<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[X] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
TCI COMMUNICATIONS, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of the transaction to the Registrant:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
TCI COMMUNICATIONS, INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on October 30, 1997
------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (including
any adjournment or postponement thereof, the "Annual Meeting") of TCI
Communications, Inc., a Delaware corporation (the "Company"), will be held at
the Company's corporate headquarters located at 5619 DTC Parkway, Englewood,
Colorado on October 30, 1997, at 10:00 a.m., local time, for the following
purposes:
1. To elect five (5) directors of the Company to serve until the 1998
annual stockholders meeting, and until their successors are elected
and qualified.
2. To transact such other business as may properly come before the Annual
Meeting.
Holders of record of the Company's Class A Common Stock, Class B Common
Stock and Cumulative Exchangeable Preferred Stock, Series A, at the close of
business on September 25, 1997 (the "Record Date") are entitled to notice of
and to vote at the Annual Meeting with respect to the election of directors. As
to any other business that may properly be brought before the Annual Meeting,
only holders of Class A Common Stock and Class B Common Stock as of the Record
Date will be entitled to vote.
To ensure that your interests will be represented at the Annual Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Annual
Meeting and vote personally.
By Order of the Board of Directors
Stephen M. Brett
Secretary
Englewood, Colorado
October 14, 1997
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT YOU INTEND
TO BE PRESENT AT THE ANNUAL MEETING.
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<PAGE>
TCI COMMUNICATIONS, INC.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
-------------
PROXY STATEMENT
-------------
FOR ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of TCI Communications, Inc., a Delaware corporation
(the "Company"), of proxies for use at the annual meeting of stockholders
(including any adjournment or postponement thereof, the "Annual Meeting") of the
Company to be held on October 30, 1997, at the time and place and for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
Proxies are being solicited from the holders of the Company's Class A Common
Stock, par value $1.00 per share (the "Class A Common Stock"), Class B Common
Stock, par value $1.00 per share (the "Class B Common Stock"), and Cumulative
Exchangeable Preferred Stock, Series A, par value $.01 per share (the "Series A
Preferred Stock").
Time and Place; Purposes
The Annual Meeting will be held at the Company's corporate headquarters
located at 5619 DTC Parkway, Englewood, Colorado, on October 30, 1997, starting
at 10:00 a.m. local time. At the Annual Meeting, the stockholders of the
Company will be asked to consider and vote upon a proposal to elect five (5)
directors of the Company to hold office until the next annual meeting of
stockholders and until their successors are elected and qualify (the "Election
of Directors Proposal") and to transact such other business as may properly come
before the Annual Meeting.
This Proxy Statement and the accompanying form of proxy are first being
mailed to the stockholders of the Company on or about October 16, 1997. Also
included in the mailing is the Company's 1996 Annual Report to Stockholders.
Voting Rights; Votes Required for Approval
The Board of Directors has fixed the close of business on September 25,
1997 (the "Record Date") as the date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. Only holders of record
of shares of Class A Common Stock, Class B Common Stock and Series A Preferred
Stock, at the close of business on the Record Date, are entitled to notice of
the Annual Meeting. Holders of record at the close of business on the Record
Date of Class A Common Stock, Class B Common Stock and Series A Preferred Stock
will vote together as a single
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<PAGE>
class in the election of directors. Holders of record at the close of business
on the Record Date of Class A Common Stock and Class B Common Stock will vote
together as a single class on any other business that may properly come before
the meeting. Each holder of record as of the Record Date of (i) Class A Common
Stock is entitled to cast 100 votes per share of such class held, (ii) Class B
Common Stock is entitled to cast 1,000 votes per share of such class held, and
(iii) Series A Preferred Stock is entitled to cast one vote per share of such
series held, on each matter on which holders of such class or series are
entitled to vote at the Annual Meeting.
At the close of business on the Record Date, there were 811,655 shares of
Class A Common Stock, 94,447 shares of Class B Common Stock and 4,600,000 shares
of Series A Preferred Stock outstanding and entitled to vote at the Annual
Meeting. The presence, in person or by proxy, of the holders of a majority of
the combined voting power of the outstanding shares of Class A Common Stock,
Class B Common Stock and Series A Preferred Stock is necessary to constitute a
quorum at the Annual Meeting. A plurality of the votes cast at the Annual
Meeting with respect to shares of Class A Common Stock, Class B Common Stock and
Series A Preferred Stock represented, in person or by proxy, and entitled to
vote at the Annual Meeting, will be required for the election of directors. The
Board of Directors recommends a vote FOR each of the nominees for director named
under "Election of Directors Proposal" below. At the Record Date, Tele-
Communications, Inc., a Delaware corporation ("TCI"), held of record all of the
outstanding shares of Class A Common Stock and Class B Common Stock,
representing 97.4% of the combined voting power of the outstanding shares of
Class A Common Stock, Class B Common Stock and Series A Preferred Stock entitled
to vote at the Annual Meeting. TCI has advised the Company that it will be
present at the Annual Meeting, thereby providing a quorum, and will vote in
favor of the slate of nominees proposed by the Board of Directors for election
as directors, thereby ensuring their election.
Proxies
All shares of Class A Common Stock, Class B Common Stock and Series A
Preferred Stock represented by properly executed proxies received prior to or at
the Annual Meeting, and not revoked, will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted FOR the election as a director of each of the director
nominees named in the Election of Directors Proposal. So far as the Company's
Board of Directors is aware, the Election of Directors Proposal is the only
matter to be acted upon at the Annual Meeting. As to any other matter which may
properly come before the Annual Meeting, the persons named in the accompanying
proxy card will vote thereon in accordance with their best judgment. A properly
executed proxy marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum, will not be voted and therefore for purposes of the
Election of Directors Proposal will not count as a vote cast; however, with
respect to any matter other than the Election of Directors Proposal, an
abstention will have the same effect as a vote cast against such matter. Shares
held by a broker or nominee that are represented at the Annual Meeting, but with
respect to which the broker or nominee does not have express instructions from
the beneficial owner on how to vote, may be voted by such broker or nominee in
its discretion with respect to the Election
-3-
<PAGE>
of Directors Proposal. Accordingly, in addition to being counted for purposes of
determining whether there is a quorum at the Annual Meeting, such shares, if
voted, will be counted as votes cast. If a matter were to come before the Annual
Meeting with respect to which the broker or nominee is not empowered to vote in
the absence of instructions, then such broker non-votes will be counted for
purposes of determining whether there is a quorum at the Annual Meeting, but
will be deemed shares not entitled to vote on the particular matter.
A stockholder may revoke his, her or its proxy at any time prior to its use
by delivering to the Secretary of the Company a signed notice of revocation or a
later dated signed proxy or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, officers and regular employees of the Company
may solicit proxies by telephone, telegram, in person or by other means. Such
persons will receive no additional compensation for such services. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares held of record by them
and will be reimbursed for their reasonable out-of-pocket expenses in connection
therewith.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 1, 1997, information with
respect to the ownership of Class A Common Stock, Class B Common Stock and
Series A Preferred Stock, by each person known to the Company to own
beneficially more than 5% of any class outstanding on that date. So far as is
known to the Company, the persons indicated below have sole voting and
investment power with respect to the shares indicated as owned by them. Voting
power in the table is computed with respect to a general election of directors
and, therefore, the Series A Preferred Stock is included in the calculation.
<TABLE>
<CAPTION>
Percent
Name and address of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
Tele-Communications, Inc. Class A 811,655 100% 97.4%
5619 DTC Parkway Class B 94,447 100%
Englewood, CO Series A Pref. -- --
Salomon Inc. Class A -- -- *
Seven World Trade Center Class B -- --
New York, NY 10048 Series A Pref. 747,300 (2) 16.2%
</TABLE>
- ------------------------
* Less than one percent
-4-
<PAGE>
(1) Based on 811,655 shares of Class A Common Stock, 94,447 shares of Class B
Common Stock and 4,600,000 shares of Series A Preferred Stock outstanding
on March 1, 1997.
(2) The numbers in the table are based upon Amendment No. 1, dated March 7,
1997, to a Form 13G filed by Salomon Inc. Such filing indicates that
Salomon Inc. has shared voting and dispositive power over all such shares.
Salomon Inc. reported the disposition of all of the shares reflected in the
table in Amendment No. 2, dated October 6, 1997, to a Form 13G.
Security Ownership of Management
The following table sets forth, as of March 1, 1997, information with
respect to the ownership of the Company's voting securities (Class A Common
Stock, Class B Common Stock and Series A Preferred Stock) and the ownership of
voting securities of the Company's parent, TCI, by all directors as of such
date, by all nominees for director and by each executive officer (including
former executive officers) of the Company named in the table under "CONCERNING
MANAGEMENT -- Executive Compensation -- Summary Compensation Table" (the "named
executive officers"), and by the named executive officers and all executive
officers and directors of the Company as of March 1, 1997 and all nominees for
director as a group. The voting securities of TCI (i.e., those securities of
TCI that are entitled to vote in the election of directors) of which shares were
outstanding at March 1, 1997 were: Tele-Communications, Inc. Series A TCI Group
Common Stock ("TCI Group Series A Stock"), Tele-Communications, Inc. Series B
TCI Group Common Stock ("TCI Group Series B Stock"), Tele-Communications, Inc.
Series A Liberty Media Group Common Stock ("Liberty Media Group Series A
Stock"), Tele-Communications, Inc. Series B Liberty Media Group Common Stock
("Liberty Media Group Series B Stock"), Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock (the "Class B Preferred Stock"), Convertible
Preferred Stock, Series C ("Series C Preferred Stock"), Redeemable Convertible
TCI Group Preferred Stock, Series G ("Series G Preferred Stock") and Redeemable
Convertible Liberty Media Group Preferred Stock, Series H ("Series H Preferred
Stock"). Subsequent to March 1, 1997, shares of two additional series of TCI
voting securities -- Tele-Communications, Inc. Series A TCI Ventures Group
Common Stock ("Ventures Group Series A Stock") and Tele-Communications, Inc.
Series B TCI Ventures Group Common Stock ("Ventures Group Series B Stock," and
together with the Ventures Group Series A Stock, the "Ventures Group Stock") --
were issued in an exchange offer by TCI for shares of its TCI Group Series A
Stock and TCI Group Series B Stock, respectively (the "Exchange Offer"). The
numbers in the table have not been adjusted to reflect the effect of the
Exchange Offer or of any adjustments made in connection therewith to options and
other convertible securities. Shares issuable upon exercise of stock options or
conversion of convertible securities and upon vesting of restricted shares are
deemed to be outstanding for the purpose of computing the percentage ownership
and overall voting power of persons beneficially owning such securities, but
have not been deemed to be outstanding for the purpose of computing the
percentage ownership or overall voting power of any other person. Voting power
with respect to the securities of TCI in the table is computed with respect to a
general election of directors of TCI, with the TCI Group Series A Stock, TCI
Group Series B Stock, Liberty Media Group Series A Stock, Liberty Media Group
Series B Stock, Class B Preferred Stock, Series C Preferred Stock, Series G
Preferred Stock and Series H Preferred Stock voting together as one class.
Voting power with respect to the Company
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<PAGE>
is computed with respect to a general election of directors of the Company and,
therefore, the Series A Preferred Stock is included in the calculation. The
number of shares of TCI Group Series A Stock, TCI Group Series B Stock, Liberty
Media Group Series A Stock and Liberty Media Group Series B Stock in the table
include interests of the named directors or executive officers or of members of
the group of directors and executive officers in shares held by the trustee of
TCI's Employee Stock Purchase Plan ("ESPP") and shares held by the trustee of
United Artists Entertainment, Inc.'s Employee Stock Ownership Plan for their
respective accounts. So far as is known to the Company, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as owned by them, except as otherwise stated in the notes to the table and
except for the shares held by the trustee of TCI's ESPP for the benefit of such
person, which shares are voted at the discretion of the trustee.
<TABLE>
<CAPTION>
Percent
Name of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
John C. Malone Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 2,173,166 (2) * 16.9%
TCI Group
Series B 25,287,083 (3)(4) 29.9%
Liberty Media
Group Series A 3,929,331 (2)(3) 1.7%
Liberty Media
Group Series B 6,349,270 (3)(4) 30.0%
TCI Class B Pref. 306,000 (3) 18.9%
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Donne F. Fisher, Class A -- -- --
individually and Class B -- --
as co-personal Series A Pref. -- --
representative to TCI Group
the Estate of Bob Series A 4,110,681 (5)(6) * 20.8%
Magness TCI Group
Series B 31,034,936 (5) 36.7%
Liberty Media
Group Series A 5,423,725 (5)(6) 2.4%
Liberty Media
Group Series B 7,758,734 (5) 36.6%
TCI Class B Pref. 129,299 (5) 8.0%
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Percent
Name of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
John W. Gallivan Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 52,124 (7) * *
TCI Group
Series B --
Liberty Media
Group Series A 19,546 (7) *
Liberty Media
Group Series B -- --
TCI Class B Pref. 14 (7) *
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Kim Magness, individually Class A -- -- --
and as personal Class B -- --
representative of the Series A Pref. -- --
Estate of Betsy TCI Group
Magness Series A 2,155,332 (8)(9) * 4.7%
TCI Group
Series B 6,864,212 (8) 8.1%
Liberty Media
Group Series A 1,666,275 (8)(9) *
Liberty Media
Group Series B 1,716,053 (8) 8.1%
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Leo J. Hindery, Jr. Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 1,000,000 (10) * *
TCI Group
Series B -- --
Liberty Media
Group Series A 250,000 (10) *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Percent
Name of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
Marvin L. Jones Class A -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 10,324 * *
TCI Group
Series B -- --
Liberty Media
Group Series A 3,871 *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Brendan Clouston Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 1,986,498 (11) * *
TCI Group
Series B 230 *
Liberty Media
Group Series A 332,463 (11) *
Liberty Media
Group Series B 57 --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Barry Marshall Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 639,196 (12) * *
TCI Group
Series B -- --
Liberty Media
Group Series A 205,678 (12) *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Bernard W. Schotters Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 628,739 (13) * *
TCI Group
Series B 1,716 *
Liberty Media
Group Series A 132,811 (13) *
Liberty Media
Group Series B 429 *
TCI Class B Pref. 1,022 *
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percent
Name of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
Barbara J. Mowry Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 285,954 (14) * *
TCI Group
Series B -- --
Liberty Media
Group Series A 9,640 (14) *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Gerald W. Gaines Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 295,512 (15) * *
TCI Group
Series B -- --
Liberty Media
Group Series A 19,562 (15) *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
Bruce W. Ravenel Class A -- -- --
Class B -- --
Series A Pref. -- --
TCI Group
Series A 342,285 (16) * *
TCI Group
Series B -- --
Liberty Media
Group Series A 28,998 (16) *
Liberty Media
Group Series B -- --
TCI Class B Pref. -- --
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Percent
Name of Title of Class or Amount and Nature of Class or Voting
Beneficial Owner Series of Beneficial Ownership Series (1) Power(1)
---------------- ------ ----------------------- ---------- --------
<S> <C> <C> <C> <C>
All directors and Class A -- -- --
executive officers Class B -- --
as a group Series A Pref. -- --
(18 persons) TCI Group
Series A 15,791,463 (5)(7)(8)(17) 2.6% 42.5%
TCI Group
Series B 63,191,177 (3)(4)(5)(8) 74.7%
Liberty Media
Group Series A 12,600,704 (3)(5)(7)(8)(17) 5.4%
Liberty Media
Group Series B 15,825,293 (3)(4)(5)(8) 74.7%
TCI Class B Pref. 437,167 (3)(5)(7) 27.0%
TCI Series C Pref. -- --
TCI Series G Pref. -- --
TCI Series H Pref. -- --
</TABLE>
- -------------------------
* Less than one percent.
(1) Based on 811,655 shares of Class A Common Stock, 94,447 shares of Class B
Common Stock and 4,600,000 shares of Series A Preferred Stock of the
Company at March 1, 1997. Based on 598,055,198 shares of TCI Group Series
A Stock (after elimination of shares held by subsidiaries of TCI),
84,647,065 shares of TCI Group Series B Stock, 228,721,426 shares of
Liberty Media Group Series A Stock, 21,187,969 shares of Liberty Media
Group Series B Stock, 1,620,026 shares of Class B Preferred Stock (after
elimination of shares held by subsidiaries of TCI), 70,575 shares of Series
C Preferred Stock, 6,693,177 shares of Series G Preferred Stock and
6,693,177 shares of Series H Preferred Stock of TCI outstanding at March 1,
1997.
(2) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 1,000,000 shares of TCI
Group Series A Stock and 375,000 shares of Liberty Media Group Series A
Stock. Options to acquire 800,000 and 300,000 shares of TCI Group Series A
Stock and Liberty Media Group Series A Stock, respectively, were
exercisable at March 1, 1997. Additionally, assumes the exercise in full
of stock options granted in tandem with stock appreciation rights in
December of 1995 to acquire 1,000,000 shares of TCI Group Series A Stock
and 375,000 shares of Liberty Media Group Series A Stock. Options to
acquire 200,000 shares of TCI Group Series A Stock and 75,000 shares of
Liberty Media Group Series A Stock were exercisable at March 1, 1997.
(3) Includes 1,173,000 shares of TCI Group Series B Stock, 146,625 shares of
Liberty Media Group Series A Stock, 293,250 shares of Liberty Media Group
Series B Stock and 6,900 shares of TCI's Class B Preferred Stock held by
Dr. Malone's wife, Mrs. Leslie Malone, but Dr. Malone has disclaimed any
beneficial ownership of such shares.
(4) Pursuant to a letter agreement, dated June 17, 1988 (the "1988 Agreement"),
the late Mr. Bob Magness and Kearns-Tribune Corporation ("Kearns-Tribune")
each agreed with Dr. Malone that prior to making a disposition of a
significant portion of their respective holdings of TCI Group Series B
Stock or Liberty Media Group Series B Stock, he or it would first offer Dr.
Malone the opportunity to purchase such shares. On June 16, 1997, the
Estate of Bob Magness sold 30,545,864 shares of TCI Group Series B Stock to
TCI in exchange for an equal number of shares of TCI Group Series A Stock
(the "Estate Swap"). In connection therewith, Dr. Malone agreed with TCI
that he would forgo the exercise of his rights under the 1988 Agreement
and, in consideration thereof, TCI granted Dr. Malone the right to acquire,
at any time and from time to time prior to June 30, 1999, up to 30,545,864
shares of TCI Group Series B Stock for either (or any combination of) (i)
shares
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<PAGE>
of TCI Group Series A Stock on a one-for-one basis or (ii) cash
based on the closing sales price of the TCI Group Series B Stock on The
Nasdaq Stock Market for a specified period prior to the acquisition of
shares by Dr. Malone (the "TCI-Estates Agreement"). The shares that Dr.
Malone has the right to acquire pursuant to the TCI-Estates Agreement are
not included in the table. Similarly, Dr. Malone agreed to forgo
exercising his rights under the 1988 Agreement and a later agreement with
Kearns-Tribune, dated April 18, 1997, in connection with TCI's acquisition
by merger of Kearns-Tribune (the "Kearns-Tribune Merger") in consideration
of TCI's agreement (the "TCI-KT Agreement") that he may acquire directly
from TCI, at any time and from time to time prior to July 30, 1998, up to
9,112,500 shares of TCI Group Series B Stock and 2,278,125 shares of
Liberty Media Group Series B Stock in exchange for equal numbers of shares
of TCI Group Series A Stock and Liberty Media Group Series A Stock,
respectively. Pursuant to the TCI-KT Agreement, on July 24, 1997, Dr.
Malone acquired 7,296,324 shares of TCI Group Series B Stock and 2,278,125
shares of Liberty Media Group Series B Stock from TCI in exchange for a
like number of shares of TCI Group Series A Stock and Liberty Media Group
Series A Stock held by Dr. Malone on March 1, 1997, together with shares
thereafter acquired. Effective on the closing of the Kearns-Tribune
Merger, Dr. Malone and TCI agreed to terminate his right to acquire the
balance of the shares of TCI Group Series B Stock under the TCI-KT
Agreement. If the number of shares held by Dr. Malone at March 1, 1997
were adjusted solely for the transactions pursuant to the TCI-KT Agreement,
then the numbers of shares of TCI's Common Stock held by Dr. Malone at that
date (assuming the exercise of his options) would have been 2,161,338
shares of TCI Group Series A Stock, 32,583,407 shares of TCI Group Series B
Stock, 1,651,206 shares of Liberty Media Group Series A Stock and 8,627,395
shares of Liberty Media Group Series B Stock. Subsequent to March 1, 1997,
Dr. Malone was given the right to direct the voting of 2,545,455 shares of
TCI Group Series B Stock. Dr. Malone also has a right of first refusal
with respect to any proposed transfer of such shares, which may be
exercised by Dr. Malone either by the payment of cash or, subject to
certain exceptions, through an exchange of shares of TCI Group Series A
Stock for such TCI Group Series B Stock. If not exercised by Dr. Malone,
the right of first refusal may be exercised by TCI. The foregoing shares
are not included in Dr. Malone's beneficial ownership or voting power at
March 1, 1997.
(5) Mr. Fisher, as co-personal representative of the Estate of Bob Magness, is
deemed the beneficial owner of all shares of TCI Group Series A Stock, TCI
Group Series B Stock, Liberty Media Group Series A Stock, Liberty Media
Group Series B Stock and Class B Preferred Stock held of record by the
Estate of Bob Magness. The number of shares held by Mr. Fisher includes
1,524,315 shares of TCI Group Series A Stock, 30,785,864 shares of TCI
Group Series B Stock, 4,419,304 shares of Liberty Media Group Series A
Stock, 7,696,466 shares of Liberty Media Group Series B Stock and 125,000
shares of Class B Preferred Stock of which Mr. Fisher is deemed beneficial
owner as co-personal representative. Additionally, assumes the exercise in
full by the Estate of Bob Magness of stock options granted in tandem with
stock appreciation rights to Mr. Bob Magness in November of 1992 to acquire
1,000,000 shares of TCI Group Series A Stock and 375,000 shares of Liberty
Media Group Series A Stock. Additionally, assumes the exercise in full by
the Estate of Bob Magness of stock options granted in tandem with stock
appreciation rights to Mr. Bob Magness in December of 1995 to acquire
1,000,000 shares of TCI Group Series A Stock and 375,000 shares of Liberty
Media Group Series A Stock. All such options were exercisable at March 1,
1997 and may be exercised at any time on or prior to November 15, 1997. On
June 16, 1997, the Estate of Bob Magness consummated the Estate Swap and
then sold an aggregate of 32,068,588 shares of TCI Group Series A Stock to
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and LB
I Group (an affiliate of Lehman Brothers, Inc.) ("Lehman"), with each of
Merrill Lynch and Lehman purchasing an equal number of shares pursuant to
separate stock purchase agreements.
(6) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights to Mr. Fisher in November of 1994 to acquire 200,000
shares of TCI Group Series A Stock and 75,000 shares of Liberty Media Group
Series A Stock. Options to acquire 80,000 shares of TCI Group Series A
Stock and 30,000 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997. Assumes the exercise in full of options to
acquire 50,000 shares of TCI Group Series A Stock and 18,750 shares of
Liberty Media Group Series A Stock granted to Mr. Fisher in January of
1996, pursuant to TCI's option plan for its directors who are not employees
of TCI (the "Director
-11-
<PAGE>
Stock Option Plan"). Options to acquire 10,000 shares of TCI Group Series A
Stock and 3,750 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997.
(7) Includes 1,524 shares of TCI Group Series A Stock, 571 shares of Liberty
Media Group Series A Stock and 14 shares of Class B Preferred Stock held by
Mr. Gallivan's wife. Also, assumes the exercise in full of options
granted, pursuant to the Director Stock Option Plan, to acquire 50,000
shares of TCI Group Series A Stock and 18,750 shares of Liberty Media Group
Series A Stock. Options to acquire 20,000 shares of TCI Group Series A
Stock and 7,500 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997.
(8) Mr. Kim Magness, as executor of the Estate of Betsy Magness, is the
beneficial owner of all shares of TCI Group Series A Stock, TCI Group
Series B Stock, Liberty Media Group Series A Stock and Liberty Media Group
Series B Stock held of record by the Estate of Betsy Magness. The number
of shares held by Mr. Kim Magness includes 2,105,332 shares of TCI Group
Series A Stock, 6,346,212 shares of TCI Group Series B Stock, 1,582,775
shares of Liberty Media Group Series A Stock and 1,586,553 shares of
Liberty Media Group Series B Stock of which Mr. Magness is beneficial owner
as executor.
(9) Assumes the exercise in full of options granted to Mr. Kim Magness in
November of 1994, pursuant to the Director Stock Option Plan of TCI, to
acquire 50,000 shares of TCI Group Series A Stock and 18,750 shares of
Liberty Media Group Series A Stock. Options to acquire 20,000 shares of
TCI Group Series A Stock and 7,500 shares of Liberty Media Group Series A
Stock were exercisable at March 1, 1997.
(10) Assumes the exercise in full of options granted in tandem with stock
appreciation rights in February of 1997 to acquire 1,000,000 shares of TCI
Group Series A Stock and 250,000 shares of Liberty Media Group Series A
Stock. None of the options are exercisable until February of 1998.
Subsequent to March 1, 1997, Mr. Hindery acquired beneficial ownership of
2,545,455 shares of TCI Group Series B Stock; however, Mr. Hindery does not
possess voting power with respect to such shares. In addition, the shares
are subject to a right of first refusal with respect to any proposed
transfer of such shares, which may be exercised by Dr. Malone either by the
payment of cash or, subject to certain exceptions, through an exchange of
shares of TCI Group Series A Stock for such TCI Group Series B Stock. If
not exercised by Dr. Malone, the right of first refusal may be exercised by
TCI. The foregoing shares are not included in Mr. Hindery's beneficial
ownership or voting power at March 1, 1997.
(11) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 300,000 shares of TCI
Group Series A Stock and 112,500 shares of Liberty Media Group Series A
Stock. Options to acquire 200,000 shares of TCI Group Series A Stock and
75,000 shares of Liberty Media Group Series A Stock were exercisable at
March 1, 1997. Additionally, assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in November of 1993 to
acquire 375,000 shares of TCI Group Series A Stock and 140,625 shares of
Liberty Media Group Series A Stock. Options to acquire 250,000 shares of
TCI Group Series A Stock and 93,750 shares of Liberty Media Group Series A
Stock were exercisable at March 1, 1997. Also assumes the exercise in full
of stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 200,000 shares of TCI Group Series A Stock and
75,000 shares of Liberty Media Group Series A Stock. Options to acquire
80,000 shares of TCI Group Series A Stock and 30,000 shares of Liberty
Media Group Series A Stock were exercisable at March 1, 1997. Assumes the
exercise in full of stock options granted in tandem with stock appreciation
rights in December of 1995 to purchase 1,000,000 shares of TCI Group Series
A Stock. Options to acquire 200,000 shares of TCI Group Series A Stock were
exercisable at March 1, 1997. Additionally, assumes the vesting in full of
100,000 restricted shares of TCI Group Series A Stock. None of the
restricted stock was vested at March 1, 1997.
(12) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 200,000 shares of TCI
Group Series A Stock and 75,000 shares of Liberty Media Group Series A
Stock. Options to acquire 160,000 shares of TCI Group Series A
-12-
<PAGE>
Stock and 60,000 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997. Additionally, assumes the exercise in full of
stock options granted in tandem with stock appreciation rights in October
of 1993 to acquire 200,000 shares of TCI Group Series A Stock and 75,000
shares of Liberty Media Group Series A Stock. Options to acquire 150,000
shares of TCI Group Series A Stock and 56,250 shares of Liberty Media Group
Series A Stock were exercisable at March 1, 1997. Also assumes the exercise
in full of stock options granted in tandem with stock appreciation rights
in November of 1994 to acquire 100,000 shares of TCI Group Series A Stock
and 37,500 shares of Liberty Media Group Series A Stock. Options to acquire
40,000 shares of TCI Group Series A Stock and 15,000 shares of Liberty
Media Group Series A Stock were exercisable at March 1, 1997. Assumes the
exercise in full of stock options granted in tandem with stock appreciation
rights in December of 1995 to purchase 75,000 shares of TCI Group Series A
Stock. Options to acquire 15,000 shares of TCI Group Series A Stock were
exercisable at March 1, 1997. Additionally, assumes the vesting in full of
15,000 restricted shares of TCI Group Series A Stock. None of the
restricted stock was vested at March 1, 1997. Upon the resignation of Mr.
Marshall in March of 1997, all of his options and restricted stock became
fully vested.
(13) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 75,000 shares of TCI
Group Series A Stock and 28,125 shares of Liberty Media Group Series A
Stock. Options to acquire 60,000 shares of TCI Group Series A Stock and
22,500 shares of Liberty Media Group Series A Stock were exercisable at
March 1, 1997. Additionally, assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in October of 1993 to
acquire 75,000 shares of TCI Group Series A Stock and 28,125 shares of
Liberty Media Group Series A Stock. Options to acquire 56,250 shares of
TCI Group Series A Stock and 21,094 shares of Liberty Media Group Series A
Stock were exercisable at March 1, 1997. Also assumes the exercise in full
of stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 50,000 shares of TCI Group Series A Stock and
18,750 shares of Liberty Media Group Series A Stock. Options to acquire
20,000 shares of TCI Group Series A Stock and 7,500 shares of Liberty Media
Group Series A Stock were exercisable at March 1, 1997. Assumes the
exercise in full of stock options granted in tandem with stock appreciation
rights in December of 1995 to purchase 250,000 shares of TCI Group Series A
Stock. Options to acquire 50,000 shares of TCI Group Series A Stock were
exercisable at March 1, 1997. Additionally, assumes the vesting in full of
25,000 restricted shares of TCI Group Series A Stock. None of the
restricted stock was vested at March 1, 1997.
(14) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in 1995 to acquire 25,000 shares of TCI Group Series A
Stock and 9,375 shares of Liberty Media Group Series A Stock. Options to
acquire 10,000 shares of TCI Group Series A Stock and 3,750 shares of
Liberty Media Group Series A Stock were exercisable at March 1, 1997.
Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in December of 1995 to purchase 250,000 shares of TCI
Group Series A Stock. Options to acquire 50,000 shares of TCI Group Series
A Stock were exercisable at March 1, 1997. Additionally, assumes the
vesting in full of 10,000 restricted shares of TCI Group Series A Stock.
None of the restricted stock was vested at March 1, 1997. Upon the
resignation of Ms. Mowry in April of 1997, all of her options and
restricted stock became fully vested.
(15) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 50,000 shares of TCI
Group Series A Stock and 18,750 shares of Liberty Media Group Series A
Stock. Options to acquire 20,000 shares of TCI Group Series A Stock and
7,500 shares of Liberty Media Group Series A Stock were exercisable at
March 1, 1997. Assumes the exercise in full of stock options granted in
tandem with stock appreciation rights in December of 1995 to purchase
225,000 shares of TCI Group Series A Stock. Options to acquire 45,000
shares of TCI Group Series A Stock were exercisable at March 1, 1997.
Additionally, assumes the vesting in full of 15,000 restricted shares of
TCI Group Series A Stock. None of the restricted stock was vested at March
1, 1997.
(16) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 10,000 shares of TCI
Group Series A Stock and 3,750 shares of
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<PAGE>
Liberty Media Group Series A Stock. Options to acquire 8,000 shares of TCI
Group Series A Stock and 3,000 shares of Liberty Media Group Series A Stock
were exercisable at March 1, 1997. Additionally, assumes the exercise in
full of stock options granted in tandem with stock appreciation rights in
October of 1993 to acquire 10,000 shares of TCI Group Series A Stock and
3,750 shares of Liberty Media Group Series A Stock. Options to acquire
7,500 shares of TCI Group Series A Stock and 2,813 shares of Liberty Media
Group Series A Stock were exercisable at March 1, 1997. Also assumes the
exercise in full of stock options granted in November of 1994 to acquire
50,000 shares of TCI Group Series A Stock and 18,750 shares of Liberty
Media Group Series A Stock. Options to acquire 20,000 shares of TCI Group
Series A Stock and 7,500 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 250,000 shares of TCI Group Series A Stock. Options to acquire
50,000 shares of TCI Group Series A Stock were exercisable at March 1,
1997. Additionally, assumes the vesting in full of 15,000 restricted shares
of TCI Group Series A Stock. None of the restricted stock was vested at
March 1, 1997.
(17) Certain of the current and former executive officers and certain of the
directors of the Company (9 persons, including Messrs. Malone, Clouston,
Marshall, Schotters and Ravenel) hold options which were granted in tandem
with stock appreciation rights in November of 1992, to acquire an aggregate
of 1,848,500 shares of TCI Group Series A Stock and an aggregate of 693,187
shares of Liberty Media Group Series A Stock at adjusted purchase prices of
$10.75 per share and $11.16 per share, respectively. Options to acquire
1,438,800 shares of TCI Group Series A Stock and 539,550 shares of Liberty
Media Group Series A Stock were exercisable at March 1, 1997.
Additionally, certain of the current and former executive officers (9
persons, including Messrs. Clouston, Marshall, Schotters and Ravenel) hold
stock options granted in tandem with stock appreciation rights in October
of 1993 to acquire an aggregate of 975,000 shares of TCI Group Series A
Stock and an aggregate of 365,625 shares of Liberty Media Group Series A
Stock at adjusted purchase prices of $10.75 per share and $11.16 per share,
respectively. Options to acquire 700,000 shares of TCI Group Series A
Stock and 262,500 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997.
Also, certain of the current and former executive officers and certain of
the directors (12 persons, including Messrs. Clouston, Fisher, Marshall,
Ravenel, Schotters and Gaines and Ms. Mowry) hold stock options which were
granted in tandem with stock appreciation rights in November of 1994 to
acquire an aggregate of 1,075,000 shares of TCI Group Series A Stock and an
aggregate of 403,125 shares of Liberty Media Group Series A Stock at
adjusted purchase prices of $14.19 per share and $14.67 per share,
respectively. Options to acquire 430,000 shares of TCI Group Series A
Stock and 161,250 shares of Liberty Media Group Series A Stock were
exercisable at March 1, 1997.
Additionally, certain of the current and former executive officers and
certain of the directors (13 persons, including Messrs. Malone, Clouston,
Marshall, Schotters, Ravenel and Gaines and Ms. Mowry) hold stock options
which were granted in tandem with stock appreciation rights in December of
1995 to acquire an aggregate of 3,875,000 shares of TCI Group Series A
Stock at $14.62 per share. Options to acquire 775,000 shares of TCI Group
Series A Stock were exercisable at March 1, 1997.
Additionally, an executive officer and Dr. Malone hold stock options which
were granted in tandem with stock appreciation rights in December of 1995
to acquire an aggregate of 487,500 shares of Liberty Media Group Series A
Stock at a purchase price of $16.00 per share. Options to acquire 97,500
shares of Liberty Media Group Series A Stock were exercisable at March 1,
1997.
Also, certain of the current and former executive officers (11 persons,
including Messrs. Clouston, Marshall, Schotters, Ravenel and Gaines and Ms.
Mowry) hold an aggregate of 260,000 restricted shares of TCI Group Series A
Stock. One executive officer holds 15,000 restricted shares of Liberty
Media Group Series A Stock. None of the restricted shares was vested at
March 1, 1997.
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<PAGE>
Mr. Hindery holds options to acquire 1,000,000 shares of TCI Group Series A
Stock and 250,000 shares of Liberty Media Group Series A Stock as described
in note 10 above.
Messrs. Gallivan and Magness hold options to purchase an aggregate of
100,000 shares of TCI Group Series A Stock and an aggregate of 37,500
shares of Liberty Media Group Series A Stock at adjusted purchase prices of
$14.19 per share and $14.67 per share, respectively. Options to purchase
40,000 shares of TCI Group Series A Stock and 15,000 shares of Liberty
Media Group Series A Stock were exercisable at March 1, 1997. Mr. Fisher,
a director of the Company and of TCI, holds an option to purchase 50,000
shares of TCI Group Series A Stock and 18,750 shares of Liberty Media Group
Series A Stock at purchase prices of $16.99 and $16.83 per share,
respectively. Options to acquire 10,000 shares of TCI Group Series A Stock
and 3,750 shares of Liberty Media Group Series A Stock were exercisable at
March 1, 1997.
Upon the resignation of certain of the former executive officers after
March 1, 1997 (4 persons, including Mr. Marshall and Ms. Mowry), stock
options in tandem with stock appreciation rights to acquire an aggregate of
1,150,000 shares of TCI Group Series A Stock and 271,875 shares of Liberty
Media Group Series A Stock became fully vested. In addition, 35,000
restricted shares of TCI Group Series A Stock became fully vested.
All of the aforementioned options with tandem stock appreciation rights,
options and restricted stock are reflected in this table assuming the
exercise or vesting in full of such securities.
Subsequent to March 1, 1997, certain of the current executive officers and
directors of the Company (5 persons, including Messrs. Hindery, Jones and
Schotters) were granted options to purchase an aggregate of 2,300,000
shares of TCI Group Series A Stock and 633,334 shares of Liberty Media
Group Series A Stock. Subsequent to the grant date, and in connection with
the Exchange Offer, the options to purchase TCI Group Series A Stock were
converted into options to purchase 1,610,000 shares of TCI Group Series A
Stock and 690,000 shares of Ventures Group Series A Stock. In addition,
Mr. Hindery was granted 200,000 restricted shares of TCI Group Series A
Stock. Such restricted shares and the shares underlying the foregoing
options are not included in the March 1, 1997 beneficial ownership and
voting power information set forth in the accompanying tables.
No equity securities in any subsidiary of the Company are owned by any of
the Company's executive officers or directors, except that Mr. Fisher, a
director of the Company, as co-personal representative of the Estate of Bob
Magness, is deemed to have beneficial ownership of 948 shares of 12% Series C
Cumulative Compounding Preferred Stock ("WestMarc Preferred Stock") of WestMarc
Communications, Inc., a subsidiary of the Company; Mr. Kim Magness, a director
of the Company, owns 31 shares of WestMarc Preferred Stock; Dr. Malone, a
director of the Company, owns, as trustee for his children, 68 shares of
WestMarc Preferred Stock; and Mr. Clouston, formerly an executive officer of the
Company, pursuant to a restricted stock award agreement, owns 62 shares of
WestMarc Preferred Stock.
Change of Control
The Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the Company.
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<PAGE>
ELECTION OF DIRECTORS PROPOSAL
At the Annual Meeting, the persons named in the accompanying proxy will
vote for the election of five directors, with the term of office of each to
continue until the annual meeting of stockholders in 1998, and until his
successor shall have been duly elected and qualified, unless authority to vote
is withheld. The following lists the five nominees for election as directors of
the Company and sets forth the birth date of each such person, the positions
held with the Company or principal occupation of each person, certain other
directorships held and the year each person became a director of the Company.
Each of the nominees for director, other than Marvin Jones, currently serves as
a director of the Company, and the Company is informed that each nominee is
willing to serve as a director.
<TABLE>
<CAPTION>
Name Positions
- --------------------------- ---------------------------------------------------
<S> <C>
John C. Malone Director of the Company since 1973; Chief
Born March 7, 1941 Executive Officer of the Company from March of
1992 to October of 1994 and President of the
Company from 1973 to October of 1994; TCI director
since June of 1994; Chairman of the Board of TCI
since November of 1996; Chief Executive Officer of
TCI since January of 1994; President of TCI from
January of 1994 through March of 1997; Chairman of
the Board and director of Tele-Communications
International, Inc. ("International") since May of
1995; director of TCI Pacific Communications, Inc.
("TPAC"), a subsidiary of the Company, since July
of 1996; is President and a director of many of
TCI's subsidiaries; also a director of At Home
Corporation, a subsidiary of TCI, BET Holdings,
Inc., The Bank of New York and TCI Satellite
Entertainment, Inc. ("Satellite").
John W. Gallivan Director of the Company from 1980 to August of
Born June 28, 1915 1994 and since January of 1996; also a director of
Silver King Mining Company; TCI director since
June of 1994; was Chairman of the Board and a
director of Kearns-Tribune, a newspaper publishing
concern from 1953 until the acquisition of
Kearns-Tribune by TCI on July 31, 1997; appointed
director of Kearns-Tribune in August of 1997
following its becoming a subsidiary of TCI.
Donne F. Fisher Director of the Company since 1980 and of TCI
Born May 24, 1938 since June of 1994; was Executive Vice President
of the Company from December of 1991 to October of
1994; previously Senior Vice President of the
Company since 1982 and Treasurer since 1970;
Executive Vice President of TCI from January of
1994 through January 1, 1996; has been providing
consulting services to TCI since resigning his
position as Executive Vice President of TCI on
January 1, 1996; also a director of TPAC, General
Communication, Inc., TCI Music, Inc. and United
Video Satellite Group, Inc. ("UVSG").
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Name Positions
- --------------------------- ---------------------------------------------------
<S> <C>
Leo J. Hindery, Jr. Director of the Company since March of 1997; also
Born October 31, 1947 President and Chief Executive Officer of the
Company and President and Chief Operating Officer
of TCI since March of 1997; was previously
founder, Managing General Partner and Chief
Executive Officer of InterMedia Partners and its
affiliated entities since 1988; also a director
and Chairman of the Board of TCI Music, Inc. and a
director of TPAC.
Marvin L. Jones Appointed Executive Vice President and Chief
Born September 11, 1937 Operating Officer of the Company in March of 1997;
previously was President of one of the Company's
three cable units since November 1, 1996;
consultant in the cable television industry since
December of 1991. Vice President or President of
various TCI subsidiaries.
</TABLE>
CONCERNING MANAGEMENT
Executive Officers
The following lists the executive officers of the Company, other than
Messrs. Jones and Hindery, as to whom information is provided under "ELECTION OF
DIRECTORS PROPOSAL," their birth dates, a description of their business
experience and positions held with the Company as of September 1, 1997. All
officers are appointed for an indefinite time, serving at the pleasure of the
Board of Directors.
<TABLE>
<CAPTION>
Name Positions
- --------------------------- ---------------------------------------------------
<S> <C>
Stephen M. Brett Appointed Executive Vice President of the Company
Born September 20, 1940 in October of 1997 and has been General Counsel of
the Company since 1991; previously was Senior Vice
President of the Company from December of 1991
until October of 1997; Executive Vice President,
General Counsel and Secretary of TCI since January
of 1994; Vice President and Secretary and a
director of most of TCI's subsidiaries.
Gary K. Bracken Controller of the Company since 1969; appointed
Born July 29, 1939 Senior Vice President of the Company in December
of 1991; was named Vice President and Principal
Accounting Officer of the Company in 1982.
Bernard W. Schotters Appointed Senior Vice President-Finance and
Born November 25, 1944 Treasurer of the Company in December of 1991;
previously was Vice President-Finance of the
Company since 1984; in August of 1997, was
appointed Senior Vice President and Treasurer of
TCI and is Vice President and Treasurer of most of
TCI's subsidiaries.
</TABLE>
Bob Magness, founder and Chairman of the Board of the Company and TCI, died
in November of 1996. Mr. Magness had been Chairman of the Board and director of
TCI since June of 1994 and of the Company (which is the predecessor company to
TCI) since 1973. He had been a director of the Company since 1968.
Brendan R. Clouston was a Senior Vice President and Chief Financial Officer
of the Company from March of 1997 to April of 1997; President and Chief
Executive Officer of the Company from October of 1994 to March of 1997;
Executive Vice President and Chief Operating Officer of the Company from March
of 1992 to October of 1994 and, previously, was Senior Vice
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<PAGE>
President of the Company since December of 1991. Mr. Clouston was also Executive
Vice President of TCI from January of 1994 until his resignation in August of
1997 and was Chief Financial Officer of TCI from March of 1997 to April of 1997.
Gary S. Howard was Senior Vice President of the Company from October of
1994 to December of 1996 and served as Vice President of the Company from
December of 1991 through October of 1994. Additionally, Mr. Howard has served as
President of Satellite since February of 1995, a director of Satellite since
November of 1996 and Chief Executive Officer of Satellite since December of
1996. Upon consummation of the distribution of all of the issued and
outstanding common stock of Satellite by TCI to its stockholders on December 4,
1996 (the "Distribution"), Mr. Howard's employment with the Company terminated.
Mr. Howard was named Chairman of the Board, President and Chief Executive
Officer of UVSG in June of 1997.
Barry P. Marshall was Executive Vice President and Chief Operating Officer
of the Company from October of 1994 through March of 1997. In March of 1997,
Mr. Marshall resigned his position as Executive Vice President and Chief
Operating Officer of the Company. Mr. Marshall was Executive Vice President and
Chief Operating Officer of TCI Cable Management Corporation, the Company's
primary operating subsidiary, from March of 1992 through January 1, 1994, where
he directly oversaw all of the Company's regional operating divisions. From
1986 to March 1992, Mr. Marshall was Vice President and Chief Operating Officer
of the Company's largest regional operating division.
Barbara J. Mowry was President of one of the Company's three cable
operating units since November of 1996 and was Senior Vice President-Customer
Satisfaction of the Company since June of 1995. In addition, she was president
and chief executive officer of The Mowry Company from 1990 through June of 1995.
Ms. Mowry resigned her positions with the Company in April of 1997.
Robert N. Thomson was Senior Vice President of the Company since February
of 1995; was Senior Vice President of Communications and Policy Planning for the
Company from 1991 to October of 1994 and was Vice President of Government
Affairs for the Company from January of 1987 to 1991. In June of 1997, Mr.
Thomson resigned his position with the Company.
Camille K. Jayne was Senior Vice President of the Company from January of
1996 until her resignation in June of 1997. She was Vice President/Senior
Consultant with Ryan Partnership from 1994 through January of 1996; prior to
that was Senior Director/Co-Chairman New Ventures of Ameritech Regional Bell
Operating Company from 1992 through 1994; and was First Vice President of
Comerica Bank from 1987 through 1992.
Sadie N. Decker was Senior Vice President of the Company from October of
1994 until her resignation in August of 1997. She was Vice President of the
Company from April of 1993 through October of 1994. She had been Executive
Director with Martin Marietta Astronautics (the predecessor company to Lockheed-
Martin Astronautics) from 1985 through April of 1993.
Gerald W. Gaines was Senior Vice President of Telephony Services of the
Company from October of 1994 to August of 1997. Mr. Gaines is currently
President and Chief Executive Officer of TCI Telephony Services, Inc. ("TTS-
Delaware"), formerly a subsidiary of the Company and currently a subsidiary of
TCI, which position Mr. Gaines has held since April of 1995. Mr. Gaines was
President and founder of GCG, Inc. (a management services firm serving the
telecommunications industry) from 1991 to 1994.
Bruce W. Ravenel was Senior Vice President of the Company from January of
1996 to August of 1997. Mr. Ravenel is currently President and Chief Executive
Officer of TCI Internet Services, Inc. ("TCI Internet") and TCI.NET, Inc.
("TCI.NET"), each a subsidiary of TCI, which positions he has held since January
of 1996 and May of 1997, respectively. Mr. Ravenel was Senior Vice President
and Chief Operating Officer of TCI Technology Ventures, Inc., a subsidiary of
TCI, from March of 1994 to January of 1996 and Vice President of TCI Technology,
Inc., another subsidiary of TCI, from 1992 through March of 1994.
-18-
<PAGE>
There are no family relations, of first cousin or closer, among the
individuals, named above or under "ELECTION OF DIRECTORS PROPOSAL" by blood,
marriage or adoption, except that Bob Magness and Kim Magness were father and
son.
During the past five years, none of the persons named above or under
"ELECTION OF DIRECTORS PROPOSAL" has had any involvement in such legal
proceedings as would be material to an evaluation of his ability or integrity.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the executive officers and directors of the Company, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors and greater than ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, or written representations that no Forms 5 were required, the
Company believes that, during the year ended December 31, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with, except that one report each,
covering the initial reporting of the absence of shareholdings, was filed late
by the following executive officers and directors: Messrs. Gary K. Bracken,
Stephen M. Brett, Brendan R. Clouston, Donne F. Fisher, John W. Gallivan, Leo
J. Hindery, Jr., Bob Magness, Kim Magness, John C. Malone, Bernard W. Schotters,
Robert N. Thomson and Barry P. Marshall.
Executive Compensation
Summary Compensation Table. The following table shows, for the three years
ended December 31, 1996, all forms of compensation for Brendan R. Clouston, who
was Chief Executive Officer of the Company during 1996, and for each person who
was one of the five most highly compensated executive officers of the Company
during 1996, whose total annual salary and bonus exceeded $100,000 for the year
ended December 31, 1996. Additionally, the following table includes disclosure
of all forms of compensation paid by the Company to Mr. Gary S. Howard during
the year ended December 31, 1996.
Certain directors, officers and employees of TCI and its subsidiaries,
including the Company, have been granted options to purchase shares of TCI Group
Series A Stock ("TCI Options") and stock appreciation rights with respect to
shares of TCI Group Series A Stock ("TCI SARs"). The TCI Options and TCI SARs
were granted pursuant to various stock plans of TCI (the "TCI Plans"). The TCI
Plans give the Board of Directors of TCI (the "TCI Board") the authority to make
equitable adjustments to outstanding TCI Options and TCI SARs in the event of
certain transactions, of which the Distribution of Satellite was one.
The TCI Board determined that, immediately prior to the Distribution, each
TCI Option would be divided into two separately exercisable options: (i) an
option ("SATCo Option"), exercisable for the number of shares of TCI Satellite
Entertainment, Inc. Series A common stock ("SATCo Series A Stock") that would
have been issued in the Distribution 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 Distribution, and
containing substantially equivalent terms as the existing TCI Option, and (ii)
an option to purchase TCI Group Series A Stock (a "TCI Group Series A 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 SATCo Option and the TCI Group Series A Option
into which it was divided, and all other terms, including date of grant, of the
SATCo Option and TCI Group Series A Option are in all material respects the same
as the terms of such TCI Option. Similar adjustments were made to the
outstanding TCI SARs, resulting in the holders thereof holding TCI
-19-
<PAGE>
Group Series A SARs and SATCo SARs instead of TCI SARs, and to outstanding
restricted stock awards, resulting in the holders thereof holding restricted
shares of SATCo Series A Stock in addition to restricted shares of TCI Group
Series A Stock. The foregoing adjustments were made pursuant to the anti-
dilution provisions of the TCI Plans pursuant to which the respective TCI Group
Series A Options and TCI Group Series A SARs were granted.
Prior to the Distribution, TCI and Satellite entered into an agreement to
sell to each other from time to time at the then current market price shares of
TCI Group Series A Stock and SATCo Series A Stock, respectively, as necessary to
satisfy their respective obligations under such securities.
Prior to the Distribution, Satellite was a member of the TCI Group and all
of the assets and businesses transferred to Satellite were included in the TCI
Group. Accordingly, the Distribution was made to the holders of TCI Group
Series A Stock and TCI Group Series B Stock, and the holders of Liberty Media
Group Series A Stock and Liberty Media Group Series B Stock did not participate
in the Distribution.
Effective January 14, 1997, TCI issued a stock dividend to holders of
Liberty Media Group Common Stock consisting of one share of Liberty Media Group
Series A Stock for every two shares of Liberty Media Group Series A Stock owned
and one share of Liberty Media Group Series A Stock for every two shares of
Liberty Media Group Series B Stock owned (the "Liberty Media Group Stock
Dividend"). As a result of the Liberty Media Group Stock Dividend, the number
of options granted to purchase Liberty Media Group Series A Stock and the price
to purchase such options have been adjusted.
On September 10, 1997, the Exchange Offer was consummated. In connection
therewith, options to purchase TCI Group Series A Stock that were then
outstanding (Pre-Exchange Options) were canceled and replaced with options (the
"Ventures Options") to purchase shares of Ventures Group Series A Stock and
options to purchase shares of TCI Group Series A Stock, with 30% (rounded up to
the next whole number) of the number of shares that were issuable upon exercise
of the Pre-Exchange Options immediately prior to the consummation of the
Exchange Offer being allocated to the Ventures Options and 70% (rounded down to
the next whole number) of such number of shares being allocated to the option to
purchase shares of Series A TCI Group Common Stock. The adjustments that were
made in connection with the Exchange Offer are not reflected in the following
table or the notes thereto.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------------- ----------------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ Compen-
sation Award(s) SARs sation
Position Year Salary ($) Bonus($) ($) ($) (#) ($) (11)
- -------- ---- ---------- -------- ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Brendan R. Clouston 1996 $650,000 -- $244,147(1)(3) $1,999,500(4) 664,106(6)(7)(8) $ 15,000
Formerly President 1995 $550,000 -- $ 3,181(1) $2,062,500(5) 1,100,000(9) $ 15,000
and Chief 1994 $525,000 -- $ 1,000(1) -- 295,000(10) $ 15,000
Executive Officer
Barry P. Marshall 1996 $385,875 -- $ 3,437(1) -- -- $ 14,076
Formerly Executive 1995 $367,500 -- $ 2,934(1) $ 309,375(5) 82,500(9) $ 13,816
Vice President and 1994 $349,947 -- $ 538(1) -- 147,500(10) $ 13,811
Chief Operating
Officer
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
------------------------- ----------------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ Compen-
sation Award(s) SARs sation
Position Year Salary ($) Bonus($) ($) ($) (#) ($) (11)
- -------- ---- ---------- -------- ------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary S. Howard 1996 $253,846 $ 23,210 (2) $ 4,230(1) -- 664,076(6) $ 15,000
Formerly Senior Vice 1995 $262,500 $ 23,210 (2) $ 3,415(1) $ 309,375(5) 165,000(9) $ 15,000
President 1994 $226,462 $ 23,210 (2) $ 1,052(1) -- 73,750(10) $ 15,000
Barbara J. Mowry 1996 $265,000 $ 106,000 -- -- -- $ 9,500
Formerly Senior Vice 1995 $154,116 $ 80,000 -- $ 206,250(5) 275,000(9) --
President 1994 -- -- -- -- -- --
Bernard S. Schotters 1996 $299,970 -- $ 4,530(1) -- -- $ 15,000
Senior Vice 1995 $248,063 -- $ 3,662(1) $ 515,625(5) 325,000(9) $ 15,000
President and 1994 $236,250 -- $ 2,775(1) -- 73,750(10) $ 15,000
Treasurer
Gerald W. Gaines 1996 $275,000 -- -- -- 20(7) $ 9,500
Formerly Senior Vice 1995 $200,000 -- -- $ 309,375(5) 247,500(9) --
President 1994 $ 38,462 -- -- -- 73,750(10) --
Bruce W. Ravenel 1996 $275,000 -- $ 6,484(1) -- 10(8) $ 15,000
Formerly Senior Vice 1995 $225,000 $ 71,000 $ 5,831(1) $ 309,375(5) 275,000(9) $ 15,000
President 1994 $151,690 $ 11,342 -- -- 73,750(10) $ 15,000
</TABLE>
- --------------------
(1) Consists of amounts reimbursed during the year for the payment of taxes.
During 1996, a total of $4,207 was paid to Mr. Clouston.
(2) This amount reflects the amortization of obligations under an employment
contract between Mr. Howard and a prior employer, which obligations were
assumed by TCI in connection with the acquisition of such prior employer.
The obligations were assumed by Satellite in connection with the
Distribution.
(3) Includes $239,940 in 1996 of dividend income received on WestMarc Preferred
Stock, which is subject to forfeiture (see note 4 below).
(4) On July 1, 1996, pursuant to a restricted stock award agreement, Mr.
Clouston was transferred all of the Company's right, title and interest in
and to 62 shares of the WestMarc Preferred Stock owned by the Company.
Such shares are subject to forfeiture in the event of certain circumstances
from the date of grant through December 13, 2005.
(5) On December 13, 1995, Mr. Clouston was granted 100,000 restricted shares of
TCI Group Series A Stock and 10,000 restricted shares of SATCo Series A
Stock; Mr. Marshall, Mr. Howard, Mr. Gaines and Mr. Ravenel were each
granted 15,000 restricted shares of TCI Group Series A Stock and 1,500
restricted shares of SATCo Series A Stock; Ms. Mowry was granted 10,000
restricted shares of TCI Group Series A Stock and 1,000 restricted shares
of SATCo Series A Stock, and Mr. Schotters was granted 25,000 restricted
shares of TCI Group Series A Stock, and 2,500 restricted shares of SATCo
Series A Stock. Such restricted shares vest as to 50% of such shares on
December 13, 1999 and as to the remaining 50% of such shares on December
13, 2000. The value of such restricted shares at the end of 1996 was
$1,405,000 for Mr. Clouston, $210,751 each for Messrs. Marshall, Howard,
Gaines and Ravenel, $140,500 for Ms. Mowry and $351,251 for Mr. Schotters
based upon the closing price of TCI Group Series A Stock and SATCo Series A
Stock on December 31, 1996. TCI has not paid cash dividends on the TCI
Group Series A Stock and does not anticipate declaring and paying cash
dividends on the TCI Group Series A Stock at any time in the foreseeable
future.
(6) On December 4, 1996, Mr. Clouston and Mr. Howard were each granted options
to acquire 664,076 shares of SATCo Series A Stock. For additional
information relating to these grants, see the notes to the table entitled
"Option/SAR Grants."
-21-
<PAGE>
(7) On December 1, 1996, Mr. Clouston and Mr. Gaines were each granted by TTS-
Delaware options to acquire 10 shares of its common stock (the "Telephony
Options") and by TCI Wireline, Inc. ("TCI Wireline") options to acquire 10
shares of its common stock (the "Wireline Options"). Each of TTS-Delaware
and TCI Wireline were subsidiaries of the Company at the time of such
grants, but are not currently subsidiaries of the Company. The Company has
no continuing obligation with respect to such stock appreciation rights and
options. For additional information with respect to these grants, see the
notes to the table entitled "Option/SAR Grants."
(8) On December 1, 1996, Mr. Clouston and Mr. Ravenel were each granted options
to acquire 10 shares of TCI Internet common stock (the "Internet Options").
The Company has no interest in TCI Internet, which is a subsidiary of TCI,
and no obligation with respect to the Internet Options. For additional
information with respect to these grants, see the notes to the table set
forth herein entitled "Option/SAR Grants."
(9) On December 13, 1995, certain executive officers and key employees were
granted TCI Group Series A Options in tandem with stock appreciation
rights, options to purchase Liberty Media Group Series A Stock ("Liberty
Media Group Series A Options") in tandem with stock appreciation rights and
SATCo Series A Options in tandem with stock appreciation rights with
adjusted exercise prices of $14.62, $16.00 and $23.76 per share,
respectively. Each such grant of options with tandem stock appreciation
rights vests evenly over five years with such vesting period beginning
August 4, 1995, first becomes exercisable beginning on August 4, 1996 and
expires on August 4, 2005.
Mr. Schotters was granted 50,000 options in tandem with stock appreciation
rights to acquire from TCI shares of International's Series A common stock
("TINTA Series A Stock") owned by it. Such option vests evenly over five
years, becomes exercisable beginning August 4, 1996 and expires on August
4, 2005. The Company has no interest in International or obligation under
such option grant.
(10) On November 17, 1994, certain executive officers and other key employees
were granted TCI Group Series A Options in tandem with stock appreciation
rights at an adjusted purchase price of $14.19 per share, Liberty Media
Group Series A Options in tandem with stock appreciation rights at a
purchase price of $14.67 per share and SATCo Series A Options in tandem
with stock appreciation rights at an adjusted purchase price of $23.06 per
share. Such options vest evenly over five years, became exercisable
beginning on November 17, 1995 and expire on November 17, 2004.
(11) Includes dollar value of annual TCI contributions to the TCI Employee Stock
Purchase Plan ("ESPP"). Directors who are not employees of TCI are
ineligible to participate in the ESPP. The ESPP, a defined contribution
plan, enables participating employees to acquire a proprietary interest in
TCI and benefits upon retirement. Under the terms of the ESPP, employees
are eligible for participation after one year of service. The ESPP's
normal retirement age is 65 years. Participants may contribute up to 10%
of their compensation and TCI (by annual resolution of the TCI Board of
Directors) may contribute up to 100% of the participants' contributions.
The ESPP includes a salary deferral feature in respect of employee
contributions. Forfeitures (due to participants' withdrawal prior to full
vesting) are used to reduce TCI's otherwise determined contributions.
Generally, participants acquire a vested right in TCI contributions as
follows:
<TABLE>
<CAPTION>
Years of service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 1 0
1-2 20
2-3 30
3-4 45
4-5 60
5-6 80
6 or more 100
</TABLE>
-22-
<PAGE>
Participant contributions are fully vested. Although TCI has not expressed
an intent to terminate the ESPP, it may do so at any time. The ESPP
provides for full and immediate vesting of all participants' rights upon
termination.
Option/SAR Grants Table. The following table shows all individual grants
of stock options and stock appreciation rights ("SARS") to each of the named
executive officers of the Company during the year ended December 31, 1996:
<TABLE>
<CAPTION>
Number of
Securities
Underlying % of Total
Options/ Options/SARs Market
SARs Granted Exercise or Price on Grant Date
Granted to Employees Base Price Grant Date Expiration Present Value
Name (#) in Fiscal Year ($/Sh) ($/Sh) Date ($)
- ---- --------- -------------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brendan R. Clouston 664,076 (1) 28.6% $ 8.86 $ 12.625 (5) February 1, 2006 $ 5,806,083 (7)
10 (2) 50% $ 855,631(2) $ 2,100,000 (6) February 1, 2006 $ 13,477,000 (8)
10 (3) 50% $ 12,537(3) $ 12,537 (6) February 1, 2006 $ 44,000 (9)
10 (4) 33 1/3% $ 55,246(4) 400,000 (6) February 1, 2006 3,468,000 (10)
Gary S. Howard 664,076 (1) 28.6% $ 8.86 $ 12.625 (5) February 1, 2006 $ 5,806,083 (7)
Gerald W. Gaines 10 (2) 50% $ 855,631(2) $ 2,100,000 (6) February 1, 2006 $ 13,477,000 (8)
10 (3) 50% $ 12,537(3) $ 12,537 (6) February 1, 2006 $ 44,000 (9)
Bruce W. Ravenel 10 (4) 33 1/3% $ 55,246(4) 400,000 (6) February 1, 2006 3,468,000 (10)
</TABLE>
- -----------------------
(1) On December 4, 1996, Mr. Clouston and Mr. Howard were each granted an
option to purchase 664,076 shares of SATCo Series A Stock representing 1.0%
of the number of shares of Satellite common stock issued and outstanding on
the date of the Distribution, determined immediately after giving effect to
the Distribution, but before giving effect to the exercise of such option
or the other options to be evidenced by a stock option agreement. The
aggregate exercise price for each such option is equal to 1.0% of TCI's net
investment in Satellite as of the date of the Distribution, but excluding
any portion of TCI's net investment that as of such date is represented by
a promissory note or other evidence of indebtedness from Satellite to TCI.
All of such options will vest and become exercisable in five equal annual
installments, with the first annual installment vesting on February 1,
1997, and will expire on February 1, 2006.
(2) Effective December 1, 1996, Mr. Clouston and Mr. Gaines were each granted
Telephony Options representing 1.0% of the Company's then common equity in
TTS-Delaware. The aggregate exercise price for each such option, which is
payable to TTS-Delaware, is equal to 1.0% of (i) TCI's cumulative
investment in TTS-Delaware and its subsidiaries as of December 1, 1996,
adjusted for a 6% per annum interest factor from the date each such
investment was made to the date of such exercise, less (ii) the sum of (x)
$500 million (representing the aggregate initial liquidation price of a
certain preferred stock of TTS-Delaware) and (y) the amount of the tax
benefits generated by TTS-Delaware and its subsidiaries (up to $500
million) as and when used by TCI. The exercise price with respect to each
Telephony Option on the date of grant was $850,029. Each such option was
replaced during 1997 with a separate stock appreciation right with respect
to each of TTS-Delaware's two direct wholly-owned subsidiaries, TCI
Teleport Holdings, Inc. ("TCI Teleport") and TCI Wireless Holdings, Inc.
("TCI Wireless"). Each of the stock appreciation right with respect to
TCI Teleport (the "CLEC SAR") and the stock appreciation right with respect
to TCI Wireless (the "Wireless SAR") entitles the holder to the excess of
the value of the shares subject to the stock appreciation
-23-
<PAGE>
right (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 current exercise price
under the Telephony Option based on TCI's cumulative investment in TCI
Teleport and TCI Wireless. All such stock appreciation rights 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. Amounts payable upon exercise of the stock appreciation right may be
paid, at the election of TCI Teleport or TCI Wireless, as applicable, in
cash, TCI Group Series A Stock, Ventures Group Series A Stock or common
stock of TTS-Delaware (if then publicly traded), or any combination of the
foregoing, subject to certain conditions. 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 the Wireline Option described in note 3 below. In October of 1997, in
connection with Mr. Clouston's exercise of the vested portions of the CLEC
SAR and Wireline Option granted to him, TCI also agreed to allow him to
exercise the portion of his CLEC SAR and Wireline Option that would have
vested on February 1, 2001.
(3) Effective December 1, 1996, Mr. Clouston and Mr. Gaines were each granted
Wireline Options representing 1.0% of the Company's then common equity in
TCI Wireline. The aggregate exercise price for each such option, which is
payable to TCI Wireline, is equal to 1.0% of TCI's cumulative investment in
TCI Wireline and its subsidiaries as of December 1, 1996, adjusted for a 6%
per annum interest factor from the date each such investment was made to
the date of such exercise. The per share exercise price on the date of
grant was $12,502. All of such options will vest and become exercisable in
five equal annual installments, with the first annual installment vesting
on February 1, 1997, and will expire on February 1, 2006. Such options must
be exercised on a pro rata basis with the CLEC SARs as discussed in note 2
above. In October of 1997, in connection with Mr. Clouston's exercise of
the vested portions of the CLEC SAR and Wireline Option granted to him, TCI
also agreed to allow him to exercise the portion of his CLEC SAR and
Wireline Option that would have vested on February 1, 2001.
(4) Effective December 1, 1996, Mr. Clouston and Mr. Ravenel were each granted
Internet Options representing 1.0% of TCI's common equity in TCI Internet.
The aggregate exercise price for each such option, which is payable to TCI
Internet, is equal to 1.0% of TCI's cumulative investment in TCI Internet
and its subsidiaries as of December 1, 1996, adjusted for a 6% per annum
interest factor from the date each such investment was made to the date of
such exercise. The per share exercise price on the date of grant was
$55,070. All of such options will vest and become exercisable in five
equal annual installments, with the first annual installment vesting on
February 1, 1997, and will expire on February 1, 2006. In anticipation of
the transfer to 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 stock
appreciation right 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 current 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 stock appreciation
right entitles the holder to the excess of the value of the shares subject
to the stock appreciation right (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. Amounts payable
upon exercise of the stock appreciation right may be paid in cash or, at
TCI's election, TCI Group Series A Stock, Ventures Group Series A Stock or
common stock of TCI Internet (if then publicly traded), or any combination
of the foregoing, subject to certain conditions. 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 stock
appreciation right, and vice versa. In October of 1997, in connection with
Mr. Clouston's exercise of the vested portions of the stock appreciation
right with respect to TCI Internet and the TCI.NET option, TCI agreed to
allow him to exercise the portion of such stock appreciation right and
option that would have vested on February 1, 2001.
(5) Represents the closing market price per share of SATCo Series A Stock on
December 5, 1996, the first day of trading following the date of grant.
(6) Represents the market value on December 1, 1996 as determined by the Board
of Directors of TCI.
-24-
<PAGE>
(7) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.22% discount rate; (b) a 35% volatility factor; (c) the 10-year
option term; (d) the closing price of SATCo Series A Stock on December 5,
1996; and (e) a per share exercise price of $8.86. The actual value an
executive may realize will depend upon the extent to which the stock price
exceeds the exercise price on the date the option is exercised.
Accordingly, the value, if any, realized by an executive will not
necessarily be the value determined by the model.
(8) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.87% discount rate; (b) a 50% volatility factor; (c) the 10-year
option term; (d) the market value of the Telephony Option on December 1,
1996 as determined by the Board of Directors of TCI; (e) a per share
exercise price of $850,029 on December 1, 1996; and (f) a 6% per annum
interest adjustment to the exercise price. The actual value an executive
may realize will depend upon the extent to which the stock price exceeds
the exercise price on the date the option is exercised. Accordingly, the
value, if any, realized by an executive will not necessarily be the value
determined by the model.
(9) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.87% discount rate; (b) a 55% volatility factor; (c) the 10-year
option term; (d) the market value of the Wireline Option on December 1,
1996 as determined by the Board of Directors of TCI; (e) a per share
exercise price of $12,502 on December 1, 1996; and (f) a 6% per annum
interest adjustment to the exercise price. The actual value an executive
may realize will depend upon the extent to which the stock price exceeds
the exercise price on the date the option is exercised. Accordingly, the
value, if any, realized by an executive will not necessarily be the value
determined by the model.
(10) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.87% discount rate; (b) a 60% volatility factor; (c) the 10-year
option term; (d) the market value of the Internet Option on December 1,
1996 as determined by the Board of Directors of TCI; (e) a per share
exercise price of $55,070 on December 1, 1996; and (f) a 6% per annum
interest adjustment to the exercise price. The actual value an executive
may realize will depend upon the extent to which the stock price exceeds
the exercise price on the date the option is exercised. Accordingly, the
value, if any, realized by an executive will not necessarily be the value
determined by the model.
-25-
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
The following table shows each exercise of stock options and SARs during the
year ended December 31, 1996, by each of the named executive officers of the
Company and the December 31, 1996 number and year-end value of unexercised
options and SARs on an aggregated basis. On September 10, 1997, the Exchange
Offer was consummated. In connection therewith, the Pre-Exchange Options to
purchase TCI Group Series A Stock that were then outstanding were canceled and
replaced with Ventures Options to purchase shares of Ventures Group Series A
Stock and options to purchase shares of TCI Group Series A Stock, with 30%
(rounded up to the next whole number) of the number of shares that were issuable
upon exercise of the Pre-Exchange Options immediately prior to the consummation
of the Exchange Offer being allocated to the Ventures Options and 70% (rounded
down to the next whole number) of such number of shares being allocated to the
options to purchase shares of Series A TCI Group Common Stock. The adjustments
that were made in connection with the Exchange Offer are not reflected in the
following table or the notes thereto.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at at
December 31, December 31,
1996 (#) 1996 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
-------------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Brendan Clouston
Exercisable
TCI Group Series A -- -- 730,000 $ 1,040,625
Liberty Media Group
Series A -- -- 198,750 $ 1,461,428
SATCo Series A -- -- 80,125 --
Telephony -- -- -- --
Wireline -- -- -- --
Internet -- -- -- --
Unexercisable
TCI Group Series A -- -- 1,145,000 $ 520,313
Liberty Media Group
Series A -- -- 129,375 $ 861,784
SATCo Series A -- -- 771,451 $ 674,037
Telephony -- -- 10 $12,443,692
Wireline -- -- 10 --
Internet -- -- 10 $ 3,447,538
Barry P. Marshall
Exercisable
TCI Group Series A -- -- 365,000 $ 716,875
Liberty Media Group
Series A -- -- 131,250 $ 981,863
SATCo Series A -- -- 36,500 --
Unexercisable
TCI Group Series A -- -- 210,000 $ 208,125
Liberty Media Group
Series A -- -- 56,250 $ 364,388
SATCo Series A -- -- 21,000 --
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at at
December 31, December 31,
1996 (#) 1996 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
-------------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Bernard Schotters
Exercisable
TCI Group Series A -- -- 186,250 $ 268,828
Liberty Media Group
Series A -- -- 51,094 $ 376,396
SATCo Series A -- -- 18,625 --
TINTA Series A -- -- 10,000 --
Unexercisable
TCI Group Series A -- -- 263,750 $ 78,047
Liberty Media Group
Series A -- -- 23,906 $ 148,942
SATCo Series A -- -- 26,375 --
Barbara J. Mowry
Exercisable
TCI Group Series A -- -- 60,000 --
Liberty Media Group
Series A -- -- 3,750 $ 16,395
SATCo Series A -- -- 6,000 --
Unexercisable
TCI Group Series A -- -- 215,000 --
Liberty Media Group
Series A -- -- 5,625 $ 24,593
SATCo Series A -- -- 21,500 --
Gerald W. Gaines
Exercisable
TCI Group Series A -- -- 65,000 --
Liberty Media Group
Series A -- -- 7,500 $ 32,790
SATCo Series A -- -- 6,500 --
Telephony -- -- -- --
Wireline -- -- -- --
Unexercisable
TCI Group Series A -- -- 210,000 --
Liberty Media Group
Series A -- -- 11,250 $ 49,185
SATCo Series A -- -- 21,000 --
Telephony -- -- 10 $12,443,692
Wireline -- -- 10 --
Bruce W. Ravenel
Exercisable
TCI Group Series A -- -- 85,500 $ 35,844
Liberty Media Group
Series A -- -- 13,313 $ 78,604
SATCo Series A -- -- 8,550 --
Internet -- -- -- --
Unexercisable
TCI Group Series A -- -- 234,500 $ 10,406
Liberty Media Group
Series A -- -- 12,938 $ 62,486
SATCo Series A -- -- 23,450 --
Internet -- -- 10 $ 3,447,538
</TABLE>
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<PAGE>
Employment Contracts and Termination of Employment and Change of Control
Arrangements. The Company entered into agreements with Barry Marshall and
Barbara Mowry in connection with their termination of employment. Pursuant to
such agreements, the Company paid Mr. Marshall $771,750 as a severance payment
and additional payments equaling $6,882, and paid Ms. Mowry $300,000 as a
severance payment and additional payments equaling $349,515, which include
promised but unpaid bonuses for 1996 and 1997. In addition, the Company has
agreed to pay to Ms. Mowry an amount not to exceed $25,000 to cover her out-
placement costs.
TCI and Brendan Clouston were parties to a letter agreement, as amended
(the "Letter Agreement"). Mr. Clouston notified TCI that a financial institution
might lend him certain amounts of money (the "Loan"), which Loan would be
secured in whole or in part, by the Letter Agreement. Pursuant to the Letter
Agreement, TCI agreed to purchase from Mr. Clouston, at his request or at the
request of such financial institution upon a default as provided under the
relevant agreements evidencing the Loan, all, but not less than all, of Mr.
Clouston's grants of options and restricted stock awards as of April 7, 1997
(the "Grants") (as described under "Security Ownership of Certain Beneficial
Owners and Management" and "Executive Compensation--Option/SAR Grants") at a
price of $10 million. The Letter Agreement provided that the $10 million
purchase price would decrease upon the exercise of any options and the vesting
of any restricted stock awards included in the Grants by the amount of the
difference between the exercise price and the fair market value of the exercised
options at the respective time of such exercise and by the fair market value of
any of the restricted stock awards that vest at the time of such vesting.
Additionally, Mr. Clouston was required to apply an amount equal to such
reduction in the purchase price, less only applicable taxes, to prepay the Loan.
The Letter Agreement was to expire on March 31, 2002. On October 10, 1997, Mr.
Clouston prepaid the Loan in full with the proceeds of the exercise of certain
stock appreciation rights and the Letter Agreement terminated in accordance with
its terms.
Under a prior employment agreement between Mr. Fisher and the Company, a
portion of Mr. Fisher's salary was deferred, and the deferred amounts, plus
interest at an annual rate of 13%, were to be paid to him in 240 monthly
installments which would have commenced on the date of termination of his full-
time employment with the Company. In connection with his resignation as an
executive officer of TCI, Mr. Fisher entered into a consulting agreement with
TCI, which, in addition to providing for the provision of consulting services by
Mr. Fisher to TCI and the compensation to be paid by TCI therefor, also provided
for such payment of deferred amounts to be made to Mr. Fisher in 240 monthly
installments of $21,425.92 each, without interest, commencing on January 1,
2001, with any remaining payments due after Mr. Fisher's death being paid in a
lump-sum to his designated beneficiaries. Similarly, Mr. Fisher's 1992
employment agreement with the Company provided for Mr. Fisher to receive,
commencing on termination of his employment, 240 consecutive monthly salary
continuation payments of $6,250, increased at the rate of 12% per annum,
compounded annually from January 1, 1988 to the date of such termination. The
consulting agreement provides that such salary continuation payments will be
made in 240 consecutive monthly payments of $27,271.84 each, without interest,
commencing on January 1, 2001, with any remaining payments due after Mr.
Fisher's death being made to his designated beneficiaries.
The Company has no employment contracts or change of control arrangements
for any of the named executive officers of the Company.
-28-
<PAGE>
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Compensation Committee of the Company's Board of Directors is
responsible for determining executive compensation policies and guidelines. The
sole member of the Compensation Committee is Dr. Malone. Prior to his death,
Mr. Bob Magness also was a member of the Compensation Committee. Dr. Malone is a
director of the Company and Chairman of the Board and Chief Executive Officer of
TCI. He was formerly President and Chief Executive Officer of the Company. Dr.
Malone also is a director of TPAC and President of certain subsidiaries of the
Company. None of the executive officers of the Company during 1996 was a member
of the compensation committee (or, in its absence, the board of directors) of
another entity, one of whose executive officers was a director of or served on
the Compensation Committee of the Company or was a director of another entity,
one of whose executive officers served on the Compensation Committee of the
Company, in each case during 1996.
Report of Compensation Committee on Executive Compensation
The report of the Compensation Committee of the Board of Directors (the
"Compensation Committee") shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Compensation Philosophy. As a majority owned subsidiary of TCI, the
Company works closely with TCI's Compensation Committee to arrive at
compensation arrangements for the Company's officers and employees. As a
general rule, the Compensation Committee follows the publicly announced
philosophy of TCI that a link should exist between executive compensation and
the return on investment provided to stockholders as reflected by the
appreciation in the price of the relevant equity securities.
As a result, the Compensation Committee has developed and implemented a
compensation policy which (i) seeks to attract and retain highly skilled and
effective executives with the business experience and acumen necessary for the
achievement of the long-term business objectives of the Company, and (ii) seeks
to align the financial interests of the Company's senior executives with the
financial interests of the Company's common stockholder, TCI, and TCI's
stockholders. The Company attempts to realize these goals by providing
competitive compensation and by linking a substantial portion of such
compensation to the enhancement of stockholder value.
The Company's executive compensation is based principally on two components
- -- salary and equity-based incentives -- each of which is intended to serve the
Company's overall compensation philosophy. As a general rule, the Compensation
Committee uses independent compensation consultants and compensation surveys
furnished and evaluated by such consultants
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<PAGE>
to provide advice and data to assist it in developing compensation programs that
are competitive with other similarly situated cable/media companies and which
reinforce the Company's objective of aligning executive compensation with the
interests of stockholders.
Base Salary. Base salary for executive officers is generally targeted at
or below the median for executives with comparable qualifications, experience
and responsibilities at other companies in the cable/media industry. In the
aggregate, executive salaries of the Company are believed to be consistent with
this philosophy. Base salary levels are also based on the employees' relative
levels of seniority and responsibility. Consistent with the foregoing
philosophy, the Company does not usually pay cash bonuses to its senior
executives.
Currently, the Company has no employment agreements with any of its
executives (including any of the named executives). Except as discussed below
with respect to the fourth quarter 1996 salary reductions, the executive
officers of the Company generally have been paid in accordance with the salary
levels set by TCI in 1992, with annual increases in the cash compensation paid
to the Company's executives. Such increases in salary have been at the
discretion of the Compensation Committee of the Company after consultation with
the Compensation Committee of TCI. With respect to Mr. Clouston's $100,000
increase in base salary, the Compensation Committee determined that such
increase was justified in light of Mr. Clouston's increased responsibilities and
duties related to the Company's proposed launch of new internet, telephony and
satellite products and service offerings.
In the fourth quarter of 1996, the Company began instituting cost
containment measures as a response to its third quarter financial results. As
part of this cost containment effort, management of the Company imposed a salary
freeze for many employees of the Company who earned over $100,000 per year in
base salary. In addition, for certain more highly compensated employees,
including certain of the named executive officers, the Company instituted salary
reductions ranging from 5% to 20%. In connection with such reductions, Mr.
Clouston became subject to a voluntary 20% reduction in base salary and other
officers became subject to the salary freeze or the salary reduction.
Management of the Company anticipated at the time of the implementation of
the freezes and reductions that such measures would stay in place until certain
financial goals of the Company had been met. Management lifted the reductions
and freezes for certain lower-compensated employees as of the second quarter of
1997. Such measures continued in effect, however, for Mr. Clouston until his
departure in August 1997.
The Company has entered into termination agreements with certain of its
named executive officers, which are described under "Executive Compensation --
Employment Contracts and Termination of Employment and Change of Control
Arrangements." Such termination agreements were entered into by the Company to
provide severance payments in connection with such named executive officers'
departure from the Company following the appointment of new management in early
1996.
-30-
<PAGE>
Equity-Based Incentives. In order to make the overall compensation
packages of the Company's executives and other key employees competitive with
other companies in the cable/media industry, the Compensation Committee has
emphasized equity-based incentives rather than salary and bonuses. The
Compensation Committee believes that reliance upon such incentives is
advantageous to the Company because they foster a long-term commitment by the
recipient to the Company and motivate the recipient to seek to improve the long-
term market performance of the Company.
In 1996, the Company reviewed the long-term, equity-based compensation of
certain of its senior officers who were charged with managing certain of the
Company's strategic business units. As a result of this review, the Company
granted the stock options described above in "Executive Compensation --
Option/SAR Grants Table." The Company believed that the grant of such awards was
necessary to provide incentives to such executives, to maximize the financial
performance of the strategic business units and to retain key senior executives
at a time when the strategic business units were embarking on the roll-out of
several new products and services.
Specifically with respect to Mr. Clouston's 1996 grant of stock options (as
described above in "Executive Compensation -- Option/SAR Grants Table"), the
Compensation Committee, after consultation with the TCI Compensation Committee,
determined that Mr. Clouston should receive such awards of stock options because
of his direct management responsibility for the financial success of all of the
strategic business units. Further, in July 1996, the Compensation Committee
determined to award to Mr. Clouston 62 shares of restricted WestMarc Preferred
Stock pursuant to a restricted stock agreement to further compensate him for his
increased responsibilities and duties. See "Executive Compensation -- Summary
Compensation Table" for additional information concerning such award.
COMPENSATION COMMITTEE
John C. Malone
Compensation of Directors
There are no arrangements whereby any of the Company's directors received
compensation for services as a director during 1996.
Board Meetings
During 1996, the full Board of Directors of the Company took all action by
unanimous written consent and, therefore, held no meetings.
-31-
<PAGE>
Committees of the Board of Directors
In addition to the Compensation Committee, the Company has an Audit
Committee and an Executive Committee. There is no standing nomination committee
of the Company's Board of Directors.
The functions of the Compensation Committee include reviewing and making
recommendations to the Board of Directors concerning the compensation of the
executive officers of the Company and considering and making recommendations to
the Board of Directors concerning proposed employment agreements between the
Company and its executive officers. The Compensation Committee held no formal
meetings during 1996.
The members of the Audit Committee during 1996 are Mr. Gallivan and Mr. Kim
Magness. The members of the Audit Committee after the Annual Meeting will be
Mr. Gallivan and Mr. Fisher. The duties of the Audit Committee are to review and
monitor the Company's financial reports and accounting practices to ascertain
that they are within acceptable limits of sound practice, to receive and review
audit reports submitted by the Company's independent auditors and by its
internal auditing staff and to make such recommendations to the Board of
Directors as may seem appropriate to the Audit Committee to assure that the
interests of the Company are adequately protected and to review all related
party transactions and potential conflict of interest situations. The Audit
Committee of the Company held no meetings during 1996.
The members of the Executive Committee are Dr. Malone and Mr. Gallivan.
The Executive Committee exercises all of the powers and authority of the Board
of Directors between meetings of the entire Board of Directors, other than such
powers and authority as the Delaware General Corporation Law specifically
prohibits an executive committee from performing. During 1996, the Executive
Committee took all action by unanimous written consent and, therefore, held no
meetings during 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
Pursuant to a restricted stock award agreement dated December 10, 1992, the
Company transferred to Donne F. Fisher, a director of the Company, 124.03
shares (having a liquidation value of $4 million) of WestMarc Preferred Stock
owned by the Company, subject to forfeiture in the event of certain
circumstances from the date of grant through February 1, 2002, with the number
of shares subject to forfeiture decreasing by 10% on February 1 of each year.
Effective January 1, 1996, he acquired vested title to 37.209 of such shares of
WestMarc Preferred Stock and forfeited the balance of such shares. As described
below, effective as of January 31, 1996, the 37.209 vested
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<PAGE>
shares of WestMarc Preferred Stock owned by Mr. Fisher were used by one of his
affiliates as the consideration for the purchase of certain partnership
interests held by subsidiaries of the Company.
In 1989, ECP Holdings, Inc., a subsidiary of the Company ("ECP"), and
Halcyon Communications, Inc., an Oklahoma corporation which is not an affiliate
of the Company ("HCI"), formed Halcyon Communications Partners, an Oklahoma
general partnership ("HCP"), for the purpose of acquiring, owning and operating
cable television systems. In 1994, HCI and American Televenture of Minersville,
Inc., a subsidiary of the Company ("ATM"), as general partners, and three other
subsidiaries of the Company, TCI Cablevision of Nevada, Inc. ("TCINV"), and
TEMPO Cable, Inc. ("Tempo Cable") and TCI Cablevision of Utah, Inc. ("TCIU") as
limited partners, formed Halcyon Communications Limited Partnership, an Oklahoma
limited partnership ("HCLP"), for the purpose of acquiring, owning and operating
certain other cable television systems. Effective as of January 31, 1996,
Fisher Communication Associates, L.L.C., a Colorado limited liability company
("Fisher Communications") controlled by Mr. Fisher, purchased one-third of ECP's
partnership interest in HCP and one-third of the partnership interest of each of
ATM, TCINV, TCIU and Tempo Cable in HCLP, a ten-year option to purchase the
balance of ECP's partnership interest in HCP and ten-year options to purchase
the balance of the partnership interest in HCLP of each of ATM, TCINV, TCIU and
Tempo Cable. The purchase price for each such partnership interest purchased by
Fisher Communications consisted of shares of WestMarc Preferred Stock (the
"WestMarc Shares"). The purchase price for each such option acquired by Fisher
Communications was $100 in cash, and each such option is exercisable for cash in
a specified amount. The number of WestMarc Shares delivered to each of the
Company's subsidiaries named above as consideration for one-third of its
partnership interest in HCP or HCLP, and the cash exercise price which Fisher
Communications would be required to pay in order to exercise the options granted
by those subsidiaries, are as follows:
<TABLE>
<CAPTION>
Cash Exercise Price
Number of WestMarc Shares Of Option
------------------------- -------------------
<S> <C> <C>
ECP 14.8836 $1,200,000
ATM 0.5224 42,120
TCINV 2.8911 233,100
TCIU 4.3557 351,180
Tempo Cable 14.5562 1,173,600
------- ----------
37.2090 $3,000,000
======= ==========
</TABLE>
The WestMarc Shares are not publicly traded. The dividend, liquidation,
and redemption features of the WestMarc Shares are determined by reference to
"Liquidation Price, " which is defined, per share, as the sum of (i) $32,250
plus (ii) an amount equal to all dividends which accrued during any quarterly
dividend period and were not paid in full at the end of that period or
subsequently.
On June 10, 1997 (the "Phase I Closing Date"), TCI entered into a
definitive Partnership Interest Purchase Agreement for (a) the acquisition (i)
from InterMedia CM--LP ("Old ICM I") of a 1.103% limited partner interest (the
"IP I Interest") in InterMedia Partners, a California limited
-33-
<PAGE>
partnership ("IP I"), which TCI would contribute immediately after such
acquisition to InterMedia Capital Management, L.P. ("New ICM I") for a 99.998%
limited partner interest in New ICM I, (ii) of a .001% general partner interest
(which would convert to a limited partner interest) in New ICM I, and (iii) of a
75% limited partner interest in Old ICM I (with each of Old ICM I and New ICM I
holding, directly or indirectly, partner interests in IP I) (collectively, the
"ICM I Transaction") and (b) the acquisition of all of the partner interests
(other than a .001% general partner interest and a .001% special limited partner
interest) in InterMedia Capital Management III, L.P. ("ICM III") (the "ICM III
Transaction"). On August 5, 1997 (the "Phase II Closing Date"), TCI entered into
a definitive Partnership Interest Purchase Agreement for the acquisition of all
of the partner interests (other than a .002% general partner interest and a
.001% special limited partner interest) in InterMedia Capital Management IV,
L.P. ("ICM IV") (the "ICM IV Transaction"). The total consideration paid for the
ICM I Transaction, the ICM III Transaction and the ICM IV Transaction was
2,545,455 shares (the "TCI Shares") of TCI Group Series B Stock and cash and
assumption of certain liabilities in an aggregate amount of $21,300,000 (subject
to certain adjustments). Each of the entities in which TCI agreed to acquire an
interest in the foregoing transactions has an indirect interest in cable
television operations. On the Phase I Closing Date, a partial closing of the ICM
I Transaction and the ICM III Transaction occurred (the "Phase I Closing")
pursuant to which TCI acquired (i) the IP I Interest which TCI immediately
contributed to New ICM I for a 99.998% limited partner interest in New ICM I,
(ii) a 75% limited partner interest in Old ICM I and (iii) a 99.998% limited
partner interest in ICM III, in exchange for total consideration of 139,513
shares of TCI Group Series B Stock, $5,443,024 in cash, and assumption of
$405,000 of current liabilities of Old ICM I that were paid by TCI on the Phase
I Closing Date. On the Phase II Closing Date, the balance of the ICM I
Transaction and the ICM III Transaction closed, with TCI receiving a .001%
general partner interest (which converted to a limited partner interest) in New
ICM I, and the ICM IV Transaction was consummated. At such closing, TCI
delivered the balance of the consideration for such transactions consisting of
2,405,942 shares of TCI Group Series B Stock and $15,451,976 in cash and the
assumption of liabilities in the aggregate. In addition, on August 7, 1997, TCI
paid $2,251,962 in cash as payment for post-closing adjustments in connection
with the Phase II Closing. The partner interests acquired by TCI in connection
with the transactions consummated on the Phase I Closing Date and the Phase II
Closing Date were contributed by TCI to the Company. Leo J. Hindery, Jr.,
President, Chief Executive Officer and a director of the Company, was the
beneficial owner of a 66.3% interest in Old ICM I (which was increased to a
99.999% interest in connection with the Phase I Closing as a result of a non pro
rata redemption of the partner interests of all partners in Old ICM I other than
Mr. Hindery and InterMedia Management, Inc.), a 94.0% interest in ICM III and a
80.9% interest in ICM IV, and Mr. Fisher was the beneficial owner of a 1.6%
interest in ICM IV. In connection with the foregoing transactions, Mr. Fisher
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. The foregoing
fees were paid by the entities receiving payments from TCI in such transactions.
After giving effect to the Phase I Closing and the Phase II Closing, the general
partner interests in New ICM I, ICM III and ICM IV are each held by an entity of
all of the beneficial interests in which are owned, directly or indirectly, by
Robert J. Lewis. Mr. Hindery continues to hold a 24.999% general partner
interest, and Mr. Lewis indirectly holds a .001% general partner interest in Old
ICM I. Mr.
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<PAGE>
Lewis is an experienced cable executive who was an officer of the Company from
May 1987 through April 1993.
TCI also has agreed in principle that if InterMedia Capital Partners VI,
L.P. ("IP VI") is formed and fully funded on terms and conditions agreed by TCI
(the "IP VI Effective Date"), TCI will acquire all of the partner interests
(other than a .001% general partner interest) of InterMedia Capital Management
VI, L.P. ("ICM VI") in exchange for a number of shares of Liberty Media Group
Series B Stock (the "Contingent TCI Shares") determined by dividing $5,000,000
by the average of the closing prices of the Liberty Media Group Series A Stock
for the 20 trading days preceding the IP VI Effective Date and a limited
partnership interest in IP VI with a capital account of $1,000,000 (the "ICM VI
Transaction"). Mr. Hindery is the beneficial owner of 100% of ICM VI. The
partner interests to be acquired by TCI pursuant to the ICM VI Transaction will
be contributed by TCI to the Company. It is anticipated that the ICM VI
Transaction will be consummated in early 1998. The general partner interests in
ICM VI will also be held by an entity owned by Mr. Lewis.
The interests of Messrs. Hindery, Fisher and Malone (who will have the
power to vote the TCI Shares and, if they are issued, the Contingent TCI Shares
and will have a right of first refusal with respect to any proposed transfer of
such shares) in the InterMedia Transactions were disclosed to TCI's Board of
Directors, which approved the InterMedia Transactions pursuant to a vote in
which Messrs. Fisher and Malone abstained from voting.
Certain Business Relationships
Satellite Relationships
John Malone is currently a director of the Company, Chief Executive
Officer, Chairman of the Board and a director of TCI and is also the Chairman of
the Board and a director of Satellite. Dr. Malone is also a principal
stockholder of both TCI and Satellite.
Since the consummation of the Distribution, Satellite and TCI have operated
independently. However, for purposes of governing certain of the ongoing
relationships between Satellite and TCI after the Distribution, and to provide
mechanisms for an orderly transition, Satellite and TCI entered into various
agreements prior to the Distribution which are described below.
Reorganization Agreement. On the date the Distribution was consummated
(the "Distribution Date"), TCI, the Company and a number of other TCI
subsidiaries, including Satellite, entered into the Reorganization Agreement,
which provided for, among other things, the principal corporate transactions
required to effect the Distribution, the conditions thereto and certain
provisions governing the relationship between Satellite and TCI with respect to
and resulting from the Distribution.
-35-
<PAGE>
Certain of Satellite's assets relating to the digital satellite business
were historically owned by subsidiaries of TCI other than Satellite and its
predecessors. These assets included the capital stock of Tempo Satellite, Inc.
("Tempo"), which was a subsidiary of the Company, and the 20.86% partnership
interests in PRIMESTAR Partners, L.P. ("PRIMESTAR Partners") that had been owned
by subsidiaries of the Company. The Reorganization Agreement provided for, among
other things, the transfer of these assets to Satellite and for the assumption
by Satellite of related liabilities. No consideration was payable by Satellite
for these transfers, except that two subsidiaries of Satellite purchased the
Company's partnership interests in PRIMESTAR Partners for consideration payable
by delivery of promissory notes issued by such subsidiaries (the "K-1 Notes"),
which promissory notes were assumed by TCI on the Distribution Date in the form
of a capital contribution to Satellite. The Reorganization Agreement also
provides for certain cross-indemnities designed to make Satellite financially
responsible for all liabilities relating to the digital satellite business prior
to the Distribution, as well as for all liabilities incurred by Satellite after
the Distribution, and makes TCI financially responsible for all potential
liabilities of Satellite which are not related to the digital satellite
business, including, for example, liabilities arising as a result of Satellite's
having been a subsidiary of TCI. The Reorganization Agreement further provided
for each of Satellite, on the one hand, and TCI and its subsidiaries, on the
other hand, to preserve the confidentiality of all confidential or proprietary
information of the other party, for five years following the Distribution,
subject to customary exceptions, including disclosures required by law, court
order or government regulation.
Pursuant to the Reorganization Agreement, on the Distribution Date,
Satellite issued to the Company a note in the principal amount of $250,000,000
(the "Satellite Note") representing a portion of Satellite's intercompany
balance owed to the Company on such date. See "The Company Credit Facility"
below. Pursuant to the Reorganization Agreement, the remainder of Satellite's
intercompany balance owed to the Company on the Distribution Date (other than
certain advances to Satellite made by the Company in 1996 to fund certain
construction and related costs associated with certain satellites ("SATCo
Satellites"), as described below under "Reimbursement of Certain Satellite
Expenses"), and the indebtedness represented by the K-1 Notes were assumed by
TCI in the form of (i) a $100 million capital contribution to Satellite, (ii)
consideration for Satellite's assumption of TCI's obligations under options
granted to Brendan R. Clouston, another executive officer of TCI and another
employee of TCI to purchase shares of SATCo Series A Stock representing 1.0%,
1.0% and 0.5%, respectively, of the shares of Satellite common stock issued and
outstanding on the Distribution Date, determined immediately after giving effect
to the Distribution but before giving effect to the issuance of the shares of
SATCo Series A Stock issuable upon exercise of such options, and (iii)
consideration for Satellite's grant of an option to TCI to purchase up to
4,765,000 shares of SATCo Series A Stock (as such number may be adjusted to
reflect stock dividends, stock splits and the like), for a purchase price equal
to the par value of such shares, as necessary to satisfy TCI's obligations to
deliver shares of SATCo Series A Stock upon conversion of certain convertible
securities of TCI as a result of the Distribution. See "Other Arrangements"
below.
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<PAGE>
Transition Services Agreement. Pursuant to the Transition Services
Agreement between TCI and Satellite, TCI is obligated to provide to Satellite
certain services and other benefits, including certain administrative and other
services that were provided by TCI prior to the Distribution. Such services
include (i) tax reporting, financial reporting, payroll, employee benefit
administration, workers' compensation administration, telephone, fleet
management, package delivery, management information systems, billing, lock box,
remittance processing and risk management services, (ii) other services
typically performed by TCI's accounting, finance, treasury, corporate, legal,
tax, benefits, insurance, facilities, purchasing, fleet management and advanced
information technology department personnel, (iii) use of telecommunications and
data facilities and of systems and software developed, acquired or licensed by
TCI from time to time for financial forecasting, budgeting and similar purposes,
including without limitation any such software for use on personal computers, in
any case to the extent available under copyright law or any applicable third-
party contract, (iv) technology support and consulting services, and (v) such
other management, supervisory, strategic planning or other services as Satellite
and TCI may from time to time mutually determine to be necessary or desirable.
Pursuant to the Transition Services Agreement, TCI has also agreed to
provide Satellite with certain most-favored-customer rights to programming
services that TCI or a wholly owned subsidiary of TCI may own in the future and
access to any volume discounts that may be available to TCI for purchase of home
satellite dishes, satellite receivers and other equipment.
As compensation for services rendered to Satellite and for the benefits
made available to Satellite pursuant to the Transition Services Agreement,
Satellite is required to pay TCI a fee of $1.50 per qualified subscribing
household or other residential or commercial unit (counted as one subscriber
regardless of the number of satellite receivers) per month, commencing with the
Distribution Date, up to a maximum of $3 million per month, and reimburse TCI
quarterly for direct, out-of-pocket expenses incurred by TCI to third parties in
providing the services.
The Transition Services Agreement continues in effect until the close of
business on December 31, 1999 and will be renewed automatically for successive
one-year periods thereafter, unless earlier terminated by (i) either party at
the end of the initial term or the then current renewal term, as applicable, on
not less than 180 days' prior written notice to the other party, (ii) TCI upon
written notice to Satellite following certain changes in control of Satellite,
and (iii) either party if the other party is the subject of certain bankruptcy
or insolvency-related events. During the six-month period ended June 30, 1997
and the period commencing with the Distribution Date and ending on December 31,
1996, charges pursuant to the Transition Services Agreement aggregated
$9,919,000 and $763,000, respectively.
Tax Sharing Agreement. Through the Distribution Date, Satellite's results
of operations were included in TCI's consolidated U.S. federal income tax
returns, in accordance with the existing tax sharing arrangements among TCI and
its consolidated subsidiaries. Pursuant to an amended tax sharing agreement
entered into prior to the Distribution Date and effective as of July 1, 1995,
Satellite is responsible to TCI for its share of current consolidated income tax
liabilities through the
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Distribution Date; TCI is responsible to the extent that Satellite's income tax
attributes generated after the effective date and through the Distribution Date
are utilized by TCI to reduce its consolidated income tax liabilities.
Indemnification Agreements. On the Distribution Date, Satellite entered
into the Indemnification Agreements with the Company and TCI UA 1, Inc., a
subsidiary of the Company ("TCI UA 1"). The Indemnification Agreement with the
Company provides for Satellite to reimburse the Company for any amounts drawn
under an irrevocable transferable letter of credit (the "TCI UA 1 Letter of
Credit") issued by The Bank of New York for the account of the Company to
support Satellite's share of PRIMESTAR Partners' obligations under the Amended
and Restated Memorandum of Agreement between PRIMESTAR Partners and GE American
Communications, Inc. ("GE Americom"), with respect to PRIMESTAR Partners' use of
transponders on the GE Americom medium power satellite that was launched on
January 30, 1997, and which was declared commercially operational on March 6,
1997 ("GE-2"). At June 30, 1997 and December 31, 1996, the drawable amount of
the TCI UA 1 Letter of Credit was $25,000,000.
The Indemnification Agreement with TCI UA 1 provides for Satellite to
reimburse TCI UA 1 for any amounts drawn under an irrevocable transferable
letter of credit (the "TCI UA 1 Letter of Credit") issued by Chemical Bank for
the account of TCI UA 1, which supports the PRIMESTAR Credit Facility that was
obtained by PRIMESTAR Partners to finance advances to Tempo for payments due in
respect of the construction of the SATCo Satellites and that is supported by
letters of credit arranged for by affiliates of the partners of the PRIMESTAR
Partners (other than G.E. Americom Services, Inc.). The amount of the TCI UA 1
Letter of Credit was $141,250,000 at June 30, 1997 and December 31, 1996.
The Indemnification Agreements further provide for Satellite to indemnify
and hold harmless the Company and TCI UA 1 and certain related persons from and
against any losses, claims, and liabilities arising out of the respective
letters of credit or any drawings thereunder. The payment obligations of
Satellite to the Company and TCI UA 1 under such Indemnification Agreements are
subordinated in right of payment with respect to certain future obligations of
Satellite to financial institutions. During the six months ended June 30, 1997
and the year ended December 31, 1996, the aggregate amount paid by Satellite to
the Company under the Indemnification Agreements was $848,000 and $124,000,
respectively. The 1996 amount represents the aggregate fees incurred by the
Company with respect to the TCI UA 1 Letter of Credit from the Distribution Date
through December 31, 1996.
Trade Name and Service Mark License Agreement. Pursuant to the Trade Name
and Service Mark License Agreement (the "License Agreement"), TCI granted to
Satellite, for an initial term of three years following the Distribution, a non-
exclusive non-assignable license to use certain trade names and service marks
specifically identified in the License Agreement, including the mark "TCI" in
the context of the digital satellite business. The License Agreement provides,
among other things, that all advertising, promotion and use of certain of TCI's
trade names and service marks by Satellite shall be consistent with TCI
guidelines and standards, as well as subject to TCI approval in certain
circumstances.
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Fulfillment Agreement. Since January 1, 1997, the Company has provided,
pursuant to the Fulfillment Agreement, fulfillment services on an exclusive
basis to Satellite with respect to customers of the PRIMESTAR(R) medium power
service. Such services include installation, maintenance, retrieval, inventory
management and other customer fulfillment services. Among other matters, the
Fulfillment Agreement (i) sets forth the responsibilities of the Company with
respect to fulfillment services, including performance standards and penalties
for nonperformance, (ii) provides for the Company's fulfillment sites to be
connected to the billing and information systems used by Satellite, allowing for
on-line scheduling and dispatch of installation and other service calls, and
(iii) provides scheduled rates to be charged to Satellite for the various
customer fulfillment services to be provided by the Company.
From January 1, 1997 through July 21, 1997, charges for customer
fulfillment services provided by the Company were made pursuant to the
Fulfillment Agreement originally entered into by Satellite and the Company in
connection with the Distribution (the "Original Fulfillment Agreement"). The
Original Fulfillment Agreement had an initial term of two years and was
terminable, on 180 days' notice to the Company, by Satellite at any time during
the six month period ended June 30, 1997. The cost to Satellite of the services
provided by the Company under the Original Fulfillment Agreement exceeded the
standard charges allocated to Satellite for such services through December 31,
1996. Effective July 22, 1997, the Original Fulfillment Agreement was amended
to, among other items, (i) change the termination date to December 31, 1997 and
(ii) reduce the scheduled rates for the customer fulfillment services provided
by the Company to rates that are comparable to those that were used to allocate
fulfillment charges to Satellite prior to the Distribution. During the six
months ended June 30, 1997, charges under the Fulfillment Agreement aggregated
$36,499,000. During the year ended December 31, 1996, charges under the
Fulfillment Agreement aggregated $74,049,000 (including $6,432,000 paid
subsequent to the Distribution Date).
The Company Credit Facility. In connection with the Distribution,
Satellite and the Company entered into the Company Credit Facility to provide
for the terms of the Satellite Note and to provide for a revolving credit
facility (the "Company Revolving Loans"). The Company Credit Facility required
Satellite to use its best efforts to obtain external debt or equity financing
after the Distribution Date and provided for mandatory prepayment of the Company
Revolving Loans and the Satellite Note from the proceeds thereof. The initial
borrowings under a bank credit facility obtained by Satellite were used to repay
the Satellite Note in full. In connection with the February 1997 issuance of
certain debt securities by Satellite and the March 1997 determination that GE-2
was commercially operational, borrowing availability pursuant to the Company
Credit Facility was terminated.
Borrowings under the Company Revolving Loans bore interest at 10% per
annum, compounded semi-annually. Commitment fees equal to 3/8% of the average
unborrowed availability under the Company Credit Facility were payable to the
Company annually. From the Distribution Date through December 31, 1996, the
aggregate amount of interest and commitment fees incurred by Satellite pursuant
to the Company Credit Facility was $2,087,000.
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Reimbursement of Certain Satellite Expenses. During 1996, the Company made
intercompany advances to Satellite to fund the majority of the construction and
related costs associated with the SATCo Satellites. Prior to 1996, PRIMESTAR
Partners had funded substantially all of the construction and related costs
associated with the SATCo Satellites. In connection with the Distribution, a
determination was made to provide that such 1996 advances from the Company would
be repaid by Satellite to the Company (notwithstanding the Reorganization
Agreement), to the extent (and only to the extent) that Tempo received
corresponding advances from PRIMESTAR Partners.
As a result of negotiations between Satellite and PRIMESTAR Partners,
PRIMESTAR Partners advanced $73,786,000 to Tempo in December 1996 to reimburse
Tempo for all the 1996 costs which previously had been funded by the Company.
Upon receipt, such advance was paid to the Company by Tempo in repayment of such
1996 advance by the Company.
Other Arrangements. On the Distribution Date, TCI and Satellite entered
into the Share Purchase Agreement, which obligates TCI and Satellite to sell to
each other from time to time, at the then current market price, shares of TCI
Group Series A Stock and SATCo Series A Stock, respectively, as necessary to
satisfy their respective obligations under TCI Group Series A Options and SATCo
Series A Options held after the Distribution Date by their respective employees
and non-employee directors.
Beginning in March 1997, the Company began providing Satellite with
customer support services from its Boise, Idaho call center (the "Boise Call
Center"). The Boise Call Center responds to calls that exceed the capacity of
Satellite's National Call Center. Amounts charged by the Company to Satellite
for such services aggregated $2,273,000 during the six months ended June 30,
1997.
Certain officers of Satellite who were officers or directors of TCI and/or
the Company prior to the Distribution received undertakings of indemnification
from TCI and/or the Company. Such undertakings survived the Distribution.
Other Relationships
The Company continues to be an obligor under, or a guarantor of the payment
or performance of, certain contractual obligations, including debt obligations,
of certain entities in which International has an interest. International has
entered into an Indemnification Agreement with the Company, pursuant to which
International has agreed to indemnify the Company for any payment made by the
Company, or any claim, loss or liability that the Company may otherwise incur,
by reason of such obligations. International has not made any payments to the
Company pursuant to the Indemnification Agreement.
International's Puerto Rico subsidiaries purchase programming services from
a subsidiary of the Company. The charges, which approximate such subsidiary's
cost and are based on the
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aggregate number of subscribers served by such Puerto Rico subsidiaries,
aggregated $2.9 million and $4.3 million during the six months ended June 30,
1997 and the year ended December 31, 1996, respectively.
During 1996, the Company transferred, subject to regulatory approval,
certain distribution equipment to a subsidiary of International in exchange for
a promissory note in the principal amount of (Pounds)14,950,000 ($23.3 million
using the exchange rate on the date that the transaction occurred). Such note
bears interest at 7% compounded semi-annually. During the year ended December
31, 1996, the U.S. dollar equivalent of interest expense incurred with respect
to such note was $658,000. The distribution equipment was subsequently leased
back to the Company over a five-year term with semi-annual payments of
(Pounds)998,000 ($1.7 million using the exchange rate in effect on December 31,
1996), plus expenses. International can require the Company to repurchase the
equipment at the end of the lease term at an amount equal to the greater of (i)
fair market value or (ii) an amount that when combined with the rental payments
received (excluding executory costs) during the lease term, and discounted using
an interest rate of 7%, would not exceed 89% of the fair market value of the
equipment at the inception of the lease. During the six months ended June 30,
1997 and the year ended December 31, 1996, the U.S. dollar equivalent of the
lease revenue under the above-described lease agreement aggregated $1.7 million
and $1.4 million, respectively.
The Company purchases sports and other programming from certain
subsidiaries of Liberty Media Corporation, a subsidiary of TCI ("Liberty").
Charges to the Company (which are based upon customary rates charged to others)
for such programming were $21 million and $76 million for the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively.
Certain of the Company's corporate general and administrative costs are
charged to subsidiaries of TCI 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 the subsidiaries would incur for comparable services on a stand alone
basis. During the six months ended June 30, 1997 and the year ended December
31, 1996, the Company allocated to Liberty and International corporate general
and administrative costs aggregating $1 million and $3 million, respectively.
Liberty leases satellite transponder facilities from the Company. Charges
by the Company for such arrangements for the six months ended June 30, 1997 and
the year ended December 31, 1996 aggregated $4 million and $12 million,
respectively.
Through June 30, 1997, TCI Starz, Inc., a subsidiary of TCI, had a 50.1%
general partnership interest in QE+ Ltd Limited Partnership ("QE+"), which
distributes STARZ!, a first-run movie premium programming service. Liberty held
the remaining 49.9% partnership interest.
The Company entered into a long-term affiliation agreement (the "Old
Affiliation Agreement") with QE+ related to the distribution of the STARZ!
service. Rates per subscriber specified in the Old Affiliation Agreement were
based upon customary rates charged to other cable
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system operators. Payments to QE+ for the six months ended June 30, 1997 and the
year ended December 31, 1996 were approximately $50 million and $52 million,
respectively. The Old Affiliation Agreement provides that QE+ will not grant
materially more favorable terms and conditions to other cable system operators
unless such more favorable terms and conditions are made available to the
Company. The Old Affiliation Agreement also required the Company to make
payments to QE+ with respect to a guaranteed minimum number of subscribers
totaling approximately $284 million for the years 1997 and 1998.
At June 30, 1997 and December 31, 1996, the Company had a $245 million and
a $203 million intercompany receivable, respectively, from TCI Starz, Inc. which
represented the net effect of advances to TCI Starz, Inc., which in turn paid
such amounts to QE+, offset by the Company's purchase of programming from QE+.
Such receivable is non-interest bearing for five years from the date of the
advances.
In July 1997, Liberty and TCI Starz entered into a series of transactions
pursuant to which, among other matters, the business of STARZ! and Encore Media
Corporation ("Encore") were contributed to a newly formed limited liability
company ("Encore Media Group"). Upon consummation of the transactions, Liberty
owns 80% of Encore Media Group and TCI Starz owns 20%.
In connection with the formation of Encore Media Group, the Old Affiliation
Agreement was canceled, and the Company and a subsidiary of Encore Media Group
entered into a new 25-year affiliation agreement (the "New Affiliation
Agreement"). Pursuant to the New Affiliation Agreement, the Company will pay
fixed monthly amounts in exchange for unlimited access to substantially all of
the existing Encore and Starz! programming services. The fixed annual amounts
increase annually from $270 million in 1998 to $360 million in 2004, and will
increase with inflation thereafter.
A former consolidated subsidiary of Liberty, Home Shopping Network, Inc.
("HSN"), paid a commission to the Company for merchandise sales to customers who
are subscribers of the Company's cable systems. Aggregate commissions to the
Company were $7 million for the year ended December 31, 1996. Effective
December 20, 1996, Liberty entered into a series of transactions whereby it
decreased its ownership interest in HSN such that Liberty no longer consolidates
HSN.
Effective December 31, 1996, the Company dividended its investments in
businesses which provide wireless communications services to residential and
business customers nationwide and its investment in Teleport Communications
Group Inc., which is a competitive local exchange carrier, to TCI. In addition,
effective December 31, 1996, the Company dividended certain assets related to
its wireline residential telephony business to TCI. At December 31, 1996, TCI's
aggregate carrying value for such dividended assets was $1,138 million.
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Effective January 2, 1997, the Company transferred its business of
providing long-distance transport of video, voice and data traffic and other
telecommunications services, primarily to inter-exchange carriers on a wholesale
basis using a digital broadband microwave network located throughout a 14 state
region in the western United States, to TCI. In connection with the transfer of
such assets, which had a net book value of $71 million at January 2, 1997, the
intercompany amount owed by TCI to the Company was reduced by $33 million and a
$104 million dividend from the Company to TCI was recorded.
The Company's net intercompany receivable of $593 million and $256 million
at June 30, 1997 and December 31, 1996, respectively, includes non-interest
bearing intercompany receivables from, and interest-bearing loans to, certain
subsidiaries of TCI. Including accrued interest, the interest-bearing loans
aggregated $209 million and $148 million at June 30, 1997 and December 31, 1996,
respectively. Interest earned by the Company on such intercompany loans
aggregated $9 million and $12 million for the six months ended June 30, 1997,
and the year ended December 31, 1996, respectively.
A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI, the
Company and certain other 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 Company 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 Company to the
extent that the income tax attributes generated by the Company 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 the Company. 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.
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 (each a "Group"). The Company and its subsidiaries
are members of the TCI Group for purposes of the New Tax Sharing Agreement.
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 (applying
provisions of the Code and related regulations as if such Group filed a separate
consolidated return for federal income tax purposes, with certain adjustments,
but was
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subject to the same type of tax as TCI). 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). TCI may be required at the times
and under the circumstances described below to make cash payments to each Group
for tax benefits (on a regular tax or alternative minimum tax basis, as
applicable) attributable to such Group and actually used by TCI in reducing its
consolidated federal income tax liability. Tax attributes, including but not
limited to net operating losses, foreign tax credits, investment tax credits,
alternative minimum tax net operating losses, deferred intercompany gains, and
tax basis in assets would be inventoried and tracked for ultimate credit to or
charge against each Group. Similarly, in each taxable period that TCI pays
alternative minimum tax, the federal income tax liabilities and 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
(at the difference between the amount such Group would have paid or received
under the New Tax Sharing Agreement if TCI had paid regular tax during such
taxable period and the amount such Group paid or received under the New Tax
Sharing Agreement on an alternative minimum tax basis for such taxable period)
in years that TCI utilizes the alternative minimum tax credit associated with
such taxable period. Even though the tax benefits of a Group are utilized by TCI
in reducing its consolidated federal income tax liability, such Group may not
receive current cash payments for such benefit (or the difference between such
Group's benefits computed under the New Tax Sharing Agreement on a regular tax
basis and on an alternative minimum tax basis) if the Group against the income
of which the tax benefits are applied had other separate taxable losses (not
currently utilized by TCI) which would offset income attributable to such Group.
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. In addition, if the unutilized taxable losses are connected with
a Group or part of a Group which ceases to be part of TCI's consolidated group
for federal income tax purposes, there can be no assurance that the transferee
will agree to pay for the eventual use of the unutilized taxable losses.
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.
TCI has retained the right to file all returns, make all elections and control
all audits and contests.
Notwithstanding the foregoing, items of income, gain, loss, deduction or
credit resulting from certain transactions identified below 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, and that items of loss or
deduction used to offset such income or gain from such transactions for purposes
of filing TCI's consolidated federal income tax return shall be shared and
allocated pursuant to the Old Tax Sharing Agreement but reimbursed upon the
earlier to occur of the deconsolidation of the Group generating the loss or
deduction or the deconsolidation of the Group generating the corresponding
income or
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gains. At such time, the Group which generated the corresponding income or gain
will provide the funds for reimbursement. Such transactions are: (i) the sale by
HKP Partners of New Zealand of all of its interest in Sky Network Television
Limited; (ii) the sale by International of all of its interest in Cablevision
S.A.; (iii) the sale by TCI SUMMITrak of Texas, Inc. and/or TCI SUMMITrak LLC of
its SUMMITrak assets; (iv) the sale by Liberty Cable, Inc. of its stock of
Liberty Evangola, Inc. and Liberty Tri-County, Inc. and (v) the exercise of the
option granted pursuant to the Option Agreement, dated June 24, 1997, among RET
Corporation, Southern Satellite Systems, Inc., et al., to purchase certain
assets of Southern Satellite Systems, Inc., LMC Satcom, Inc., and Royal
Communications, Inc., and the sale of such assets pursuant to the exercise.
In connection with the Exchange Offer, TCI consummated a restructuring on
October 1, 1997, that resulted in, among other things, the transfer of
substantially all of the attributed assets of the TCI Ventures Group into TCI
Ventures Group, LLC, a newly formed first tier subsidiary of TCI. In connection
with such restructuring, certain assets of the Company, including a wholly-owned
subsidiary of the Company (TCI SUMMITrak of Texas, Inc., the assets of which
consisted of cash, warrants and contingent royalties representing the proceeds
of the sale of its assets in September of 1997), and the assets of another
wholly-owned subsidiary of the Company (National Digital Television Center,
Inc.), were transferred to TCI Ventures Group, LLC for nominal consideration and
a dividend from the Company to TCI in the amount of the difference between such
consideration and the carrying value of such assets on October 1, 1997 was
recorded. At June 30, 1997, the Company's carrying value for the net assets
transferred was approximately $249 million.
The Company has entered into two separate memoranda of understanding (the
"MOU's") with unaffiliated third parties with respect to the sale of certain
other of its assets that have been attributed to the TCI Ventures Group. Any
proceeds from such sales will be dividended by the Company to TCI and
contributed by TCI to TCI Ventures Group, LLC. The MOU's provide for an
aggregate sales price of approximately $32 million.
Indebtedness of Management
None.
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP serves as the Company's independent
certified public accountants. A partner of KPMG Peat Marwick LLP will be
present at the Annual Meeting with the opportunity to make a statement if KPMG
Peat Marwick LLP so desires and will be available to respond to appropriate
questions.
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STOCKHOLDER PROPOSALS
Proposals by stockholders for which consideration is desired at the 1998
annual meeting of stockholders must be received by the Company by June 18, 1998
in order to be considered for inclusion in proxy materials for the 1998 annual
meeting.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 as filed with the Securities and Exchange Commission,
excluding exhibits, may be obtained by stockholders without charge by written
request addressed to the Investor Relations Department, TCI Communications,
Inc., Post Office Box 5630, Denver, Colorado 80217-5630.
Englewood, Colorado
October 14, 1997
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1. Election of Directors
FOR all nominees [_] WITHHOLD AUTHORITY to vote [_] *EXCEPTIONS [_]
listed below. for all nominees listed below.
Nominees: Donne F. Fisher, John W. Gallivan, Leo J. Hindery, Jr., Marvin L.
Jones, Dr. John C. Malone
(Instructions: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions
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2. In their discretion, the Proxies are authorized to vote upon any other
business as may properly come before the Annual Meeting.
Change of Address or
Comments Mark Here [_]
Signature should agree with name printed hereon.
If stock is held in the name of more than one
person, each joint owner should sign. Executors,
administrators, trustees, guardians, and
attorneys should indicate the capacity in which
they sign.
Dated: ,1997
-----------------------------------
----------------------------------------
Stockholder's Signature
----------------------------------------
Stockholder's Signature
Votes MUST be indicated
(x) in Black or Blue ink. [X]
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
- --------------------------------------------------------------------------------
TCI COMMUNICATIONS, INC.
Post Office Box 5630
Denver, CO 80217
TCI COMMUNICATIONS, INC. CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Stephen M. Brett and John C. Malone, as
Proxies, with full power to act without the other and each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as
designated on the reverse side hereof, all the shares of the above-referenced
preferred stock of TCI Communications, Inc. held of record by the undersigned on
September 25, 1997, at the Annual Meeting of TCI Communications, Inc. to be held
on October 30, 1997 or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
If no direction is made, this proxy will be voted FOR Proposal 1.
(Continued, and to be signed and dated on reverse side.)
