI Cablevision of Georgia, Inc. GA TCI Media Services
TCI of Louisiana
TCI Cablevision of Great Falls, Inc. DE
TCI Cablevision of Idaho, Inc. ID TCI Customer Satisfaction Center
TCI Media Services
TCI Cablevision of Kentucky, Inc. KY
TCI Cablevision of Kiowa, Inc. CO
TCI Cablevision of Leesville, Inc. DE
TCI Cablevision of Maryland, Inc. MD TCI Media Services
TCI Cablevision of Massachusetts, Inc. MA
TCI Cablevision of Michigan, Inc. MI TCI North Central Region
TCI Cablevision of Minnesota, Inc. MN TCI of Minnesota
TCI Cablevision of Missouri, Inc. MO TCI Media Services
TCI Cablevision of Montana, Inc. MT TCI Media Services
TCI Cablevision of Nebraska, Inc. NE TCI Media Services
TCI Cablevision of Nevada, Inc. NV TCI Media Services
TCI Cablevision of New Hampshire, Inc. NH
TCI Cablevision of New Mexico, Inc. NM TCI Media Servies
TCI Cablevision of North Central Kentucky, Inc. KY
TCI Cablevision of Ohio, Inc. OH TCI Media Services
TCI Cablevision of Okanogan Valley, Inc. WA TCI of Washington
TCI Cablevision of Oklahoma, Inc. OK
TCI Cablevision of Oregon, Inc. OR TCI Media Services
TCI of Oregon
TCI Cablevision of Pasco County [gp] FL TCI Media Services
TCI Cablevision of Pinellas County, Inc. FL
TCI Cablevision of Sierra Vista II, Inc. CO
TCI Cablevision of Sierra Vista, Inc. CO
TCI Cablevision of South Dakota, Inc. SD TCI Media Services
TCI Cablevision of St. Bernard, Inc. LA
TCI Cablevision of Texas, Inc. TX TCI Media Services
TCI Cablevision of Tucson, Inc. CO
TCI Cablevision of Tuscon II, Inc. CO
TCI Cablevision of Twin Cities, Inc. WA TCI of Washington'
</TABLE>
Page 12
<PAGE> 13
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Cablevision of Utah, Inc. UT TCI Media Services
TCI Cablevision of Vermont, Inc. DE TCI of Washington
TCI Cablevision of Washington, Inc. WA TCI Media Services
TCI of Washington
TV Mart
TCI Cablevision of Wisconsin, Inc. WI TCI Media Services
TCI Cablevision of Wyoming, Inc. WY TCI Media Services
TCI Cablevision of Yakima Valley, Inc. WA TCI of Washington
TCI Cablevision of Yakima, Inc. WA TCI of Washington
TCI Call Center Holdings, Inc. CO
TCI Central, Inc. DE
TCI Challenger, Inc. CO
TCI Communications Financing I DE
TCI Communications Financing II DE
TCI Communications Financing III DE
TCI Communications Financing IV DE
TCI Communications Financing V DE
TCI Communications Financing VI DE
TCI CSC II, Inc. CO
TCI CSC III, Inc. CO
TCI CSC IV, Inc. CO
TCI CSC V, Inc. CO
TCI CSC VI, Inc. CO
TCI CSC VII, Inc. CO
TCI CSC VIII, Inc. CO
TCI CSC IX, Inc. CO
TCI CSC X, Inc. CO
TCI CSC XI, Inc. CO
TCI Development Corporation CO
TCI Digital TV, Inc. CO
TCI East, Inc. DE
TCI Falcon Holdings LLC DE
TCI Fleet Services, Inc. CO
TCI Great Lakes, Inc. DE
TCI Hits At Home, Inc. CO
TCI Hits, Inc. CO
TCI Holdings II, Inc. CO
</TABLE>
Page 13
<PAGE> 14
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Holdings, Inc. CO
TCI Investments, Inc. CO
TCI IP, Inc. DE
TCI IP-1, Inc. CO
TCI IP-VI, LLC DE
TCI IT Holdings, Inc. CO
TCI K-1, Inc. CO
TCI Liberty, Inc. DE
TCI Materials Management, Inc. CO
TCI Microwave, Inc. DE
TCI News, Inc. CO
TCI News-Damn Right, Inc. CO
TCI News-Presidential, Inc. CO
TCI North Central, Inc. DE
TCI Northeast, Inc. DE
TCI of Arkansas, Inc. AR
TCI of Arlington, Inc. OK
TCI of Beckley, Inc. WV TCI Media Services
TCI of Bloomington/Normal, Inc. VA
TCI of Cleveland, Inc. TN TCI Media Services
TCI of Columbus, Inc. GA TCI Media Services
TCI of Connecticut, Inc. CT
TCI of Council Bluffs, Inc. IA
TCI of D.C., Inc. DC
TCI of Decatur, Inc. AL TCI Media Services
TCI of Delaware, Inc. DE
TCI of Greensburg [gp] CO
TCI of Greenville, Inc. SC TCI Media Services
TCI of Hawaii, Inc. CO TCI
TCI of Houston, Inc. CO TCI Media Services
TCI of Illinois, Inc. IL TCI Cablevision of Dubuque, Inc.
TCI Media Services
TCI of Indiana, Inc. IN TCI Media Services
TCI Midwest Region
TCI of Iowa, Inc. IA TCI Cablevision of Dubuque, Inc.
TCI Media Services
TCI Southeast - Northwest Region
TCI of Kansas, Inc. KS TCI Cablevision of Stillwater
TCI Cablevision of Tulsa
</TABLE>
Page 14
<PAGE> 15
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI of Kansas Partner, Inc. CO
TCI of Kokomo, Inc. CO
TCI of Lee County, Inc. AL
TCI of Lexington, Inc. KY TCI Media Services
TCI of Maine, Inc. ME
TCI of Mississippi, Inc. MS
TCI of New Jersey, Inc. NV
TCI of New York, Inc. NY TCI Media Services
TCI of Buffalo
TCI Northeast Region
TCI of North Broward, Inc. FL
TCI of North Central Kentucky, Inc. KY
TCI of North Dakota, Inc. ND
TCI of Northern New Jersey, Inc. WA TCI Cablevision of Central Colorado
TCI Cablevision of Northeastern Oregon
TCI Cablevision of the Treasure Coast
TCI Media Services
TCI of Northern New Jersey
TCI of Oregon
TCI of Washington
TCI of Overland Park, Inc. KS
TCI of Pennsylvania, Inc. PA TCI East Region
TCI Media Services
TCI of California
TCI of Piedmont, Inc. SC
TCI of Plano, Inc. TX
TCI of Princeton, Inc. VA
TCI of Racine, Inc. WI TCI Media Services
TCI of Radcliff, Inc. KY TCI Media Services
TCI of Rhode Island, Inc. RI
TCI of Richardson, Inc. TX
TCI of Roanoke Rapids, Inc. VA
TCI of Selma, Inc. AL
TCI of South Carolina, Inc. SC
TCI of Southern Maine, Inc. ME
TCI of Southern Minnesota, Inc. DE TCI Media Services
TCI of Southern Minnesota
</TABLE>
Page 15
<PAGE> 16
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI of Southern Washington [gp] WA TCI of Washington
TCI of Spartanburg, Inc. SC
TCI of Springfiled, Inc. MO TCI Media Services
TCI of Tacoma, Inc. DE TCI of Washington
TCI of Tennessee, Inc. TN
TCI of the Blufflands, Inc. DE TCI Cable of La Crosse
TCI Media Services
TCI of Southern Minnesota
TCI of Tualatin Valley, Inc. OR TCI of Oregon
TCI of Virginia, Inc. VA TCI Media Services
TCI of Watertown, Inc. IA
TCI of West Virginia, Inc. WV TCI Media Services
TCI of Wytheville, Inc. VA
TCI Oscar I, Inc. CO
TCI Pacific Communications, Inc*** DE TCI Media Services
TCI Pacific Microwave, Inc. CO Pacific Microwave
TCI Pacific, Inc. DE
TCI PCS Holdings, Inc. DE
TCI Private Ventures, Inc. CO
TCI Realty Investments Company DE
TCI Southeast Divisional Headquarters, Inc. AL
TCI Southeast, Inc. DE
TCI Sports, Inc. NV
TCI Sports [gp] UT
TCI STS, Inc. CO
TCI STS-MTVI, Inc. TX
TCI TKR Cable I, Inc. DE
TCI TKR Cable II, Inc. DE
TCI TKR Cable III, Inc. DE
TCI TKR Limited Partnership [lp] CO
TCI TKR of Alabama, Inc. DE TCI Media Services
TCI of Alabama
TCI TKR of Central Florida, Inc. FL TCI Media Services
TCI of Central Florida
TCI TKR of Dallas, Inc. DE
TCI TKR of Florida, Inc. DE
</TABLE>
*** Subsidiaries listed separately.
Page 16
<PAGE> 17
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI TKR of Georgia, Inc. DE TCI Media Services
TCI of Georgia
TCI TKR of Hollywood, Inc. DE TCI of Hollywood
TCI TKR of Houston, Inc. TX TCI Cablevision of Houston
TCI TKR of Jefferson County, Inc. KY TKR Cable of Greater Louisville, Inc.
TCI TKR of Kentucky, Inc. DE
TCI TKR of Metro Dade, Inc. DE
TCI TKR of Northern Kentucky, Inc. KY TKR Cable of Northern Kentucky, Inc.
TCI TKR of South Dade, Inc. FL TCI of South Dade
TCI TKR of South Florida, Inc. DE TCI Media Services
TCI of South Florida
TCI TKR of Southeast Texas, Inc. DE
TCI TKR of Southern Kentucky, Inc. DE TKR Cable of Southern Kentucky, Inc.
TCI TKR of the Gulf Plains, Inc. DE TCI of the Gulf Plains
TCI TKR of The Metroplex, Inc. TX TCI Cablevision of the Metroplex
TCI TKR of Wyoming, Inc. WY
TCI TKR, INC. DE
TCI UA I, Inc. CO
TCI UA, Inc. DE
TCI Ventures Five, Inc. CO
TCI Ventures Four, Inc. CO
TCI Ventures, Inc. CO
TCI Washington Associates, L.P. DE
TCI West, Inc. DE
TCI Woodlands Ventures, Inc. CO The Woodlands Security Company
TCI/CA Acquisition Sub Corp. CO
TCI/CI Merger Sub Corp. DE
TCID-Commercial Music, Inc. CO
TCID-ICP III, Inc. CO
TCID-IP III, Inc. CO
TCID-IP IV, Inc. CO
TCID-IP V, Inc. CO
TCID-SVHH, Inc. DE
TCID Data Transport, Inc. CO
TCID Networks, Inc. DE
TCID of Carson, Inc. CA
TCID of Chicago, Inc. IL
</TABLE>
Page 17
<PAGE> 18
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCID of Florida, Inc. FL TCI Cablevision of Pasco County
TCI Media Services
TCID of Michigan, Inc. NV
TCID of South Chicago, Inc. IL
TCID Partners II, Inc. CO
TCID Partners, Inc. CO
TCID X*PRESS, Inc. CO
TCIP, Inc. CO
TCS Partner, Inc. CO
Tele-Communications of Colorado, Inc. CO TCI Colorado Community Cable Television,
Inc.
Tele-Communications of South Suburbia, Inc. IL
Telecommunications Cable Systems, Inc. LA TCI Media Services
TCI of Louisiana
TCI Southeast - Southwest Region
Telenois, Inc. IL
Televents Group Joint Venture [gp] CO TCI of Central Iowa
TCI of Eastern Iowa
TCI of the Heartlands
Televents Group, Inc. NV
Televents of Colorado, Inc. CO
Televents of East County, Inc. WY TCI Cablevision of East County
Televents of Florida, Inc. WY
Televents of Powder River, Inc. WY
Televents of San Joaquin, Inc. WY TCI Cablevision of San Joaquin
Televents of Wyoming, Inc. WY
Televents, Inc. NV TCI Cablevision of Contra Costa County
Televester, Inc. DE
Television Cable Service, Inc. TX TCI Cablevision of Abilene
TCI Cablevision of East Texas
TCI Cablevision of Perryton
TCI Cablevision of West Texas
TCI Media Services
TEMPO Cable, Inc. OK TCI Cablevision of Central Oklahoma, Inc.
TCI Cablevision of Nocona
TCI Cablevision of Oklahoma (Tempo), Inc.
TCI Cablevision of Texas (Tempo), Inc.
TCI of Arkansas (Tempo), Inc.
</TABLE>
Page 18
<PAGE> 19
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TEMPO Development Corporation OK
TEMPO Partner, Inc. CO
TEMPO Television, Inc. OK
The Chicago Cable Interconnect [gp] IL GCCI
The Detroit Cable Interconnect L.P. DE The Detroit Cable Interconnect Limited
Partners
The Greater Philadelphia Cable Advertising Interconnect [gp] PA PCA
Philadelphia Cable Advertising
Trans-Muskingum, Incorporated WV
Tribune-United Cable of Oakland County [jv] MI TCI Cablevision of Oakland County, Inc.
Tribune Company Cable of Michigan, Inc. DE Tribune-United Cable of Oakland County
[jv]
Tulsa Cable Television, Inc. OK TCI Cablevision of Tulsa
TCI Media Services
Tulsa Partner, Inc. CO
UA-Columbia Alpine Tower, Inc. NJ
UA-Columbia Cablevision of Massachusetts, Inc. MA TCI Cablevision of North Attlebboro/
Taunton
UA-Columbia Cablevision of New Jersey, Inc. NJ
UA-Columbia Cablevision of Westchester, Inc. NY TCI Media Services
TCI Cable of Westchester
TCI of Northern New Jersey
UA Think, Inc. CO
UACC Midwest, Inc. DE TCI Media Services
TCI of South Mississippi
TCI Cablevision of Asheville
TCI Cablevision of Decatur
TCI Cablevision of Central Illinois
TCI of Central Indiana
TCI of Evansville
TCI Cablevision of West Michigan, Inc.
TCI Cablevision of Merced County
TCI Cablevision of Santa Cruz County
TCI Cablevision of Tracy
TCI Cablevision of Vacaville
TCI Cablevision of Walnut Creek
TCI Cablevision of Northshore
UAII Merger Corp. DE
UAII Sub No. 24, Inc. DE
UATC Merger Corp. NY
</TABLE>
Page 19
<PAGE> 20
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
UCT Aircraft, Inc. CO
UCT Video, Inc. CO
UCTC LP Company DE
UCTC of Baltimore, Inc. DE
UCTC of Los Angeles County, Inc. DE TCI Cablevision of Los Angeles County
United Advertising Network, Inc. CO
United Artists Broadcast Properties, Inc. DE
United Artists Cable Holdings, Inc. CO
United Artists Cablesystems Corporation DE
United Artists Entertainment Company DE
United Artists Holdings, Inc. DE
United Artists Investments, Inc. CO
United Artists K-1 Investments, Inc. CO
United Artists Operator Services Corporation CO
United Artists Payphone Corporation CO
United Artists Preferred Investment, Inc. CO
United Artists Republic Investments, Inc. CO
United Artists Satellite, Inc. CO
United Artists TeleCommunications, Inc. DE
United Cable Ad-Link, Inc. CO
United Cable Advertising, Inc. CO
United Cable Investment of Baltimore, Inc. MD
United Cable Productions, Inc. CO
United Cable Realty Co. of California, Inc. CO
United Cable Shopping Channel, Inc. CO
United Cable T.V. of Oakland County, Inc. MI TCI Cablevision of Oakland County, Inc.
United Cable Television Acquisition Corporation CO TCI of Colorado
United Cable Television Corp. of Eastern Connecticut CT TCI Cablevision of Central Connecticut
United Cable Television Corporation DE TCI Cable of the Midlands
TCI Cablevision of Hayward
TCI Cablevision of Treasure Valley
TCI Media Services
United Cable Television Corporation of Michigan MI TCI Cablevision of Woodhaven, Inc.
United Cable Television Corporation of Northern Illinois IL TCI Cablevision of Northern Illinois
United Cable Television Financing Corporation CO
United Cable Television Investments, Ltd. CO
United Cable Television of Alameda, Inc. CA UCT of Alameda, Inc. #2
TCI Cablevision of Alameda
</TABLE>
Page 20
<PAGE> 21
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
United Cable Television of Baldwin Park, Inc. CO TCI Cablevision of Los Angeles County
United Cable Television of Baltimore Limited Partnership [lp] CO TCI Communications of Baltimore
TCI Media Services
United Cable Television of Bossier City, Inc. DE TCI Media Services
TCI of Louisiana
United Cable Television of California, Inc. CA TCI Cablevision of Cupertion/Los Altos
TCI Cablevision of Davis
United Cable Television of Chaska, Inc. CO
United Cable Television of Colorado, Inc. CO TCI of Colorado
United Cable Television of Cupertino, Inc. CA TCI of Cupertino/Los Altos Colorado
United Cable Television of East San Fernando Valley, Ltd. [lp] CO
United Cable Television of Eastern Shore, Inc. DE TCI of Eastern Shore
TCI Media Services
United Cable Television of Hillsborough, Inc. CO TCI Cablevision of Hayward
United Cable Television of Illinois Valley, Inc. IL TCI Cablevision of Illinois Valley
United Cable Television of Los Angeles, Inc. CA TCI Cablevision of Los Angeles County
United Cable Television of Mid-Michigan, Inc. DE TCI Cablevision of Mid-Michigan, Inc.
United Cable Television of Northern Indiana, Inc. DE TCI of Northern Indiana
United Cable Television of Oakland County, Ltd. [lp] CO
United Cable Television of Pico Rivera, Inc. CO
United Cable Television of Santa Cruz, Inc. CO TCI Cablevision of Santa Cruz County
United Cable Television of Sarpy County, Inc. NE
United Cable Television of Scottsdale, Inc. AZ TCI Cable of Scottsdale
United Cable Television of Southern Illinois, Inc. DE TCI Cablevision of Southern Illinois
United Cable Television of Western Colorado, Inc. CO TCI Cablevision of Western Colorado, Inc.
TCI Media Services
United Cable Television Real Estate Corporation CO
United Cable Television Services Corporation OK TCI Cablevision of Central Connecticut
TCI Media Services
United Cable Television Services of Colorado, Inc. CO
United Cable Video Investment, Inc. CO
United Carphone Corporation CO
United CATV, Inc. MD TCI Cablevision of Annapolis
TCI Media Services
United Corporate Communications Company CO
United Entertainment Corporation CO
United Hockey, Inc. CO
United Microwave Corporation DE
</TABLE>
Page 21
<PAGE> 22
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
United of Oakland, Inc. DE TCI Cablevision of Oakland County, Inc.
Tribune/United Cable of Oakland County
United Paging Corporation CO
United Tribune Paging Corporation CO
United's Home Video Centers, Inc. CO
Universal Telecom, Inc. MD
Upper Valley Telecable Company, Inc. ID TCI Cablevision of Idaho (UVTC), Inc.
TCI Media Services
UTI Purchase Company CO
Vacationland Cablevision, Inc. WI TCI of South Central Wisconsin
Valley Cable TV, Inc. TX
Volusia County Cable Advertising Interconnect, L.P. DE
VSC Cable, Inc. DE
W.A.V., Inc. CA
Waltham Tele-Communications [gp] MA TCI Cablevision of Waltham
Waltham Tele-Communications, Inc. CO
Wasatch Community T.V., Incorporated UT
Wentronics, Inc. NM TCI Cablevision of Western Colorado, Inc.
TCI Cablevision of Casper
TCI Cablevision of Gallup
TCI Cablevision of Moab
TCI Media Services
Wentronics Partner, Inc. CO
Western Community TV, Inc. MT
Western New York Cable Advertising L.P.[lp] NY
Western Satellite 2, Inc. CO
WestMarc Cable Group, Inc. DE
WestMarc Cable Holding, Inc. DE TCI Media Services
TCI of Central Minnesota
TCI of Northern Iowa
TCI of Northern Minnesota
TCI of the Valley
WestMarc Communications of Minnesota, Inc. DE TCI of Central Minnesota
TCI of Southern Minnesota
WestMarc Communications, Inc. NV
WestMarc Development II, Inc. CO
WestMarc Development III, Inc. CO
</TABLE>
Page 22
<PAGE> 23
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
WestMarc Development IV, Inc. CO
WestMarc Development Joint Venture [gp] CO TCI Cablevision of Greater Michigan, Inc.
TCI Cablevision of Northwestern
Connecticut
TCI Cablevision of Cape Cod
TCI Cablevision of Nantucket
TCI Media Services
TCI of Idaho
TCI Twin State Cable TV
TCI/Twin Valley Cable
TCI Cable of Vermont
WestMarc Development, Inc. CO TCI Media Services
TCI Cablevision of Greater Michigan, Inc.
WestMarc Realty, Inc. CO
</TABLE>
Page 23
<PAGE> 24
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI PACIFIC COMMUNICATIONS, INC DE TCI MEDIA SERVICES
- -------------------------------
TCI Pacific, Inc. DE
Tele-Vue Systems, Inc. WA TCI of Washington
TCI of Houston
Broadview Television Company WA
Cable TV of Marin, Inc. CA
Cable TV Puget Sound, Inc. WA
Channel 3 Everett, Inc. WA
Clear View Cable Systems, Inc. CA
Community Telecable of Bellevue, Inc. WA TCI of Washington
Community Telecable of Seattle, Inc. WA
Com-Cable TV, Inc. DE
H-C-G Cablevision, Inc. CA
TCI VCI, Inc. CA
Contra Costa Cable Co. WA
Crockett Cable System, Inc. WA
Everett Cablevision, Inc. WA TCI of Washington
Far-West Communications, Inc. OR TCI of Oregon
Portland Cable Advertising, L.P. [lp] DE
Marin Cable Television, Inc. CA
Prime Cable II Systems, Inc. TX
NTT, Inc. TX
Southwestern Satellite, Inc. TX
TCI of Dayton, Inc. DE
TCI Telecom, Inc. DE
Television Signal Corporation CA
United Community Antenna System, Inc. WA TCI of Washington
Vista Television, Inc. WA TCI of Washington
TCI Bay Interconnect, Inc. CA
Pacific Area Interconnect [gp] CA
Northwest Cable Advertising [gp] NY
TCI of Northern California, Inc. CA
TCI TVC, Inc. CA
</TABLE>
Page 24
<PAGE> 25
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
LIBERTY MEDIA CORPORATION DE
A-1 TV, Inc. CO
Affiliated Regional Communications, Ltd. CO
Americana Telelvision Productions LLC CO
Animal Planet, L.P. DE
ARC Holding, Ltd. [lp] TX Home Sports Entertainment
Prime Sports Southwest
Asian Television and Communications International LLC CO
Bay TV Joint Venture CA
BDTV III Inc. DE
BDTV II Inc. DE
BDTV Inc. DE
BET Film Productions DE
BET Movies/STARZ!3, LLC DE
Communication Capital Corp. DE Colorado Communication Capital Corp.
Courtroom Television Network [gp] NY
Cutthroat Productions LP CA
CVN, Inc. CA
DMX Inc. DE
Dry Creek Productions LLC CO
Encore Asia Management Limited HKG
Encore Asia, Inc. CO
Encore Australia Management Pty Limited AUS
Encore Australia Management, Inc. DE
Encore ICCP, Inc. CO EMC Entertainment International, Inc.
Encore International Newco, Inc. CO
Encore International, Inc. CO
Encore ICCP Investments LLC CO
Encore Media Corporation CO Encore
Encore Media Group LLC CO
Encore Newco LLC CO
Encore QE Programming Corp. CO
F&V Channel LLC DE
FIT TV Partnership [gp] DE
Fox Sports Net, LLC DE
</TABLE>
Page 25
<PAGE> 26
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Fox/Liberty Network Sales, Inc. DE
Fox/Liberty Networks, LLC DE
FoxWatch Productions, Inc. DE
fX Networks, LLC DE
Home Team Sports Limited Partnership [lp] DE
ICCP, Inc. CO
International Cable Channels Partnership, Ltd. [lp] CO
International Sports Programming Partners [gp] DE
Intro Production Management Corporation CO
ISP Distribution LP DE
ISP Transponder LP DE
ISP US Deportiva LP DE
Kaleidoscope Interactive, LLC TX
KBL Sports Network, Inc. CO KBL Entertainment Network
LBTW I, Inc. CO
LBTW II, Inc. CO
LBTW III, Inc. CO
Liberty Bay, Inc. CO
Liberty Broadcasting, Inc. OR
Liberty Central Services, Inc. DE
Liberty CHC, Inc. CO
Liberty Club, Inc. CO
Liberty CNBC, Inc. CO
Liberty Computer Ventures, Inc. CO
Liberty Court, Inc. WY
Liberty Creative Corporation CO
Liberty Denver Arena LLC DE
Liberty Distribution, Inc. CO
Liberty DMX, Inc. CO
Liberty fX, Inc. DE
Liberty HSN, Inc. CO
Liberty HSN LLC Holdings, Inc. DE
Liberty IFE, Inc. CO
Liberty MLP, Inc. CO
Liberty Movieco, Inc. CO
Liberty Newco International, Inc. DE
</TABLE>
Page 26
<PAGE> 27
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Liberty NSPP, Inc. DE
Liberty Productions, Inc. CO
Liberty Program Investments, Inc. WY
Liberty Program Supply, Inc. WY
Liberty Programming Development Corporation WY
Liberty QVC, Inc. CO
Liberty Sports Distribution, Inc. DE
Liberty Sports ILH, Inc. CO
Liberty Sports Member, Inc. DE
Liberty Sports Sales, Inc. CO
Liberty Sports, Inc. CO
Liberty SportSouth, Inc. GA
Liberty Starz, Inc. CO
Liberty TW, Inc. CO
Liberty VC, Inc. CO
Liberty VJN, Inc. CO
Liberty Women's Sports League, Inc. CO
Liberty/Fox ARC L.P. DE
Liberty/Fox Arizona LLC DE
Liberty/Fox Bay Area L.P. DE
Liberty/Fox Canada LLC DE
Liberty/Fox Central Services LLC DE
Liberty/Fox Chicago L.P DE
Liberty/Fox Distribution L.P. DE
Liberty/Fox KBL L.P. DE
Liberty/Fox Network Programming, LLC DE
Liberty/Fox Northwest L.P. DE
Liberty/Fox Southeast L.P. DE
Liberty/Fox Sports Financing LLC DE
Liberty/Fox Sunshine LLC DE
Liberty/Fox Upper Midwest L.P. DE
Liberty/Fox Utah LLC DE
Liberty/Fox West LLC DE
Liberty/TINTA Australia, Inc. DE
Liberty/TINTA Distribution, Inc. DE
Liberty/TINTA LLC DE
Liberty/Tinta Middle East LLC DE
</TABLE>
Page 27
<PAGE> 28
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Liberty/TINTA Sport Equity LLC DE
Liberty/TINTA World LLc DE
LMC Animal Planet, Inc. CO
LMC Arizona Sports, Inc. DE
LMC Bay Area Sports, Inc. CO BASN
Bay Area Sports Network
PSN
Pacific Sports Network
LMC BET, Inc. CO
LMC Canada, Inc. Canada
LMC Chicago Sports, Inc. WY
LMC Classics, Inc. NV
LMC Encore, Inc. CO
LMC Entertainment, Inc. NV
LMC Finco, Inc. DE
LMC Information Services, Inc. NV X*Press Information Services
LMC International, Inc. CO
LMC Music, Inc. CO
LMC Network Programming, Inc. DE
LMC Newco U.S., Inc. DE
LMC Northwest Cable Sports, Inc. CO NCS
Northwest Cable Sports
PSN
Prime Sports Northwest
LMC Prime Sports Northwest, Inc. CO
LMC Regional Sports, Inc. CO
LMC SatCom, Inc. GA
LMC Silver King, Inc. CO
LMC Southeast Sports, Inc. CO
LMC Sunshine, Inc. CO
LMC Upper Midwest Sports, Inc. CO
LMC Utah Sports, Inc. I CO
LMC West Sports, Inc. DE
LNT International Sports Programming (Distribution) Ltd. CAY
LNT International Sports Programming (Australia) Ltd Cayman
LNT International Sports Programming (Latin America) Ltd. Cayman
LNT International Sports Programming Partners Australia [gp] DE
LQ I, Inc. CO
</TABLE>
Page 28
<PAGE> 29
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
LQ II, Inc. CO
LSI Deportiva, Inc. CO
LSI Facilities, Inc. CO
LSI Nostalgic Sports, Inc. CO
LSI Showcase, Inc. CO
LTWX I, Inc. CO
LTWX II, Inc. CO
LTWX III, Inc. CO
LTWX IV, Inc. CO
LTWX V, Inc. CO
MacNeil/Lehrer Productions [gp] NY
Mountain Mobile Television Limited Liability Company NV
Netlink International, Inc. CO
Netlink USA [gp] CO
New LMC ARC, Inc. DE
New LMC Bay Area, Inc. DE
New LMC Canada, Inc. DE
New LMC Chicago, Inc. DE
New LMC KBL, Inc. DE
New LMC Northwest, Inc. DE
New LMC Southeast, Inc. DE
New LMC Sunshine, Inc. DE
New LMC Upper Midwest, Inc. DE
New LMC Utah Sports, Inc. DE
Paradigm Music Entertainment Company DE
Prime Network Limited Liability Company WY
Prime Philadelphia Sports Limited Liability Company WY
Prime Sports Events, Inc. CO Liberty Prime Sports Events, Inc.
Prime Sports Merchandising, Inc. CO Fan Fair
Prime Sports Fan Fair
Prime Sports Network-Upper Midwest [jv] MN
Prime Sports Northwest Network [gp] DE
Prime Sports West, L.P. [lp] CA
Prime SportsChannel Networks Associates [gp] NY Prime Network
Newsport
Prime Ticket Networks , L.P. [lp] CA
Purple Demon NY
</TABLE>
Page 29
<PAGE> 30
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
QE+ Ltd. [lp] CO
QVC Investment, Inc. CO
RecoveryNet Interactive LLC DE
Reiss Media Enterprises, Inc. DE
Republic Pictures Television [gp] CA
Rocky Mountain Prime Sports Network [jv] CO
Rocky Mountain Sports and Lifestyle Channel, Inc. DE
Royal Communications, Inc. CO
RTV Associates, L.P. [lp] DE
Southern Satellite Systems, Inc. GA
Sonicnet, Inc. DE
Sports Holding, Inc. TX
SportsChannel Chicago Associates [gp] NY
SportsChannel Pacific Associates [gp] NY
SportsChannel Prism Associates [gp] NY
SportSouth Network, Ltd. [ltd] DE
Starz Movies LLC CO
Sunshine Network [jv] FL
Superstar/Netlink Group LLC DE
TCI Cable Education, Inc. CO
TCI Cutthroat Island, Inc. CO
TCI Digital Health Group, Inc. CO
TCI E! Entertainment, Inc. CO
TCI Music, Inc. DE
TCI Online Health KI Holdings, Inc. CO
TCI Online Health RN Holdings, Inc. CO
TCI Prime Sports, Inc. CO
TCI Republic Pictures Inc. CO
TCI Request, Inc. CO
TCI Sillerman-Magee, Inc. CO
TCI TVRO Management Corporation CO
TCI/Fox Funding Partnership [jv] NY
TCID, Inc. CO
Telluride Cablevision, Inc. DE
The Box Argentina, S.A. ARGENTINA
The Box Holland, B.V. Netherlands
The Box Italy, S.R.L. ITALY
</TABLE>
Page 30
<PAGE> 31
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
The Box Worldwide, Inc. FL
The Box Worldwide-Europe, Inc. Netherlands
The Box Worldwide-Latin America, Inc. BRITISH VIRGIN ISLANDS
The Box Worldwide-USA, Inc. DE
U.S. Surfing L.P. TX
Upper Midwest Cable Partners [gp] MN
Vision Group Incorporated CO
Westlink, Inc. CO
X*PRESS Electronic Services, Ltd. CO
X*PRESS Information Services, Ltd. CO
</TABLE>
Page 31
<PAGE> 32
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI VENTURES GROUP, LLC DE
Academic Systems Corporation CA
Acclaim Entertainment, Inc. DE
Antec Corporation
At Home Corporation DE
CareerTrack, Inc. CO
Digital Direct, Inc. CO TCI Telephony, Inc.
DigiVentures, LLC DE
ETC Ingenius Holdings, Inc. DE
ETC NSCI Holdings, Inc. DE
ETC w/tci, Inc. DE
Ingenius [jv] CO
Intessera, Inc. CO
InterZine Productions, Inc. DE
iVILLAGE, Inc. DE
Kansas City Fiber Network, L.P. DE
Kitty Hawk Capital Limted Partnership, II NC
MajorCo, L.P. [lp] DE Sprint Spectrum Holding Company, L.P.
Materials Handling Services, Inc. CO Western Communications Materials
Handling Services, Inc.
MCNS Holdings, L.P. DE(NY)
MinorCo, L.P. [lp] DE
National Digital Television Center, Inc. CO
National School Conference Institute, Inc. AZ
NDTC-YCTV, Inc CO
New Enterprises Associates IV, Limited Partnership DE
NHT Partnership [gp] NY
PhillieCo, L.P. DE
RL Ingenius, Inc. CO
Sportsline USA, Inc. DE
TCI Academic Holdings, Inc. CO
TCI CT Holdings, Inc. DE
TCI Ctrack Asset Corp. CO
TCI ETC Holdings, Inc. DE
</TABLE>
Page 32
<PAGE> 33
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Interactive, Inc. CO
TCI Internet Holdings, Inc. CO
TCI Internet Services, Inc. CO @Home
TCI INZ Sports Holdings, Inc. CO
TCI Java, Inc. CO
TCI Lightspan Holdings, Inc. CO
TCI LL, Inc. CO
TCI MCNS Holdings, Inc. CO
TCI National Digital Television Center - Hong Kong, Inc. DE
TCI Netscape Holdings, Inc. CO
TCI NJFT, Inc. CO
TCI Online Services, Inc. CO
TCI Online Sports Holdings, Inc. CO
TCI Online Village Holdings, Inc. CO
TCI Philadelphia Holdings, Inc. DE
TCI SMTRK LLC DE
TCI SMTRK of Texas, Inc. CO
TCI Spectrum Holdings, Inc. CO
TCI Spectrum Investment, Inc. CO
TCI Telephony Holdings, Inc. DE
TCI Telephony Services of California, Inc. CO
TCI Telephony Services of Colorado, Inc. CO
TCI Telephony Services of Connecticut, Inc. CO
TCI Telephony Services of Illinois, Inc. CO
TCI Telephony Services of Minnesota, Inc. CO
TCI Telephony Services of Oklahoma, Inc. CO
TCI Telephony Services of Texas, Inc. CO
TCI Telephony Services of Wisconsin, Inc. CO
TCI Telephony Services, Inc. DE
TCI Teleport Holdings, Inc. DE
TCI Teleport, Inc. CO
TCI TSX, Inc. CO
TCI-TVGOS, Inc. CO
TCI UVSG, Inc. CO
TCI Venture Investments, LLC DE
TCI Ventures Management, Inc. CO
TCI Wireless Holdings, Inc. DE
TeleCable KCFN Holding Corp. VA
</TABLE>
Page 33
<PAGE> 34
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Tele-Communications International, Inc.*** DE TINTA
TCI Squared, Inc.
Teleport Communications Group Inc. DE
The Lightspan Partnership, Inc. CA
TVSM, Inc. DE
United Video Satellite Group, Inc. DE
Venture First II L.P. NC
Western Information Systems, Inc. CO WIS
Western Tele-Communications, Inc. CO
Western Tele-Communications, Inc./Retail Sales Group CO
WirelessCo, L.P. [lp] DE
WTCI of Montana, Inc. CO
</TABLE>
*** Subsidiaries listed separately.
Page 34
<PAGE> 35
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TELE-COMMUNICATIONS INTERNATIONAL, INC. DE TINTA
TCI Squared, Inc.
Admi, Inc. DE
Bresnan International Partners (Chile), L.P. DE
Bresnan International Partners (Poland), L.P. DE
Cable Programme Partners-1 Limited Partnership DE
Cable Programme Partners (1) Ltd. UNITED KINGDOM
Cablevision S.A. ARGENTINA
Carribbean Services Company, Inc. CO
Cathay Television and Communication Company CO
Construred, S.A. ARGENTINA
Discovery (UK) Ltd. UNITED KINGDOM
Fibertel-TCI2 ARGENTINA
Flextech plc UNITED KINGDOM
International Sports Programming Partners [gp] DE
ISP Distribution LP DE
ISP Transponder LP DE
ISP US Deportiva LP DE
Jupiter Programming Co., Ltd. JAPAN
Liberty/TINTA Australia, Inc. DE
Liberty/TINTA Distribution, Inc. DE
Liberty/TINTA LLC DE
Liberty/Tinta Middle East LLC DE
Liberty/TINTA Sport Equity LLC DE
Liberty/TINTA World LLc DE
LNT International Sports Programming (Distribution) Ltd. CAYMAN ISLANDS
LNT International Sports Programming (Australia) Ltd CAYMAN ISLANDS
LNT International Sports Programming (Latin America) Ltd. CAYMAN ISLANDS
LNT International Sports Programming Partners Australia [gp] DE
Melita Cable Holdings Ltd. [Malta LLC] MALTA
Melita Cable TV Limited [Malta LLC] MALTA
Melita Partnership [gp] CO
Multithematiques FRANCE
TCI-Australia, Inc. CO
TCI Argentina, Inc. CO
TCI Cable Holding Company I DE
</TABLE>
Page 35
<PAGE> 36
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Cable Programme Partners, Inc. CO
TCI Cablevision of Puerto Rico, Inc. DE
TCI Cathay TV, Inc. CO
TCI Chile, Inc, CO
TCI DTH Mexico, Inc. CO
TCI International DTH Service, Inc. CO
TCI International Investments Ltd. UNITED KINGDOM
TCI International Partnership Holdings, Inc. CO
TCI Japan, Inc. CO
TCI Movies Australia Pty. Limited AUSTRALIA
TCI Multicountry DTH, Inc. CO
TCI Poland, Inc. CO
Televisora Belgrano, S.A. ARGENTINA
TeleWest Communications PLC UNITED KINGDOM
TeleWest Europe Group [gp] CO
Tevel Israel International Communications Ltd. ISRAEL
TINTA Sports Programming, Inc. DE
Tishdoret Achzakot Ltd. ISRAEL
TW Holdings, L.L.C. CO
UA-France, Inc. CO
UA-UII Management, Inc. CO
UA-UII, Inc. CO
UA European Theatres, Inc. CO
UCT-Netherlands, B.V. NETHERLANDS
UII-Ireland Limited Liability Company UT
UII-Ireland, Ltd. [gp] CO
UII Management [gp] CO
United Artists (Learning Channel) Ltd. UNITED KINGDOM
United Artists Cable Television International Holdings, Inc. CO
United Artists Cable Television International Ltd. UNITED KINGDOM
United Artists Cable Television UK Holdings, Inc. DE
United Artists European Broadcasting Ltd. UNITED KINGDOM
United Artists European Holdings Limited UNITED KINGDOM
United Artists International, Inc. CO
United Artists Programming-Europe, Inc. CO
United Artists Programming International, Inc. CO
United Artists, B.V. NETHERLANDS
</TABLE>
Page 36
<PAGE> 37
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
United International Investments [gp] CO
Univent's S.A. ARGENTINA
</TABLE>
Page 37
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835,
333-06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745)
on Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on
Form S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839,
33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177,
333-06179, 333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our reports dated March 20, 1998, relating to the
consolidated balance sheets of Tele-Communications, Inc. and subsidiaries as of
December 31, 1997 and 1996, 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, 1997, and all related schedules, which
reports appear in the December 31, 1997 annual report on Form 10-K of
Tele-Communications, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 23, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835,
333-06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745)
on Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on
Form S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839,
33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177,
333-06179, 333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our report dated March 20, 1998, relating to the
combined balance sheets of TCI Group as of December 31, 1997 and 1996, and the
related combined statements of operations, equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1997, which
report appears in the December 31, 1997 annual report on Form 10-K of
Tele-Communications, Inc. Our report covering the combined financial
statements refers to the effects of not consolidating TCI Group's interest in
Liberty Media Group and TCI Ventures Group for all periods that TCI Group has
an interest in Liberty Media Group and TCI Ventures Group, respectively.
KPMG Peat Marwick LLP
Denver, Colorado
March 23, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835,
333-06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745)
on Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on
Form S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839,
33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177,
333-06179, 333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our report dated March 20, 1998, relating to the
combined balance sheets of Liberty Media Group as of December 31, 1997 and
1996, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1997, which
report appears in the December 31, 1997 annual report on Form 10-K of
Tele-Communications, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 23, 1998
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835,
333-06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745)
on Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on
Form S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839,
33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177,
333-06179, 333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our report dated March 20, 1998, relating to the
combined balance sheets of TCI Ventures Group as of December 31, 1997 and 1996,
and the related combined statements of operations, equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, which
report appears in the December 31, 1997 annual report on Form 10-K of
Tele-Communications, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 23, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Telewest Communications plc
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835, 333-
06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745) on
Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on Form
S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839, 33-
60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177, 333-06179,
333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our report dated March 19, 1998, relating to the
consolidated balance sheet of Telewest Communications plc and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations and cash flows for each of the years in the three-year period ended
December 31, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of Tele-Communications, Inc.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England
March 23, 1998
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-57409, 33-57469, 33-63139, 33-64127,
33-65311, 33-65493, 33-65497, 333-00265, 333-00717, 333-00765, 333-00835,
333-06723, 333-07615, 333-27039, 333-29849, 333-40131, 333-41435 and 333-44745)
on Form S-3, the Registration Statements (Nos. 333-28613-01 and 333-29451) on
Form S-4, and the Registration Statements (Nos. 33-44543, 33-54263, 33-60839,
33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487, 333-06177,
333-06179, 333-16025, 333-16027, 333-40141 and 333-42917) on Form S-8 of
Tele-Communications, Inc. of our report dated February 3, 1998 on the
consolidated financial statements of Sprint Spectrum Holding Company, L. P. and
subsidiaries (which expresses an unqualified opinion and includes an explanatory
paragraph referring to the emergence from the development stage of Sprint
Spectrum Holding Company, L. P. and subsidiaries) for each of the three years
ended December 31, 1997 appearing in the Annual Report on Form 10-K of
Tele-Communications, Inc. for the year ended December 31, 1997.
Deloitte & Touche LLP
Kansas City, Missouri
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. PRIMARY AND DILUTED EARNINGS PER SHARE
REPRESENT EARNINGS PER SHARE OF THE COMPANY'S TCI GROUP STOCK. SEE THE COMPANY'S
CONSOLIDATED STATEMENTS OF OPERATIONS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 529
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,438
<DEPRECIATION> 7,679
<TOTAL-ASSETS> 32,323
<CURRENT-LIABILITIES> 0
<BONDS> 15,250
655
0
<COMMON> 1,474
<OTHER-SE> 2,953
<TOTAL-LIABILITY-AND-EQUITY> 32,323
<SALES> 0
<TOTAL-REVENUES> 7,570
<CGS> 0
<TOTAL-COSTS> 2,850
<OTHER-EXPENSES> 1,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,160
<INCOME-PRETAX> (860)
<INCOME-TAX> (234)
<INCOME-CONTINUING> (626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (626)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
