-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UA+nY2TXCCeW5UhnXvTTW9WoIWKeo1vHAjqeZsdkdjxAJ9sZ0gTFkdMyWXnvVpAL CVqsH0JadHDfmmB7G5nJJg== 0000927356-96-000123.txt : 19981229 0000927356-96-000123.hdr.sgml : 19981229 ACCESSION NUMBER: 0000927356-96-000123 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 DATE AS OF CHANGE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCI COMMUNICATIONS INC CENTRAL INDEX KEY: 0000096903 STANDARD INDUSTRIAL CLASSIFICATION: 4841 IRS NUMBER: 840588868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-05550 FILM NUMBER: 96538849 BUSINESS ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: TELE COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____ to ____ Commission File Number 0-5550 TCI COMMUNICATIONS, INC. --------------------------------------------------------------- (Exact name of Registrant as specified in its charters) State of Delaware 84-0588868 - - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5619 DTC Parkway Englewood, Colorado 80111 - - ---------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 267-5500 Securities registered pursuant to Section 12(b) of the Act: 8.72% Trust Originated Preferred Securities Securities registered pursuant to Section 12(g) of the Act: Cumulative Exchangeable Preferred Stock, Series A Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days. Yes X No ------ ------- The aggregate market value of the Cumulative Exchangeable Preferred Stock, Series A held by nonaffiliates of TCI Communications, Inc., computed by reference to the last sales price of such stock, as of the close of trading on January 31, 1996, was $ 231,150,000. All of the Registrant's common stock is owned by Tele-Communicatons, Inc. The number of shares outstanding of the Registrant's common stock, as of January 31, 1996, was: Class A common stock - 811,655 shares; and Class B common stock - 94,447 shares. TCI COMMUNICATIONS, INC. 1995 ANNUAL REPORT ON FORM 10-K Table of Contents Page ---- PART I Item 1. Business............................................... I-1 Item 2. Properties............................................. I-22 Item 3. Legal Proceedings...................................... I-22 Item 4. Submission of Matters to a Vote of Security Holders.... I-31 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... II-1 Item 6. Selected Financial Data................................ II-2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................... II-3 Item 8. Financial Statements and Supplementary Data............ II-16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ II-16 PART III Item 10. Directors and Executive Officers of the Registrant..... III-1 Item 11. Executive Compensation................................. III-4 Item 12. Security Ownership of Certain Beneficial Owners and Management........................................ III-12 Item 13. Certain Relationships and Related Transactions......... III-22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... IV-1 PART I. Item 1. Business. - - ------ -------- (a) General Development of Business ------------------------------- TCI Communications, Inc. ("TCIC" or the "Company"), through its subsidiaries and affiliates, is principally engaged in the construction, acquisition, ownership, and operation of cable television systems. The Company is a Delaware corporation and was incorporated on August 20, 1968. The Company and its predecessors have been engaged in the cable television business since the early 1950's. As of January 27, 1994, TCI Communications, Inc. (formerly Tele- Communications, Inc. or "Old TCI") and Liberty Media Corporation ("Liberty") entered into a definitive agreement to combine the two companies (the "TCI/Liberty Combination"). The transaction was consummated on August 4, 1994 and was structured as a tax free exchange of Class A and Class B shares of both companies and preferred stock of Liberty for like shares of a newly formed holding company, TCI/Liberty Holding Company. In connection with the TCI/Liberty Combination, Old TCI changed its name to TCI Communications, Inc. and TCI/Liberty Holding Company changed its name to Tele-Communications, Inc. ("TCI"). TCIC is a subsidiary of TCI. On August 3, 1995, the stockholders of TCI approved an amendment to TCI's charter to (i) authorize two new series of common stock of TCI, designated the Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value $1.00 per share and the Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value $1.00 per share (collectively, the "Liberty Group Stock"), and (ii) redesignate TCI's Class A Common Stock, par value $1.00 per share, as the Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per share, and the Class B Common Stock, par value $1.00 per share, as the Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per share (the Series A and Series B TCI Group Common Stock are referred to collectively herein as the "TCI Group Stock"). The Liberty Group Stock is intended to reflect the separate performance of the newly created "Liberty Media Group", which consists of TCI's businesses which produce and distribute cable television programming services. The issuance of the Liberty Group Stock did not result in any transfer of assets or liabilities of TCI or any of its subsidiaries or affect the rights of holders of TCI's or any of its subsidiaries' debt. On August 10, 1995, TCI distributed one hundred percent of the equity value attributable to Liberty Media Group (the "Distribution") to its security holders of record on August 4, 1995. In connection with the Distribution, subsidiaries of TCIC exchanged all of the TCI Class A common stock and TCI preferred stock owned by such subsidiaries for 267,944 shares of a new series of TCI Series Preferred Stock designated Convertible Redeemable Participating Preferred Stock Series F (the "Series F Preferred Stock"). Subsequent to such exchange, a holder of 78,077 shares of Series F Preferred Stock converted its holdings into 100,524,364 shares of Series A TCI Group Stock. As of January 26, 1995, TCI, TCIC and TeleCable Corporation ("TeleCable") consummated a transaction, whereby TeleCable was merged into TCIC. The aggregate $1.6 billion purchase price was satisfied by TCIC's assumption of approximately $300 million of TeleCable's net liabilities and the issuance to TeleCable's shareholders of approximately 42 million shares of TCI Class A common stock and an issue of TCI convertible preferred stock with an aggregate initial liquidation value of $300 million. Such preferred stock is convertible into 10 million shares of Series A TCI Group Stock and 2.5 million shares of Series A Liberty Group Stock. I-1 During 1994, TCIC, Comcast Corporation, Cox Communications, Inc. ("Cox" and together with TCIC and Comcast, the "Cable Partners") and Sprint Corporation ("Sprint") formed a partnership ("WirelessCo") to engage in the business of providing wireless communications services on a nationwide basis. Through WirelessCo, of which TCIC owns a 30% interest, the partners participated in auctions ("PCS Auctions") of broadband personal communications services ("PCS") licenses being conducted by the Federal Communications Commission ("FCC"). In the first round auction, which concluded during the first quarter of 1995, WirelessCo was the winning bidder for PSC licenses for 29 markets, including New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston- Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate license cost for these licenses was approximately $2.1 billion. WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a PCS license granted under the FCC's pioneer preference program for the Washington-Baltimore market. WirelessCo acquired its 49% limited partnership interest in APC for $23 million and has agreed to make capital contributions to APC equal to 49/51 of the cost of APC's PCS license. Additional capital contributions may be required in the event APC is unable to finance the full cost of its PCS license. WirelessCo may also be required to finance the build- out expenditures for APC's PCS system. Cox, which holds a pioneer preference PCS license for the Los Angeles-San Diego market, and WirelessCo have also agreed on the general terms and conditions upon which Cox (with a 51% interest) and WirelessCo (with a 49% interest) would form a partnership to hold and develop a PCS system using the Los Angeles-San Diego license. APC and the Cox partnership would affiliate their PCS systems with WirelessCo and be part of WirelessCo's nationwide integrated network, offering wireless communications services under the "Sprint" brand. During 1994, subsidiaries of Cox, Sprint and TCIC also formed a separate partnership ("PhillieCo"), in which TCIC owns a 35.3% interest. PhillieCo was the winning bidder in the first round auction for a PCS license for the Philadelphia market at a license cost of $85 million. To the extent permitted by law, the PCS system to be constructed by PhillieCo would also be affiliated with WirelessCo's nationwide network. WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest in, affiliate with or acquire licenses from other successful bidders. The capital that WirelessCo will require to fund the construction of the PCS systems, in addition to the license costs and investments described above, will be substantial. In March of 1995, the Cable Partners and Sprint (collectively, the "Partners") formed two new partnerships, of which the principal partnership is MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests in WirelessCo and through which they formed another partnership, NewTelco, L.P. ("NewTelco") to engage in the business of providing local wireline communications services to residences and businesses on a nationwide basis. The Cable Partners agreed to contribute their interests in Teleport Communications Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco. TCG is one of the largest competitive access providers in the United States in terms of route miles. I-2 Effective January 31, 1996, the Partners amended the MajorCo partnership agreement (the "Partnership Agreement") and certain other agreements related thereto. Under the Partnership Agreement, the business of MajorCo and its subsidiaries will be the provision of certain wireless and other services described in the Partnership Agreement. The Partners intend for WirelessCo and its subsidiary partnerships to be the exclusive vehicles through which they engage in the wireless telephony service businesses, subject to certain exceptions. MajorCo will no longer be authorized to engage in the business of providing local wireline communications services to residences and businesses. In connection with the amendment of the Partnership Agreement, the Partners also agreed to the termination of the agreement to contribute the Cable Partners' interests in TCG to NewTelco. Pursuant to separate agreements, each of the Cable Partners and Sprint have agreed to negotiate in good faith on a market-by-market basis for the provision of local wireline telephony services over the cable television facilities of the respective Cable Partner under the Sprint brand. Accordingly, local wireline telephony offerings in each market would be the subject of individual agreements to be negotiated with Sprint, rather than being provided by MajorCo, as originally contemplated. The Cable Partners and Sprint also reaffirmed their intention to continue to attempt to integrate the business of TCG with that of MajorCo. In addition, each Cable Partner agreed to certain restrictions on its ability to offer, promote, or package certain of its products or services with certain products and services of other persons and agreed to make its facilities available to Sprint for specified purposes to the extent and on the terms that it has made such facilities available to others for such purposes. Such agreements have a term of five years, but under certain circumstances may terminate after three years. Execution of the foregoing agreements was a condition to the effectiveness of a previously approved business plan for the build out of WirelessCo's nationwide network for wireless personal communications services. Pursuant to the business plan, the Partners are obligated to make additional cash capital contributions to MajorCo in the aggregate amount of approximately $1.9 billion during the two-year period that commenced January 1, 1996. The business plan contemplates that MajorCo will require additional equity thereafter. In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the purchase by TCIC of all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the time of purchase, will own Viacom's cable systems and related assets. The transaction has been structured as a tax-free reorganization in which Cable Sub will initially transfer all of its non-cable assets, as well as all of its liabilities other than current liabilities, to a new subsidiary of Viacom ("New Viacom Sub"). Cable Sub will also transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to be arranged by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub will retain cable assets with an estimated value at closing of approximately $2.2 billion and the obligation to repay the Loan Proceeds borrowed under the Loan Facility. Viacom will offer to the holders of shares of Viacom Class A Common Stock and Viacom Class B Common Stock (collectively, "Viacom Common Stock") the opportunity to exchange (the "Exchange Offer") a portion of their shares of Viacom Common Stock for shares of Class A Common Stock, par value $100 per share, of Cable Sub ("Cable Sub Class A Stock"). The Exchange Offer will be subject to a number of conditions, including a condition (the "Minimum Condition") that sufficient tenders are made of Viacom Common Stock that permit the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange Offer to equal the total number of shares of Cable Sub Class A Stock issuable in the Exchange Offer. I-3 Immediately following the completion of the Exchange Offer, TCIC will acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350 million (which will be used to reduce Cable Sub's obligations under the Loan Facility). At the time of such acquisition, the Cable Sub Class A Stock received by Viacom stockholders pursuant to the Exchange Offer will automatically convert into a series of senior cumulative exchangeable preferred stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of $100 per share (the "Stated Value"). The terms of the Exchangeable Preferred Stock, including its dividend, redemption and exchange features, will be designed to cause the Exchangeable Preferred Stock, in the opinion of two investment banks, to initially trade at the Stated Value. The Exchangeable Preferred Stock will be exchangeable, at the option of the holder commencing after the fifth anniversary of the date of issuance, for shares of Series A TCI Group Stock. If insufficient tenders are made by Viacom stockholders in the Exchange Offer to permit the Minimum Condition to be satisfied, Viacom will extend the Exchange Offer for up to 15 business days and, during such extension, TCI and Viacom are to negotiate in good faith to determine mutually acceptable changes to the terms and conditions for the Exchangeable Preferred Stock and the Exchange Offer that each believes in good faith will cause the Minimum Condition to be fulfilled and that would cause the Exchangeable Preferred Stock to trade at a price equal to the Stated Value immediately following the expiration of the Exchange Offer. In the event the Minimum Condition is not thereafter met, TCI and Viacom will each have the right to terminate the transaction. In addition, either party may terminate the transaction if the Exchange Offer has not commenced by June 24, 1996 or been consummated by July 24, 1996. Consummation of the transaction is subject to a number of conditions, including receipt of a favorable letter ruling from the Internal Revenue Service that the transaction qualifies as a tax-free transaction and the satisfaction or waiver of all of the conditions of the Exchange Offer. A request for a letter ruling from the Internal Revenue Service has been filed by Viacom. TCIC believes that, based upon the unique and complex structure of the transaction, there exists significant uncertainty as to whether a favorable ruling will be obtained. In light of the foregoing, management of TCIC has concluded that consummation of the transaction is not yet probable. No assurance can be given that the transaction will be consummated. During the fourth quarter of 1994, TCI was reorganized based upon four lines of business: Domestic Cable and Communications; Programming; International Cable and Programming; and Technology/Venture Capital. (b) Financial Information about Industry Segments --------------------------------------------- The Company operates in the cable and communications services industry. (c) Narrative Description of Business --------------------------------- General. Cable television systems receive video, audio and data signals transmitted by nearby television and radio broadcast stations, terrestrial microwave relay services and communications satellites. Such signals are then amplified and distributed by coaxial cable and optical fiber to the premises of customers who pay a fee for the service. In many cases, cable television systems also originate and distribute local programming. I-4 Service Charges. The Company offers a limited "basic service" (primarily comprised of local broadcast signals and public, educational and governmental access channels) and an "expanded" tier (primarily comprised of specialized programming services, in such areas as health, family entertainment, religion, news, weather, public affairs, education, shopping, sports and music). The monthly fee for "basic service " generally ranges from $8.00 to $10.00, and the monthly service fee for the "expanded" tier generally ranges from $11.00 to $15.00. The Company offers "premium services" (referred to in the cable television industry as "Pay-TV" and "pay-per-view") to its customers. Such services consist principally of feature films, as well as live and taped sports events, concerts and other programming. The Company offers Pay-TV services for a monthly fee generally ranging from $9.00 to $15.00 per service, except for certain movie or sports services (such as various regional sports networks and certain pay-TV channels) offered at $1.00 to $5.00 per month, pay-per-view movies offered separately generally at $3.00 per movie and certain pay-per-view events offered separately at $10.00 to $50.00 per event. Charges are usually discounted when multiple Pay-TV services are ordered. The Company generally does not charge for additional outlets in a subscriber's home. As further enhancements to their cable services, customers may generally rent converters, with or without a remote control device, for a monthly charge ranging from $0.50 to $3.00 each, as well as purchase a channel guide for a monthly charge ranging from $1.00 to $2.00. Also a nonrecurring installation charge (which is based upon the FCC's rules which regulate hourly service charges for each individual cable system) of up to $60.00 is usually charged. Monthly fees for basic and Pay-TV services to commercial customers vary widely depending on the nature and type of service. Except under the terms of certain contracts to provide service to commercial accounts, customers are free to discontinue service at any time without penalty. As noted below, the Company's service offerings and rates were affected by rate regulations issued by the FCC in 1993 and 1994. See Regulation and Legislation below. Subscriber Data. TCIC operates its cable television systems either directly through its regional operating divisions or indirectly through certain subsidiaries or affiliated companies. Basic and Pay-TV cable and satellite customers served by TCIC and its consolidated subsidiaries are summarized as follows (amounts in millions):
Basic subscribers at December 31, --------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Managed through the Company's regional operating divisions (1) 11.8 10.5 9.8 9.4 6.4 TKR Cable II, Inc. and TKR Cable III, Inc. (2) 0.3 0.3 0.3 0.3 -- United Artists Entertainment Company ("UAE") (3) -- -- -- -- 2.3 Other non-managed subsidiaries 0.3 0.3 0.2 0.2 0.2 ---- ---- ---- ---- ---- 12.4 11.1 10.3 9.9 8.9 ==== ==== ==== ==== ====
I-5
Pay TV subscribers at December 31, ---------------------------------- 1995 1994 1993 1992 1991 ------ ----- ----- ----- ----- Managed through the Company's regional operating divisions (1) 13.2 11.4 9.5 8.8 6.1 TKR Cable II, Inc. and TKR Cable III, Inc. (2) 0.2 0.2 0.2 0.3 -- UAE (3) -- -- -- -- 2.2 Other non-managed subsidiaries (4) 0.2 0.2 0.2 0.2 0.1 ---- ---- ---- ---- ---- 13.6 11.8 9.9 9.3 8.4 ==== ==== ==== ==== ====
_______________________ (1) In December of 1992, SCI Holdings, Inc. ("SCI") consummated a transaction (the "Split-Off") that resulted in the ownership of its cable television systems being split between its two stockholders, which stockholders were Comcast and the Company. The Split-Off was effected by the distribution of approximately 50% of the net assets of SCI to three holding companies formed by the Company (the "Holding Companies"). Immediately following the Split-Off, the Company owned a majority of the common stock of the Holding Companies. As such, the Company, which previously accounted for its investment in SCI using the equity method, now consolidates its investment in the Holding Companies. One of the Holding Companies, TKR Cable I, Inc., is managed through the Company's regional operating divisions. (2) Management of the remaining two Holding Companies was assumed by an affiliated company of TCIC in December of 1992. (3) Management assumed by the Company's regional operating divisions in January of 1992. At December 31, 1995, TCIC operated substantially all of its consolidated cable television systems through four regional operating divisions -- Central, Great Lakes, Southeast and West. The table below sets forth certain statistical data of TCIC's regional operating divisions as of December 31, 1995.
Estimated homes Basic Basic Pay-TV Pay Division passed subscribers penetration (1) subscriptions (2) penetration (3) - - ----------------- --------- ----------- --------------- ----------------- --------------- amounts in millions, except for percentages Central (4) 4.1 2.4 59% 2.8 117% Great Lakes (5) 6.3 4.2 67% 4.3 102% Southeast (6) 4.0 2.5 63% 3.0 120% West (7) 4.4 2.7 61% 3.1 115% ---- ---- ---- Total 18.8 11.8 63% 13.2 112% ==== ==== ====
_____________________ (1) Calculated by dividing the number of basic subscribers by the number of estimated homes passed. I-6 (2) A basic customer may subscribe to one or more Pay-TV services and the number of Pay-TV subscriptions reflected represents the total number of such subscriptions to Pay-TV services. (3) Calculated by dividing the number of Pay-TV subscriptions by the number of basic subscribers. (4) Central operating division includes cable television systems located in Colorado, Kansas, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming. (5) Great Lakes operating division includes cable television systems located in Connecticut, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, West Virginia and Wisconsin. (6) Southeast operating division includes cable television systems located in Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Iowa, Louisiana, Maryland, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Virginia. (7) West operating division includes cable television systems located in Arizona, California, Idaho, Nevada, Montana, Oregon, Utah and Washington. TCIC operates cable television systems throughout the continental United States and, through certain joint ventures accounted for under the equity method. In addition to cable television subscribers, TCIC has satellite customers from an equity interest in a direct broadcast satellite partnership, PrimeStar Partners ("Primestar"). At December 31, 1995, TCIC had approximately 550,000 Primestar subscribers. The Company has entered into long-term agreements with a majority of its program suppliers in order to obtain favorable rates for programming and to protect the Company from unforeseen future increases in the Company's cost of programming. Local Franchises. Cable television systems generally are constructed and operated under the authority of nonexclusive permits or "franchises" granted by local and/or state governmental authorities. Federal law, including the Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), limits the power of the franchising authorities to impose certain conditions upon cable television operators as a condition of the granting or renewal of a franchise. Franchises contain varying provisions relating to construction and operation of cable television systems, such as time limitations on commencement and/or completion of construction; quality of service, including (in certain circumstances) requirements as to the number of channels and broad categories of programming offered to subscribers; rate regulation; provision of service to certain institutions; provision of channels for public access and commercial leased-use; and maintenance of insurance and/or indemnity bonds. The Company's franchises also typically provide for periodic payments of fees, generally ranging from 3% to 5% of revenue, to the governmental authority granting the franchise. Franchises usually require the consent of the franchising authority prior to a transfer of the franchise or a transfer or change in ownership or operating control of the franchisee. I-7 Subject to applicable law, a franchise may be terminated prior to its expiration date if the cable television operator fails to comply with the material terms and conditions thereof. Under the 1984 Cable Act, if a franchise is lawfully terminated, and if the franchising authority acquires ownership of the cable television system or effects a transfer of ownership to a third party, such acquisition or transfer must be at an equitable price or, in the case of a franchise existing on the effective date of the 1984 Cable Act, at a price determined in accordance with the terms of the franchise, if any. In connection with a renewal of a franchise, the franchising authority may require the cable operator to comply with different and more stringent conditions than those originally imposed, subject to the provisions of the 1984 Cable Act and other applicable Federal, state and local law. The 1984 Cable Act, as supplemented by the renewal provisions of the 1992 Cable Act, establishes an orderly process for franchise renewal which protects cable operators against unfair denials of renewals when the operator's past performance and proposal for future performance meet the standards established by the 1984 Cable Act. The Company believes that its cable television systems generally have been operated in a manner which satisfies such standards and allows for the renewal of such franchises; however, there can be no assurance that the franchises for such systems will be successfully renewed as they expire. Most of the Company's present franchises had initial terms of approximately 10 to 15 years. The duration of the Company's outstanding franchises presently varies from a period of months to an indefinite period of time. Approximately 1,100 of the Company's franchises expire within the next five years. This represents approximately twenty-five percent of the franchises held by the Company and involves approximately 4.4 million basic subscribers. Technological Changes. Cable operators have traditionally used coaxial cable for transmission of television signals to subscribers. Optical fiber is a technologically advanced transmission medium capable of carrying cable television signals via light waves generated by a laser. The Company is installing optical fiber technology in its cable systems at a rate such that in approximately two years TCIC anticipates that it will be serving the majority of its customers with this technology. The systems, which facilitate digital transmission of voice, video and data signals as discussed below, will have optical fiber to neighborhood nodes with coaxial cable distribution downstream from that point. Compressed digital video technology converts as many as ten analog signals (now used to transmit video and voice) into a digital format and compresses such signals (which is accomplished primarily by eliminating the redundancies in television imagery) into the space normally occupied by one analog signal. The digitally compressed signal will be uplinked to a satellite, which will send the signal back down to a customer's satellite dish or to a cable system's headend to be distributed, via optical fiber and coaxial cable, to the customer's home. At the home, a set-top video terminal will convert the digital signal back into analog channels that can be viewed on a normal television set. The Company anticipates that it will begin offering such technology to its cable subscribers in three markets in late 1996 and intends to make such service available to approximately one-third of its cable subscribers by the end of 1997, depending upon the availability of set-top video terminals. However, since 1994, the Company has encountered repeated delays in the production and delivery of such devices by its suppliers. The Company will be required to further upgrade its existing distribution system to enable it to provide additional advanced services, such as two-way interactive technology. The Company is dependent upon further technological advances to enable it to provide such interactive services. During 1994, the Company established the National Digital Television Center ("NDTC") in Denver to compress, uplink, encrypt and authorize reception of digital television signals as well as provide digital television and multimedia production services. The NDTC currently has established long term contracts to provide services to 16 content providers, digitally compressing and/or distributing more than 125 channels of programming. I-8 Competition. Cable television competes for customers in local markets with other providers of entertainment, news and information. The competitors in these markets include broadcast television and radio, newspapers, magazines and other printed material, motion picture theatres, video cassettes and other sources of information and entertainment including directly competitive cable television operations. Both the 1992 Cable Act and the recently enacted Telecommunications Act of 1996 ("1996 Telecom Act") are designed to increase competition in the cable television industry. See Regulation and Legislation below. There are alternative methods of distributing the same or similar video programming offered by cable television systems. Further, these technologies have been encouraged by Congress and the FCC to offer services in direct competition with existing cable systems. A significant competitive impact is expected from medium power and higher power direct broadcast satellites ("DBS") that use high frequencies to transmit signals that can be received by dish antennas much smaller in size than traditional home satellite dishes ("HSDs"). The Company has an interest in an entity, Primestar, which provides programming and marketing support to its partners who distribute a multi-channel programming service via a medium power communications satellite to HSDs of approximately 3 feet in diameter. At December 31, 1995, Primestar, through its partners, served an estimated 940,000 HSDs in the United States. Two other DBS operators, DirecTV, a subsidiary of GM Hughes Electronics, and United States Satellite Broadcasting, a subsidiary of Hubbard Broadcasting, Inc., offer video services that can be received by HSDs that measure approximately eighteen inches in diameter. Such DBS operators have the right to distribute substantially all of the significant cable television programming services currently carried by cable television systems. The competition from DBS will likely continue to grow. One DBS operator is preparing to launch a new DBS satellite. AT&T Corp. recently made a large investment in DirecTV and several other major companies are preparing the develop and operate high-power DBS systems, including MCI Communications Corp. ("MCI") and News Corp. MCI recently acquired rights to satellite frequencies for DBS in an FCC auction. DBS has advantages and disadvantages as an alternative means of distributing video signals to the home. Among the advantages are that the capital investment (although initially high) for the satellite and uplinking segment of a DBS system is fixed and does not increase with the number of subscribers receiving satellite transmissions; that DBS is not currently subject to local regulation of service and prices or required to pay franchise fees; and that the capital costs for the ground segment of a DBS system (the reception equipment) are directly related to, and limited by, the number of service subscribers. DBS's disadvantages presently include limited ability to tailor the programming package to the interests of different geographic markets, such as providing local news, other local origination services and local broadcast stations; signal reception being subject to line of sight angles; and intermittent interference from atmospheric conditions and terrestrially generated radio frequency noise. Although the effect of competition from these DBS services cannot be specifically predicted, it is clear there has been significant growth in DBS subscribers and the Company assumes that such DBS competition will be substantial in the near future as developments in technology continue to increase satellite transmitter power and decrease the cost and size of equipment needed to receive these transmissions, and enable DBS to overcome the aforementioned disadvantages. Further, the extensive national advertising of DBS programming packages, including certain sports packages not currently available on cable television systems, will likely continue the rapid growth in DBS subscribers. I-9 The 1996 Telecom Act eliminated the statutory and regulatory restrictions that prevented telephone companies from competing with cable operators for the provision of video services by any means. See "Regulation and Legislation" section. The 1996 Telecom Act allows local telephone companies, including the regional bell operating companies, to compete with cable television operators both inside and outside their telephone service areas. The Company expects that it will face substantial competition from telephone companies for the provision of video services, whether it is through the acquisition of cable systems through the provision of wireless cable, or through the provision of upgraded telephone networks. The Company assumes that all major telephone companies have already entered or soon will enter the business of providing video services. Most major telephone companies have greater financial resources than the Company, and the 1992 Cable Act ensures that telephone company providers of video services will have access to acquiring all of the significant cable television programming services. The specific manner in which telephone company provision of video services will be regulated is described under Regulation and Legislation below. Additionally, the 1996 Telecom Act eliminates certain federal restrictions on utility holding companies and thus frees all utility companies to provide cable television services. The Company expects this could result in another source of significant competition in the delivery of video services. Another alternative method of distribution is multi-channel multi-point distribution systems ("MMDS"), which deliver programming services over microwave channels received by subscribers with special antennas. MMDS systems are less capital intensive, are not required to obtain local franchises or pay franchise fees, and are subject to fewer regulatory requirements than cable television systems. The 1992 Cable Act also ensures that MMDS systems have access to acquire all significant cable television programming services. Although there are relatively few MMDS systems in the United States currently in operation, virtually all markets have been licensed or tentatively licensed. The FCC has taken a series of actions intended to facilitate the development of wireless cable systems as an alternative means of distributing video programming, including reallocating the use of certain frequencies to these services and expanding the permissible use of certain channels reserved for educational purposes. The FCC's actions enable a single entity to develop an MMDS system with a potential of up to 35 channels, and thus compete more effectively with cable television. Developments in compression technology will significantly increase the number of channels that can be made available from MMDS. Further, in 1995, several large telephone companies acquired significant ownership in numerous MMDS companies. This infusion of money into the MMDS industry can be expected to accelerate its growth and its competitive impact. Within the cable television industry, cable operators may compete with other cable operators or others seeking franchises for competing cable television systems at any time during the terms of existing franchises or upon expiration of such franchises in expectation that the existing franchise will not be renewed. The 1992 Cable Act promotes the granting of competitive franchises. An increasing number of cities are exploring the feasibility of owning their own cable systems in a manner similar to city-provided utility services. The Company also competes with Master Antenna Television ("MATV") systems and Satellite MATV ("SMATV") systems, which provide multi-channel program services directly to hotel, motel, apartment, condominium and similar multi-unit complexes within a cable television system's franchise area, generally free of any regulation by state and local governmental authorities. I-10 Although long distance telephone companies had no legal prohibition on the provision of video services, they have historically not been providers of such services in competition with cable systems. However, such companies may prove to be a source of competition in the future. The long distance companies are expected to expand into local markets with local telephone and other offerings (including video services) in competition with the regional bell operating companies, which under the 1996 Telecom Act have been released, upon the terms and conditions of the 1996 Telecom Act, from the legal prohibitions on their ability to enter the long distance service market. In addition to competition for subscribers, the cable television industry competes with broadcast television, radio, the print media and other sources of information and entertainment for advertising revenue. As the cable television industry has developed additional programming, its advertising revenue has increased. Cable operators sell advertising spots primarily to local and regional advertisers. The Company has no basis upon which to estimate the number of cable television companies and other entities with which it competes or may potentially compete. There are a large number of individual and multiple system cable television operators in the United States but, measured by the number of basic subscribers, the Company is the largest provider of cable television services. The full extent to which other media or home delivery services will compete with cable television systems may not be known for some time and there can be no assurance that existing, proposed or as yet undeveloped technologies will not become dominant in the future. Regulation and Legislation. The operation of cable television systems is extensively regulated through a combination of Federal legislation and FCC regulations, by some state governments and by most local government franchising authorities such as municipalities and counties. On February 8, 1996, the 1996 Telecom Act was signed into law. This new law will alter federal, state and local laws and regulations regarding telecommunications providers and cable television service providers, including the Company. The discussion below summarizes the 1996 Telecom Act and reviews the pre-existing federal cable television regulation as revised by the 1996 Telecom Act. The Telecommunications Act of 1996. The following is a summary of certain provisions of the 1996 Telecom Act which could materially affect the growth and operation of the cable television industry and the cable and telecommunications services provided by the Company. There are numerous rulemakings to be undertaken by the FCC which will interpret and implement the provisions discussed below. It is not possible at this time to predict the outcome of such rulemakings. Cable Rate Regulation. Rate regulation of the Company's cable television --------------------- services is divided between the FCC and local units of government such as states, counties or municipalities. The FCC's jurisdiction extends to the cable programming service tier ("CPST"), which consists largely of satellite-delivered programming (excluding basic tier programming and programming offered on a per- channel or per-program basis). Local units of governments (commonly referred to as local franchising authorities or "LFAs") are primarily responsible for regulating rates for the basic tier of cable service ("BST"), which will typically contain at least the local broadcast stations and Public Access, Educational and Government ("PEG") channels. Equipment rates are also regulated by LFAs. The FCC retains appeal jurisdiction from LFA decisions. Cable services offered on a per-channel or per-program-only basis remain unregulated. I-11 The 1996 Telecom Act eliminates CPST rate regulation for the Company as of March 31, 1999. In the interim, CPST rate regulation can be triggered only by an LFA complaint to the FCC. An LFA complaint must be based upon more than one subscriber complaint. Prior to the 1996 Telecom Act, an FCC review of CPST rates could be occasioned by a single subscriber complaint to the FCC. The 1996 Telecom Act does not disturb existing or pending CPST rate settlements between the Company and the FCC. The Company's BST rates remain subject to LFA regulation under the 1996 Telecom Act. Existing law precludes rate regulation wherever a cable operator faces "effective competition." The 1996 Telecom Act expands the definition of effective competition to include any franchise area where a local exchange carrier (or affiliate) provides video programming services to subscribers by any means other than through direct broadcast satellite. There is no penetration minimum for the local exchange carrier to qualify as an effective competitor, but it must provide "comparable" programming services (12 channels including some broadcast channels) in the franchise area. Under the 1996 Telecom Act, the Company will be allowed to aggregate on a franchise, system, regional or company level, its equipment costs into broad categories, such as converter boxes, regardless of the varying levels of functionality of the equipment within each such broad category. The 1996 Telecom Act will allow the Company to average together costs of different types of converters (including non-addressable, addressable, and digital). The statutory changes will also facilitate the rationalizing of equipment rates across jurisdictional boundaries. These cost-aggregation rules do not apply to the limited equipment used by "BST-only" subscribers. Cable Uniform Rate Requirements. The 1996 Telecom Act immediately relaxes ------------------------------- the "uniform rate" requirements of the 1992 Cable Act by specifying such requirements do not apply where the operator faces "effective competition," and by exempting bulk discounts to multiple dwelling units, although complaints about "predatory" pricing may be made to the FCC. Upon a prima facie showing that there are reasonable grounds to believe that the discounted price is predatory, the cable system operator will have the burden of proving otherwise. System Sales. The 1996 Telecom Act changes the definition of a "cable ------------ system" so that competitive providers of video services will only be regulated and franchised as a cable system if they use public rights-of-way. Cable Pole Attachments. Under the 1996 Telecom Act, investor-owned ---------------------- utilities must make poles and conduits available to cable systems under delineated terms. Electric utilities are given the right to deny access to particular poles on a nondiscriminatory basis for lack of capacity, safety, reliability, and generally accepted engineering purposes. The current method for determining rates charged by telephone and utility companies for cable delivery of cable and non-cable services will continue for five years. However, the FCC will establish a new formula for poles used by cable operators for telecommunications services which will result in higher pole rental rates for cable operators. Any increases pursuant to this formula may not begin for 5 years and will be phased in in equal increments over years 5 through 10. This new FCC formula does not apply in states which certify they regulate pole rents. Pole owners must impute pole rentals to themselves if they offer telecommunications or cable services. Cable operators need not pay future "make-ready" on poles currently contracted if the make-ready is required to accommodate the attachments of another user, including the pole owner. I-12 Cable Entry Into Telecommunications. The 1996 Telecom Act declares that no ----------------------------------- state or local laws or regulations may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. States are authorized to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection. The 1996 Telecom Act further provides that cable operators and affiliates providing telecommunications services are not required to obtain a separate franchise from LFAs for such services. The 1996 Telecom Act prohibits LFAs from requiring cable operators to provide telecommunications service or facilities as a condition of a grant of a franchise, franchise renewal, or franchise transfer, except that LFAs can seek "institutional networks" as part of such franchise negotiations. The 1996 Telecom Act clarifies that traditional cable franchise fees may only be based on revenues related to the provision of cable television services. However, when cable operators provide telecommunications services, LFAs may require reasonable, competitively neutral compensation for management of the public rights-of-way. To facilitate the entry of new telecommunications providers (including cable operators), the 1996 Telecom Act imposes interconnection obligations on all telecommunications carriers. All carriers must interconnect their networks with other carriers and may not deploy network features and functions that interfere with interoperability. Existing local exchange carriers ("LECs") also have the following obligations: (1) good faith negotiation with those seeking interconnection; (2) unbundling, equal access and non-discrimination requirements; (3) resale of services, including "resale at wholesale rates" (with an exception for certain low-priced residence services to business customers); (4) notice of changes in the network that would affect interconnection and interoperability; and (5) physical collocation unless shown that practical technical reasons, or space limitations, make physical collocation impractical. The FCC has six months to "complete all actions necessary to establish regulations" needed to effectuate this section. The 1996 Telecom Act also directs the FCC, within one year of enactment, to adopt regulations for existing LECs to share infrastructure with qualifying carriers. Under the 1996 Telecom Act, individual interconnection rates must be just and reasonable, based on cost, and may include a reasonable profit. Cost of interconnection will not be determined in a rate of return proceeding. Traffic termination charges shall be "mutual and reciprocal." The 1996 Telecom Act contemplates that interconnection agreements will be negotiated by the parties and submitted to a state public service commission ("PSC") for approval. A PSC may become involved, at the request of either party, if negotiations fail. If the state regulator refuses to act, the FCC may determine the matter. If the PSC acts, an aggrieved party's remedy is to file a case in federal district court. The 1996 Telecom Act requires that all telecommunications providers (including cable operators that provide telecommunications services) must contribute equitably to a Universal Service Fund ("USF"), although the FCC may exempt an interstate carrier or class of carriers if their contribution would be minimal under the USF formula. The 1996 Telecom Act allows states to determine which intrastate telecommunications providers contribute to the USF. The purpose of the USF is to provide consumers in all regions, including low-income consumers and those consumers in rural, insular and high-cost areas, access to telecommunications and information services that are reasonably comparable to those services in urban areas at reasonably comparable rates. I-13 Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows --------------------------------------------- telephone companies to compete directly with cable operators by repealing the telephone company-cable cross-ownership ban and the FCC's video dialtone regulations. This will allow LECs, including the regional bell operating companies, to compete with cable operators both inside and outside their telephone service areas. If a LEC provides video via radio waves, it is subject to broadcast jurisdiction. If a LEC provides common carrier channel service it is subject to common carrier jurisdiction. A LEC providing video programming to subscribers is otherwise regulated as a cable operator (including franchising, leased access, and customer service requirements), unless the LEC elects to provide its programming via an "open video system." LEC owned programming services will also be fully subject to program access requirements. The 1996 Telecom Act replaces the FCC's video dialtone rules with an "open video system" ("OVS") plan by which LECs can provide cable service in their telephone service area. LECs complying with the FCC OVS regulations will receive relaxed oversight. The 1996 Telecom Act requires the FCC to act on any such OVS certification within ten days of its filing. Only the program access, negative option billing prohibition, subscriber privacy, EEO, PEG, must-carry and retransmission consent provisions of the Communications Act of 1934, as amended, will apply to LECs providing OVS. Franchising, rate regulation, consumer service provisions, leased access and equipment compatibility will not apply. Cable copyright provisions will apply to programmers using OVS. LFAs may require OVS operators to pay "franchise fees" only to the extent that the OVS provider or its affiliates provide cable services over the OVS. OVS operators will be subject to LFA general right-of-way management regulations. Such fees may not exceed the franchise fees charged to cable operators in the area, and the OVS provider may pass through the fees as a separate subscriber bill item. The 1996 Telecom Act requires the FCC to adopt, within six months, regulations prohibiting an OVS operator from discriminating among programmers, and ensuring the OVS rates, terms, and conditions for service are reasonable and nondiscriminatory. Further, the FCC is to adopt regulations prohibiting a LEC- OVS operator, or its affiliates, from occupying more than one-third of the system's activated channels when demand for channels exceeds supply, although there are no numeric limits. The 1996 Telecom Act also mandates OVS regulations governing channel sharing; extending the FCC's sports exclusivity, network nonduplication, and syndex regulations; and controlling the positioning of programmers on menus and program guides. The 1996 Telecom Act does not require LECs to use separate subsidiaries to provide incidental interLATA video or audio programming services to subscribers or for their own programming ventures. While there remains a general prohibition on LEC buyouts of cable systems (any ownership interest exceeding 10 percent), cable operator buyouts of LEC systems, and joint ventures between cable operators and LECs in the same market, the 1996 Telecom Act provides exceptions. A rural exemption permits buyouts where the purchased system serves an area with fewer than 35,000 inhabitants outside an urban area. Where a LEC purchases a cable system, that system plus any other system in which the LEC has an interest may not serve 10% or more of the LEC's telephone service area. Additional exceptions are also provided for such buyouts. The 1996 Telecom Act also provides the FCC with the power to grant waivers of the buyout provisions in cases where (1) the cable operator or LEC would be subject to undue economic distress, (2) the system or facilities would not be economically viable, or (3) the anticompetitive effects of the proposed transaction are clearly outweighed by the effect of the transaction in meeting community needs. The LFA must approve any such waiver. I-14 Electric Utility Entry Into Telecommunications/Cable Television. The 1996 --------------------------------------------------------------- Telecom Act provides that registered utility holding companies and subsidiaries may provide telecommunications services (including cable television) notwithstanding the Public Utilities Holding Company Act. Electric utilities must establish separate subsidiaries, known as "exempt telecommunications companies" and must apply to the FCC for operating authority. It is anticipated that large utility holding companies will become significant competitors to both cable television and other telecommunications providers. Cross-Ownership and Must Carry. The 1996 Telecom Act eliminates ------------------------------ broadcast/cable cross-ownership restrictions (including broadcast network/cable restrictions), but leaves in place FCC regulations prohibiting local cross- ownership between television stations and cable systems. The FCC is empowered by the 1996 Telecom Act to adopt rules to ensure carriage, channel positioning and non-discriminatory treatment of non-affiliated broadcast stations by cable systems affiliated with a broadcast network. The SMATV and MMDS cable cross- ownership restrictions have been eliminated for cable operators subject to effective competition. The 1996 Telecom Act preserves must carry rights for local television broadcasters, and clarifies that the geographic scope of must carry is to be based on commercial publications which delineate television markets based on viewing patterns. The FCC is directed to grant or deny must carry requests within 120 days of a complaint being filed with the FCC. Cable Equipment Compatibility and Scrambling Requirements. The 1996 --------------------------------------------------------- Telecom Act directs an FCC equipment comparability rulemaking emphasizing that (1) narrow technical standards, mandating a minimum degree of common design among televisions, VCRs, and cable systems, and relying heavily on the open marketplace, should be pursued; (2) competition for all converter features unrelated to security descrambling should be maximized; and (3) adopted standards should not affect unrelated telephone and computer features. The 1996 Telecom Act directs the FCC to adopt regulations which assure the competitive availability of converters, ("navigation devices") from vendors other than cable operators. The 1996 Telecom Act provides that the FCC's rules may not impinge upon signal security concerns or theft of service protections. Waivers will be possible where the cable operator shows the waiver is necessary for the introduction of new services. Once the equipment market becomes competitive, FCC regulations in this area will be terminated. The 1996 Telecom Act requires cable operators, upon subscriber request, to fully scramble or block at no charge the audio and video portion of any channel not specifically subscribed to by a household. Further, the 1996 Telecom Act provides that sexually explicit programming must be fully scrambled or blocked. If the cable operator cannot fully scramble or block its signal, it must restrict transmission to those hours of the day when children are unlikely to view the programming. Cable Provision of Internet Services. Transmitting indecent material via ------------------------------------ the Internet is made criminal by the 1996 Telecom Act. However, on-line access providers are exempted from criminal liability for simply providing interconnection service; they are also granted an affirmative defense from criminal or other action where in "good faith" they restrict access to indecent materials. The 1996 Telecom Act further exempts on-line access providers from civil liability for actions taken in good faith to restrict access to obscene, excessively violent or otherwise objectionable material. I-15 Pre-existing Federal Regulation. The 1984 Cable Act and 1992 Cable Act extensively regulated the cable television industry and the vast majority of that regulation remains unchanged by the 1996 Telecom Act. Among other things, the 1984 Cable Act (a) requires cable television systems with 36 or more "activated" channels to reserve a percentage of such channels for commercial use by unaffiliated third parties; (b) permits franchise authorities to require the cable operator to provide channel capacity, equipment and facilities for public, educational and governmental access; and (c) regulates the renewal of franchises. The 1992 Cable Act greatly expanded federal and local regulation of the cable television industry. The Company believes that the 1992 Cable Act taken as a whole has had and will continue to have a material adverse impact upon the cable industry in general and upon the Company's cable operations specifically. See related discussion under the caption Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain of the more significant areas of regulation imposed by the 1992 Cable Act are discussed below. Regulation of Program Licensing. The 1992 Cable Act directed the FCC to ------------------------------- promulgate regulations regarding the sale and acquisition of cable programming between multichannel video program distributors (including cable operators) and programming services in which a cable operator has an attributable interest. The legislation and the implementation regulations adopted by the FCC preclude most exclusive programming contracts (unless the FCC first determines the contract serves the public interest) and generally prohibit a cable operator which has an attributable interest in a programmer from improperly influencing the terms and conditions of sale to unaffiliated multichannel video program distributors. Further, the 1992 Cable Act requires that such cable affiliated programmers make their programming services available to cable operators and competing video technologies such as MMDS and DBS, and to telephone company providers of video services, on terms and conditions that do not unfairly discriminate among such competitors. Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC ------------------------------------- adopted regulations prohibiting cable operators from requiring a financial interest in a program service as a condition to carriage of such service, coercing exclusive rights in a programming service or favoring affiliated programmers so as to restrain unreasonably the ability of unaffiliated programmers to compete. Regulation of Cable Service Rates. The 1992 Cable Act subjected the --------------------------------- Company's cable systems to rate regulation, except in those cases where they face "effective competition". The FCC was required to establish standards and procedures governing regulation of rates for basic cable service, equipment and installation, which were then to be implemented by state and local franchising authorities. The 1992 Cable Act also required the FCC, upon complaint from a franchising authority or a cable subscriber, to review the "reasonableness" of rates for CPSTs. The 1996 Telecom Act amended the 1992 Cable Act to allow only LFAs to file complaints. Services offered on an individual basis, such as pay television and pay-per-view services, were not subject to rate regulation. On April 1, 1993, the FCC adopted rate regulations governing virtually all cable systems. Such regulations were revised on February 22, 1994. Under such regulations, existing basic and tier service rates typically are evaluated against "benchmark" rates established by the FCC and subject to mandatory reductions. Equipment and installation charges are regulated based on "actual costs". As noted above, the 1996 Telecom Act provides that rate regulation of the CPST automatically sunsets on March 31, 1999. I-16 The FCC also allowed cable operators to justify rates under "cost of service" rules, which allow "high cost" systems to establish rates in excess of the benchmark level. The FCC's interim cost of service rules allowed a cable operator to recover through rates for regulated cable services its normal operating expenses plus a rate of return equal to 11.25 percent on the rate base. However, the FCC significantly limited the inclusion in the rate base of acquisition costs in excess of the book value of tangible assets. As a result, the Company pursued cost of service justifications in only a few cases. On December 15, 1995, the FCC adopted slightly more favorable cost of service rules. The FCC's rate regulations generally permit cable operators to adjust rates to account for inflation and increases in certain external costs, including programming costs, to the extent such increases exceed the rate of inflation. However, a cable operator may pass through increases in the cost of programming services affiliated with such cable operator to the extent such costs exceed the rate of inflation only if the price charged by the programmer to the affiliated cable operator reflects either prevailing prices offered in the marketplace by the programmer to unaffiliated third parties or the fair market value of the programming. The FCC's revised regulations confirm that increases in pole attachment fees ordinarily will not be accorded external cost treatment. The FCC recently adopted a method for recovering external costs and inflation on an annual basis. The new method minimizes the need for frequent rate adjustments and the regulatory lag problems associated with the previous rate adjustment methodology. The regulations also provide mechanisms for adjusting rates when regulated tiers are affected by channel additions or deletions. Additional programming costs resulting from channel additions can be accorded the same external treatment as other program costs increases, and cable operators presently are permitted to recover a mark-up on their programming expenses. Under one option, operators are allowed a flat ($.20) fee increase per channel added to an existing CPST, with an aggregate cap on such increases ($1.20) plus a license fee reserve ($.30) through 1996. In 1997, an additional flat ($.20) fee increase will be available, and the license fees for additional channels and for increases in existing channels will no longer be subject to the aggregate cap. This optional approach for adding services is scheduled to expire on December 31, 1997. The FCC adopted additional rules that permit channels of new programming services to be added to cable systems in a separate new product tier which the FCC has determined will not be rate regulated at this time. The FCC has also adopted rules allowing operators to raise rates based on costs incurred in connection with a substantial upgrade of the cable system. The FCC provided additional rate relief for small operators that is not applicable to the Company, except to the extent it acquires systems already eligible for this favorable treatment. The Company reduced many of its existing rates and has limited rate increases to those increases allowed by FCC regulations. Such actions have had a material adverse effect on the operating income of the Company's cable systems. Many of these rate regulations are subject to change during the course of ongoing proceedings before the FCC. The Company has negotiated a rate settlement with the FCC which promises to resolve all liability for alleged overcharges in past CPST rates and to approve all existing CPST charges on a prospective basis. Under the terms of the proposed settlement (which is still awaiting final action by the FCC), the Company generally would provide a one time credit to each subscriber in a CPST regulated community. The aggregate amount of such credits is approximately $9 million. I-17 Regulation of Customer Service. As required by the 1992 Cable Act, the FCC ------------------------------ has adopted comprehensive regulations establishing minimum standards for customer service and technical system performance. Franchising authorities are allowed to enforce stricter customer service requirements than the FCC standards. Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted -------------------------------------------- broadcasters a choice of "must carry" rights or "retransmission consent" rights. By October of 1993, cable operations were required to secure permission from broadcasters that elected retransmission consent rights before retransmitting the broadcasters' signals. Local and distant broadcasters can require cable operators to make a payment as a condition to carriage of such broadcasters' station on a cable system. (Established "superstations" were not granted such rights.) The 1992 Cable Act also imposed obligations to carry "local" broadcast stations for such stations which chose a "must carry" right, as distinguished from the "retransmission consent" right described above. The rules adopted by the FCC generally provided for mandatory carriage by cable systems of all local full-power commercial television broadcast signals selecting must carry, including the signals of stations carrying home-shopping programming and, depending on a cable system's channel capacity, non-commercial television broadcast signals. The United States Supreme Court is currently reviewing the constitutionality of the must carry regulations. Ownership Regulations. The 1992 Cable Act required the FCC to (1) --------------------- promulgate rules and regulations establishing reasonable limits on the number of cable subscribers which may be served by a single multiple system cable operator or entities in which it has an attributable interest, (2) prescribe rules and regulations establishing reasonable limits on the number of channels on a cable system that will be allowed to carry programming in which the owner of such cable system has an attributable interest, and (3) consider the necessity and appropriateness of imposing limitations on the degree to which multichannel video programming distributors (including cable operators) may engage in the creation or production of video programming. On September 23, 1993, the FCC adopted regulations establishing a 30% limit on the number of homes nationwide that a cable operator may reach through cable systems in which it holds an attributable interest, (attributable for these purposes is defined as a 5% or greater ownership interest or the existence of any common directors) with an increase to 35% if the additional cable systems are minority controlled. However, the FCC stayed the effectiveness of its ownership limits pending the appeal of a September 16, 1993 decision by the United States District Court for the District of Columbia which, among other things, found unconstitutional the provision of the 1992 Cable Act requiring the FCC to establish such ownership limits. If the ownership limits are determined on appeal to be constitutional, they may affect the Company's ability to acquire interests in additional cable systems. On September 23, 1993, the FCC also adopted regulations limiting carriage by a cable operator of national programming services in which that operator holds an attributable interest (using the same attribution standards as were adopted for its limits on the number of homes nationwide that a cable operator may reach through its cable systems) to 40% of the first 75 activated channels on each of the cable operator's systems. The rules provide for the use of two additional channels or a 45% limit, whichever is greater, provided that the additional channels carry minority controlled programming services. The regulations also grandfather existing carriage arrangements which exceed the channel limits, but require new channel capacity to be devoted to unaffiliated programming services until the system achieves compliance with the regulations. Channels beyond the first 75 activated channels are not subject to such limitations, and the rules do not apply to local or regional programming services. I-18 In the same rulemaking, the FCC concluded that additional restrictions on the ability of multichannel distributors to engage in the creation or production of video programming presently are unwarranted. Under the 1992 Cable Act and the FCC's regulations, a cable operator may not hold a license for a MMDS system within the same geographic area in which it provides cable service. The 1996 Telecom Act would allow such ownership if effective competition exists in that geographic area. The 1992 Cable Act contains numerous other provisions which together with the 1984 Cable Act create a comprehensive regulatory framework. Violation by a cable operator of the statutory provisions or the rules and regulations of the FCC can subject the operator to substantial monetary penalties and other significant sanctions such as suspension of licenses and authorizations, issuance of cease and desist orders, and imposition of penalties that could be of severe consequence to the conduct of a cable operator's business. Many of the specific obligations imposed on the operation of cable television systems under these laws and regulations are complex, burdensome and increase the Company's cost of doing business. In the normal course of its business, the Company obtains licenses from the FCC for two-way communications stations, and in certain cases, microwave relay stations and other facilities. Based upon its experience and knowledge with the renewal process, the Company has no reason to believe that such licenses will not be renewed as they expire. Pursuant to lease agreements with local public utilities, the cable facilities in the Company's cable television systems are generally attached to utility poles or are in underground ducts controlled by the utility owners. The rates and conditions imposed on the Company for such attachments or occupation of utility space are generally subject to regulation by the FCC or, in some instances, by state agencies, and are subject to change. As described above, the 1996 Telecom Act significantly revises the regulation of pole attachment rates and access. Copyright Regulations. The Copyright Revision Act of 1976 (the "Copyright Act") provides cable television operators with a compulsory license for retransmission of broadcast television programming without having to negotiate with the stations or individual copyright owners for retransmission consent for the programming. The availability of the compulsory license is conditioned upon the cable operators' compliance with applicable FCC regulations, certain reporting requirements and payment of appropriate license fees, including interest charges for late payments, pursuant to the schedule of fees established by the Copyright Act and regulations promulgated thereunder. The Copyright Act also empowers the Copyright Office to periodically review and adjust copyright royalty rates based on inflation and/or petitions for adjustments due to modifications of FCC rules. The FCC has recommended to Congress the abolition of the compulsory license for cable television carriage of broadcast signals, a proposal that has received substantial support from members of Congress. Any material change in the existing statutory copyright scheme could significantly increase the costs of programming and be adverse to the business interests of the Company. I-19 State and Local Regulation. Cable television systems are generally licensed or "franchised" by local municipal or county governments and, in some cases, by centralized state authorities with such franchises being given for fixed periods of time subject to extension or renewal largely at the discretion of the issuing authority. The specific terms and conditions of such franchises vary significantly depending on the locality, population, competitive services, and a host of other factors. While this variance takes place even among systems of essentially the same size in the same state, franchises generally are comprehensive in nature and impose requirements on the cable operator relating to all aspects of cable service including franchise fees, technical requirements, channel capacity, subscriber rates, consumer and service standards, "access" channel and studio facilities, insurance and penalty provisions and the like. Local franchise authorities generally control the sale or transfer of cable systems to third parties. The franchising process, like the federal regulatory climate, is highly politicized and no assurances can be given that the Company's franchises will be extended or renewed or that other problems will not be engendered at the local level. In connection with the franchise renewal process, LFAs commonly request the provision of enhanced cable system technology as a condition of franchise renewal. The 1984 Cable Act grants certain protective procedures in connection with renewal of cable franchises, which procedures were further clarified by the renewal provisions of the 1992 Cable Act. Proposed Changes in Regulation. The regulation of cable television systems at the federal, state and local levels is subject to the political process and has been in constant flux over the past decade. Material changes in the law and regulatory requirements must be anticipated and there can be no assurance that the Company's business will not be affected adversely by future legislation, new regulation or deregulation. GENERAL ------- Legislative, administrative and/or judicial action may change all or portions of the foregoing statements relating to competition and regulation. The Company has not expended material amounts during the last three fiscal years on research and development activities. There is no one customer or affiliated group of customers to whom sales are made in an amount which exceeds 10% of the Company's consolidated revenue. Compliance with Federal, state and local provisions which have been enacted or adopted regulating the discharge of material into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, results of operations or competitive position of the Company. At December 31, 1995, the Company had approximately 32,500 employees. Of these employees, approximately 750 were located in its corporate headquarters and most of the balance were located at the Company's various facilities in the communities in which the Company owns and/or operates cable television systems. (d) Financial Information about Foreign & Domestic Operations and Export Sales -------------------------------------------------------------------------- The Company has neither material foreign operations nor export sales. I-20 Item 2. Properties. - - ------ ---------- The Company owns its executive offices in a suburb of Denver, Colorado. It leases most of its regional and local operating offices. The Company owns many of its head-end and antenna sites. Its physical cable television properties, which are located throughout the United States, consist of system components, motor vehicles, miscellaneous hardware, spare parts and other components. The Company's cable television facilities are, in the opinion of management, suitable and adequate by industry standards. Physical properties of the Company are not held subject to any major encumbrance. Item 3. Legal Proceedings. - - ------ ----------------- There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject, except as follows: On September 30, 1994, an action captioned The Carter Revocable Trust by H. -------------------------------- Allen Carter and Sharlynn Carter as Trustee v. Tele-Communications, Inc.; IR- - - ---------------------------------------------------------------------------- Daniels Partners III; Daniels Ventures, Inc.; Cablevision Equities IV; Daniels & - - -------------------------------------------------------------------------------- Associates, Inc.; and John V. Saeman, 94-N-2253, was filed in the United States - - ------------------------------------ District Court for the District of Colorado. The suit alleges that all the defendants violated disclosure requirements under the Securities Exchange Act of 1934, and that defendants IR-Daniels Partners III (now known as IR-TCI Partners III), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.) and Daniels & Associates, Inc. (now known as TCI Cablevision Associates, Inc. or "D&A") breached a fiduciary duty to plaintiff and other limited partners of American Cable TV Investors 3 (the "ACT 3 Partnership"), in connection with (i) the sale to TCI Communications, Inc. of ACT 3 Partnership's ownership interest in the Redlands System and (ii) the sale to affiliates of TCIC of ACT 3 Partnership's ownership interests in other cable television systems (the "ACT 3 Transactions"). Plaintiff brings this action on behalf of himself and purports to bring it as a class action on behalf of all persons who were limited partners of the ACT 3 Partnership as of the close of business on October 1, 1993 and who had their proxies solicited by the defendants in connection with the ACT 3 Transactions that allegedly "resulted in the dissolution of the ACT 3 Partnership and the loss of their limited partnership interests." Plaintiff seeks unspecified damages that allegedly include, but are not limited to (i) the difference between the value of ACT 3 Partnership's interest in the Redlands System (as a percentage of the appraised value of that system as determined by a 1992 appraisal) and the amount paid by TCIC for the ACT 3 Partnership's interest in the Redlands System, plus the amount of a fee paid to D&A, and (ii) the difference between the fair market value of the limited partnership interests owned by members of a putative class and value received by members of the putative class pursuant to the ACT 3 Transactions. Plaintiff also seeks interest and consequential damages. Plaintiffs moved for class certification which was granted by the Court on November 3, 1995. Factual discovery in this case is complete. The case is not currently set for trial, but there is a pre-trial conference scheduled for April 9, 1996. Defendants will be filing a Motion for Summary Judgment within the scheduling deadlines ordered by the Court. Management of the Company believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-21 On September 30, 1994, an action captioned WEBBCO v. Tele-Communications, ------------------------------ Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.; Cablevision Equities III; - - ------------------------------------------------------------------------------- Daniels & Associates, Inc.; and John V. Saeman, 94-N-2254, was filed in the - - ---------------------------------------------- United States District Court for the District of Colorado. The suit alleges that all the defendants violated disclosure requirements under the Securities Exchange Act of 1934, and that defendants IR-Daniels Partners II (now known as IR-TCI Partners II), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.) and D&A breached a fiduciary duty to plaintiff and other limited partners of American Cable TV Investors 2 (the "ACT 2 Partnership"), in connection with the sale to TCIC of ACT 2 Partnership's ownership interest in the Redlands System (the "ACT 2 Transaction"). Plaintiff brings this action on behalf of himself and purports to bring it as a class action on behalf of all persons who were limited partners of the ACT 2 Partnership as of the close of business on October 1, 1993 and who had their proxies solicited by the defendants in connection with the ACT 2 Transaction that allegedly "resulted in the dissolution of the ACT 2 Partnership and the loss of their limited partnership interests." Plaintiff seeks unspecified damages that allegedly include, but are not limited to (i) the difference between the value of ACT 2 Partnership's interest in the Redlands System (as a percentage of the appraised value of that system as determined by a 1992 appraisal) and the amount paid by TCIC for ACT 2 Partnership's interest in the Redlands System, plus the amount of a fee paid to D&A, and (ii) the difference between the fair market value of the limited partnership interests owned by members of a putative class and value received by members of the putative class pursuant to the ACT 2 Transaction. Plaintiff also seeks interest and consequential damages. Plaintiffs moved for class certification which was granted by the Court on November 3, 1995. Factual discovery in this case is complete. The case is not currently set for trial, but there is a pre-trial conference scheduled for April 9, 1996. Defendants will be filing a Motion for Summary Judgment within the scheduling deadlines ordered by the Court. Management of the Company believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. Intellectual Property Development Corporation v. UA-Columbia Cablevision ------------------------------------------------------------------------ of Westchester, Inc. and Tele-Communications, Inc. On September 1, 1994, - - -------------------------------------------------- plaintiff filed suit in federal court in New York for the alleged infringement of a patent for an invention used in broadcasting systems with fiber optic transmission lines. Plaintiff seeks injunctive relief and unspecified treble damages. The patent at issue expired on January 16, 1996, thereby eliminating any claim for injunctive relief by plaintiff. The issues now center around whether defendants owe past damages up to the time the patent expired. Discovery is currently ongoing. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition of this action should not have a material adverse effect upon the financial condition of the Company. I-22 Cooper, et al. v. UCTC of Baltimore, Inc., et al. On October 24, 1994, ------------------------------------------------- plaintiffs, three current employees of United Cable Television of Baltimore Limited Partnership and two spouses of such current employees, filed suit in the Circuit Court for Baltimore City against UCTC of Baltimore, Inc., United Cable Television of Baltimore Limited Partnership, TCI East, Inc. and Tele- Communications, Inc. The suit alleges, inter alia, eight various tort claims, ----- ---- including assault, false imprisonment, intentional infliction of emotional distress, invasion of privacy by intrusion, invasion of privacy by false light, defamation by slander, defamation by libel and loss of consortium in connection with an incident that occurred October 26, 1993, at the Baltimore system. Each plaintiff seeks $1,000,000 compensatory damages and $5,000,000 punitive damages per count. The loss of consortium claim is limited to four of the five plaintiffs. On November 1, 1994, plaintiffs also filed an action in United States District Court for the District of Maryland alleging discrimination on the basis of race in violation of 42 U.S.C. (S)1981 and loss of consortium. Both counts sought $1,000,000 in compensatory damages and $5,000,000 in punitive damages for each plaintiff (the loss of consortium claim is limited to four of the five plaintiffs). On January 6, 1995, the parties stipulated to the dismissal of the case without prejudice, which dismissal the Court approved on January 9, 1995. A Motion to Dismiss was filed in the state court action and the Court dismissed plaintiffs' claims for intentional infliction of emotional distress, false light and privacy violations without prejudice and granted plaintiffs' leave to amend the complaint. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given, as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. Miles Whittenburg, Jr., et al., v. Tele-Communications, Inc., et al. On -------------------------------------------------------------------- April 9, 1994, plaintiffs, six current employees of United Cable Television of Baltimore Limited Partnership and four spouses, filed suit in the Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited Partnership. The suit alleges, inter alia, nine various tort claims, including but not ---------- limited to, false imprisonment, assault, battery, intentional infliction of emotional distress, invasion of privacy by intrusion, invasion of privacy by false light, defamation by slander, defamation by libel, and loss of consortium in connection with an incident that occurred October 26, 1993, at the Baltimore system. Each of the nine counts in the complaint seek compensatory damages of $1,000,000 per plaintiff, and punitive damages of $5,000,000 per plaintiff. On October 24, 1994, plaintiffs also filed in the United States District Court for the District of Maryland, a lawsuit containing claims of discrimination on the basis of race in violation of 42 U.S.C. (S)1981 and loss of consortium. Both counts sought compensatory damages of $1,000,000 per plaintiff and punitive damages of $5,000,000 per plaintiff. The loss of consortium claims apply to eight of the plaintiffs. On January 6, 1995, the parties stipulated to the dismissal of the case without prejudice, which dismissal the Court approved on January 9, 1995. The Company intends to contest the state court case. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-23 Elmer Lewis v. Tele-Communications, Inc., et al. On June 23, 1994, ------------------------------------------------ plaintiff filed suit in the United States District Court for the District of Maryland against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore, Inc. and United Cable Television of Baltimore Limited Partnership. On August 2, 1994, the suit was consolidated for all purposes with Tyrone Belgrave, et al. v. Tele-Communications, Inc. et al. The suit alleges, inter alia, false ---------- imprisonment, assault, employment defamation, intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, wrongful discharge and discrimination on the basis of race. The complaint also seeks divestiture of the Baltimore City cable franchise from the Company. Each of the ten counts in the complaint seek compensatory damages of $1,000,000 and punitive damages of $5,000,000. In a decision dated October 3, 1994, the Court granted defendants' motion to dismiss the intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, wrongful discharge and violation of cable franchise agreement claims. On February 4, 1995, the federal court dismissed the federal claims without prejudice and remanded the remaining state claims to Circuit Court for Baltimore City. On February 14, 1995, Lewis and his spouse filed an amended complaint in Circuit Court for Baltimore City against the current defendants (the amended complaint was consolidated with the Belgrave and Fannell -------- ------- plaintiffs). Lewis alleges assault, civil conspiracy to commit assault, battery, civil conspiracy to commit battery, false imprisonment, civil conspiracy to commit false imprisonment, intentional infliction of emotional distress, civil conspiracy to intentionally inflict emotional distress, invasion of privacy by intrusion, civil conspiracy to commit invasion of privacy by intrusion, defamation, civil conspiracy to defame, invasion of privacy by false light, and civil conspiracy to commit invasion of privacy by false light. Lewis and his spouse also allege loss of consortium. Each claim seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages per plaintiff. The Company intends to contest the case. Motions to Dismiss were filed in this consolidated action and the Court entered an Order dismissing plaintiffs' claims for intentional infliction of emotional distress and wrongful discharge without prejudice and granted plaintiffs' leave to amend their complaint. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-24 Tyrone Belgrave, et al., v. Tele-Communications, Inc., et al. On February ------------------------------------------------------------- 8, 1994, Tyrone Belgrave and 26 other current or former employees of United Cable Television of Baltimore Limited Partnership filed suit in the Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited Partnership. The action alleges, inter alia, false imprisonment, assault, ---------- employment defamation, intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, wrongful discharge and discrimination on the basis of race. The complaint also seeks divestiture of the Baltimore City cable franchise from the Company. Six counts in the complaint each seek compensatory damages of $1,000,000 per plaintiff, and punitive damages of $5,000,000 per plaintiff. Three other counts in the complaint each seek compensatory damages for $1,000,000 per plaintiff and punitive damages of $5,000,000 per plaintiff. On March 29, 1994, the defendants removed the case to the United States District Court for the District of Maryland. In a decision dated October 3, 1994, the Court granted defendants motion to dismiss the intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, wrongful discharge and violation of cable franchise agreement claims. On February 9, 1995, the federal court dismissed the federal claims without prejudice and remanded the remaining state claims to the Circuit Court for Baltimore City. On February 14, 1995, 37 persons (the 27 original plaintiffs and 10 spouses of plaintiffs) filed an amended complaint in Circuit Court for Baltimore City against the current defendants. (The amended complaint was consolidated with the Lewis and Fannell ----- ------- plaintiffs). The 27 existing plaintiffs allege assault, civil conspiracy to commit assault, battery, civil conspiracy to commit battery, false imprisonment, civil conspiracy to commit false imprisonment, intentional infliction of emotional distress, civil conspiracy to intentionally inflict emotional distress, invasion of privacy by intrusion, civil conspiracy to commit invasion of privacy by intrusion, defamation, civil conspiracy to defame, invasion of privacy by false light, and civil conspiracy to commit invasion of privacy by false light. Ten existing plaintiffs and their spouses allege loss on consortium. Ten existing plaintiffs also allege wrongful discharge and civil conspiracy to wrongfully terminate. Each claim seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages per plaintiff. The Company intends to contest the case. Motions to Dismiss were filed in this consolidated action and the Court entered an Order dismissing plaintiffs' claims for intentional infliction of emotional distress and wrongful discharge without prejudice and granted plaintiffs' leave to amend their complaint. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-25 Viacom International, Inc. v. Tele-Communications, Inc., Liberty Media ---------------------------------------------------------------------- Corporation, Satellite Services, Inc., Encore Media Corporation, NetLink USA, - - ----------------------------------------------------------------------------- Comcast Corporation, and QVC Network, Inc. This suit was filed on September 23, - - ------------------------------------------ 1993 in the United States District Court for the Southern District of New York, and the complaint was amended on November 9, 1993. The amended complaint alleges that the Company violated the antitrust laws of the United States and the State of New York, violated the 1992 Cable Act, breached an affiliation agreement, and tortiously interfered with the Viacom Inc. - Paramount Communications, Inc. ("Paramount") merger agreement and with plaintiff's prospective business advantage. The amended complaint further alleges that even if plaintiff is ultimately successful in its bid to acquire Paramount, its competitive position will still be diminished because the Company, through Liberty, will have forced plaintiff to expend additional financial resources to consummate the acquisition. Plaintiff is seeking permanent injunctive relief and actual and punitive or treble damages of an undisclosed amount. Plaintiff claims that the Company, along with Liberty, has conspired to use its monopoly power in cable television markets to weaken unaffiliated programmers and deny access to essential facilities necessary for distributing programming to cable television systems. Plaintiff also alleges that the Company has conspired to deny essential technology necessary for distributing programming to owners of home satellite dishes. Plaintiff claims that the Company is engaging in these alleged conspiracies in an attempt to monopolize alleged national markets for non-broadcast television programming and distribution. On October 11, 1994, the United States District Court granted Tele-Communications, Inc. and the other defendants' motion for partial summary judgment and dismissed Viacom's $2 billion damage claim alleging that defendants tortiously interfered with its contract to merge with Paramount and with the prospective business advantage Viacom claimed it had in seeking to merge with Paramount. The Court also held that the $2 billion difference between plaintiff's cost to acquire Paramount under its original proposed merger agreement with Paramount and the costs it finally incurred when plaintiff acquired Paramount pursuant to a merger agreement entered into after an auction, was not incurred as a result of an antitrust injury and could not be asserted as a discreet element of Viacom's damage even if Viacom was ultimately successful in proving any or all of its antitrust claims. Viacom has also voluntarily dismissed its claims that the defendants violated Section 7 of the Clayton Act and that certain of the defendants breached the affiliation agreement they had with Viacom. On January 20, 1995, the parties entered into a settlement agreement under which this action is to be dismissed with prejudice contemporaneously with the first closing of the sale of certain cable systems pursuant to the Tele-Vue Agreement. The Stipulation of Discontinuance with Prejudice has been executed by the parties and is being held in escrow pending the first closing described above. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-26 Euan Fannell v. Tele-Communications, Inc., et al. On February 8, 1994, ------------------------------------------------- Euan Fannell, the former general manager of UCTC of Baltimore, Inc. filed suit in the Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited Partnership. The suit alleges, inter alia, employment defamation, ---------- intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, breach of contract, and discrimination on the basis of race. The complaint also seeks divestiture of the Baltimore City cable franchise of the Company. The plaintiff seeks $10,000,000 in compensatory damages and $50,000,000 in punitive damages with respect to the intentional infliction of emotional distress claim; and $10,000,000 in compensatory damages and $50,000,000 in punitive damages with respect to each of five other counts. On March 29, 1994, the defendants removed the case to the United States District Court for the District of Maryland and the case was subsequently consolidated with the Belgrave case. In a decision -------- dated November 15, 1994, the federal court dismissed plaintiffs' intentional infliction of emotional distress, unreasonable intrusion upon seclusion, invasion of privacy by false light, and violation of cable franchise agreement claims. On February 9, 1995, the federal court dismissed the federal claims without prejudice and remanded the remaining state claims to the Circuit Court for Baltimore City. On February 14, 1995, plaintiff filed an amended complaint in Circuit Court for Baltimore City against the current defendants. The amended action alleges intentional infliction of emotional distress, civil conspiracy to intentionally inflict emotional distress, invasion of privacy by intrusion, civil conspiracy to commit invasion of privacy by intrusion, defamation, civil conspiracy to defame, invasion of privacy by false light, civil conspiracy to commit invasion of privacy by false light, wrongful discharge, civil conspiracy to wrongfully terminate, and breach of contract. With respect to all claims other than breach of contract, plaintiff seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages. With respect to the breach of contract claim, plaintiff seeks $100,000 plus prejudgment interest. The Company intends to contest the case. Motions to Dismiss were filed in this consolidated action and the Court entered an Order dismissing plaintiffs' claims for intentional infliction of emotional distress and wrongful discharge without prejudice and granted plaintiffs' leave to amend their complaint. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-27 Leonie Palumbo, et al. v. Tele-Communications, Inc., et al. On February 8, ----------------------------------------------------------- 1994, Leonie Palumbo, a former employee of TCI East, Inc., filed a class action suit in the United States District Court for the District of Columbia against Tele-Communications, Inc., John Malone, and J.C. Sparkman. The action alleges, on behalf of a class of past, present and future black employees of the Company, and all past, present and future black applicants for employment with the Company, discrimination on the basis of race. The complaint seeks unspecified compensation and punitive damages as well as injunctive relief for these violations. On June 22, 1994, defendants moved to disqualify plaintiffs' counsel on the ground that during the time period relevant to the case, plaintiffs' lead counsel had an ownership interest and fiduciary responsibilities relating to United Cable Television of Baltimore Limited Partnership, one of the cable systems whose policies and practices are under attack. Plaintiffs' lead counsel was a member of the board of UCTC of Baltimore, Inc., the general partner of United Cable Television of Baltimore Limited Partnership. By Order dated August 30, 1994, the Court granted Defendants' Motion and gave plaintiffs 60 days to find substitute counsel. At a status conference on April 26, 1995, the Court dismissed the action without prejudice, with the understanding that plaintiffs would have six months to reinstitute the case with new counsel and that defendants would not raise any objection to plaintiffs' reopening the case within the six month period in the event that new counsel was retained. The six month period has expired and no substitute counsel has surfaced for plaintiffs. Accordingly, this case will not be reported in future filings. Les Dunnaville v. United Artists Cable, et al. On February 9, 1994, Les ---------------------------------------------- Dunnaville and Jay Sharrieff, former employees of United Cable Television of Baltimore Limited Partnership, filed an amended complaint in the Circuit Court for Baltimore City against United Cable Television of Baltimore Limited Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and three company employees, Roy Harbert, Tony Peduto, and Richard Bushie (the suit was initially filed on December 3, 1993, but the parties agreed on December 30, 1993 that no responsive pleading would be due pending filing of an amended complaint). The action alleges, inter alia, intentional interference with ---------- contract, tortious interference with prospective advantage, defamation, false light, invasion of privacy, intentional infliction of emotional distress, civil conspiracy, violation of Maryland's Fair Employment Practices Act, and respondeat superior with respect to the individual defendants. Six counts in the complaint each seek compensatory damages of $1,000,000 and punitive damages of $1,000,000; the intentional infliction of emotional distress count seeks compensatory damages of $1,000,000 and punitive damages of $2,000,000; and the count which alleges violation of Maryland's Fair Employment Practices Act seeks damages of $500,000. By order dated May 18, 1994, the Court dismissed the respondeat superior claim. Defendants filed Motions for Summary Judgment in December 1995 and January 1996 on all remaining counts of plaintiffs' complaint. The Court granted summary judgment in Defendants' favor on or about March 15, 1996. Unless an appeal is filed within 45 days, the case will be closed. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-28 Tony Jeffreys, et al v. Tele-Communications, Inc. et al. On February 7, -------------------------------------------------------- 1995, Tony Jeffreys and 41 current and former employees of United Cable Television of Baltimore Limited Partnership filed a complaint in Circuit Court for Baltimore City against Tele-Communications, Inc., UCT of Baltimore, Inc., United Cable Television of Baltimore Limited Partnership, UCTC of Baltimore, Inc. and TCI East, Inc. With two exceptions, these plaintiffs are also parties to identical claims asserted in the amended complaints filed on February 14, 1994 in the previously described Belgrave, Fannell and Lewis actions. The -------- ------- ----- action alleges, in part, that the defendants engaged U.S. Corporate Investigations, Inc. and Blackburn Associates and conspired to illegally terminate the employment of management personnel and employees of the Baltimore system which culminated in the October 26, 1993, incident described in earlier reports. Plaintiffs seek damages in connection with their claims of assault, civil conspiracy to commit assault, battery, civil conspiracy to commit battery, false imprisonment, civil conspiracy to commit false imprisonment, intentional infliction of emotional distress, civil conspiracy to intentionally inflict emotional distress, invasion of privacy by intrusion, civil conspiracy to commit invasion of privacy by intrusion, defamation as to plaintiff Fannell, defamation as to all plaintiffs except Fannell, civil conspiracy to defame, invasion of privacy by false light, civil conspiracy to commit invasion of privacy by false light, wrongful discharge, civil conspiracy to wrongfully terminate, breach of contract as to plaintiff Fannell, and loss of consortium. Each count seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages per plaintiff. The Company intends to contest this action. Motions to Dismiss were filed in this consolidated action and the Court entered an Order dismissing plaintiffs' claims for intentional infliction of emotional distress and wrongful discharge without prejudice and granted plaintiffs' leave to amend their complaint. Discovery is currently ongoing and trial is scheduled to commence October 21, 1996. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. Donald E. Watson v. Tele-Communications, Inc., et al. On March 10, 1995, ----------------------------------------------------- Donald Watson, doing business under the name of Tri-County Cable, filed suit in Superior Court for the District of Columbia against TCI, TCI East, Inc., District Cablevision Limited Partnership, District Cablevision, Inc., TCI of D.C., Inc., TCI of Maryland, Inc., TCI Development Corporation, United Cable Television of Baltimore Limited Partnership, TCI of Pennsylvania, Inc. and two individuals, Richard Bushey and Roy Harbert. The action alleges breach of settlement agreement, intentional misrepresentations, tortious interference with prospective advantage, tortious interference with contract, tortious interference with economic relations, and discrimination on the basis of race. Three counts in the Complaint seek compensatory damages of $2,500,000 and punitive damages of $25,000,000; one count seeks compensatory damages of $2,500,000 and punitive damages of $40,000,000; and two counts each seek compensatory damages of $20,000,000 and punitive damages of $40,000,000. The Company intends to contest this action. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. I-29 Louis Beverly v. Tele-Communications, Inc., et al. On July 27, 1995, Louis -------------------------------------------------- Beverly, a former employee of United Cable Television of Baltimore Limited Partnership filed a complaint in United States District Court for the District of Maryland against Tele-Communications, Inc., United Artists Cable of Baltimore, Inc., United Cable Television of Baltimore Limited Partnership, UCTC of Baltimore, Inc., and TCI East, Inc. The plaintiff alleges, in part, that his termination on September 11, 1987, was the result of racial discrimination. Plaintiff filed five counts, including race discrimination (Title VII), violation of 42 USC 1981, defamation, invasion of privacy (false light), and assault and battery. Each count seeks $3,000,000 in compensatory and $6,000,000 in punitive damages, an award of all bonuses and other compensation lost due to defendants' actions as well as attorneys' fees, costs, and pre-judgment interest. On February 14, 1996, the Court granted defendants' Motion dismissing Tele-Communications, Inc., and TCI East, Inc. as parties, along with various counts asserted by the plaintiffs including 42 USC 1981, defamation, invasion of privacy, and assault and battery. United Artists Cable of Baltimore was also dismissed from the Title VII claim for race discrimination. Currently, the only damages available to plaintiff are those which existed prior to the amendment to the Civil Rights Act of 1991. As the case currently stands, the remaining defendants are faced with one count without exposure to punitive damages. Based upon the facts available, management believes that, although no assurances can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. Clarence L. Elder, both individually and as the group Representative vs. ------------------------------------------------------------------------ Tele-Communications, Inc. et al. On December 18, 1995, plaintiff filed suit in - - --------------------------------- the Circuit Court for Baltimore City, Case No. 95345001/CL205580 against UCTC L.P. Company, UCTC of Baltimore, Inc., UTI Purchase Company, Inc. and Tele- Communications, Inc. The allegations made in the complaint pertain to plaintiff's interest in United Cable Television of Baltimore Limited Partnership. Plaintiff claims he was wrongfully denied certain preference distributions, rights to purchase stock, rights to escrow funds, and tax distributions. Plaintiff claims entitlement to compensatory damages in excess of $70,000,000 plus punitive damages in excess of $450,000,000. Plaintiff asserts claims for: breach of contract; negligent misrepresentation; negligence; unjust enrichment; conversion; fraud; and breach of fiduciary duty. The Company intends to contest this action. Based upon the facts available, management believes that, although no assurance can be given as to the outcome of this action, the ultimate disposition should not have a material adverse effect upon the financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders. - - ------ --------------------------------------------------- None. I-30 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - - ------ --------------------------------------------------------------------- All of TCI Communications, Inc.'s (the "Company") common stock is owned by Tele-Communications, Inc. No dividends have been paid on the Company's common stock. II-1 Item 6. Selected Financial Data. - - ------ ----------------------- The following tables present selected information relating to the financial condition and results of operations of TCI Communications, Inc. for the past five years. The following data should be read in conjunction with TCI Communications, Inc.'s consolidated financial statements.
December 31, ---------------------------------------------- 1995 1994* 1993* 1992* 1991* ---------- ------- ------- ------- ------- amounts in millions Summary Balance Sheet Data: - - --------------------------- Property and equipment, net $ 6,605 5,579 4,935 4,562 4,081 Franchise costs, net $ 11,563 9,297 9,197 9,300 8,104 Net assets of discontinued operations $ -- -- -- -- 242 Total assets $ 19,981 15,880 16,527 16,315 15,169 Debt $ 12,635 10,712 9,900 10,285 9,455 Redeemable preferred stock $ -- -- 18 110 115 Stockholder's(s') equity $ 1,729 683 2,116 1,728 1,571 Common shares outstanding (net of treasury shares): Class A common stock 1 1 403 382 370 Class B common stock -- -- 47 48 49 Years ended December 31, ---------------------------------------------- 1995 1994* 1993* 1992* 1991* --------- ------- ------- ------- ------- amounts in millions Summary Statement of - - -------------------- Operations Data: - - ----------------- Revenue $ 5,118 4,318 4,153 3,574 3,214 Operating income $ 803 818 916 864 674 Earnings (loss) from: Continuing operations $ (120) 94 (5) 8 (77) Discontinued operations -- -- -- (15) (19) ------- ------- ------- ------- ------- (120) 94 (5) (7) (96) Dividend requirement on preferred stocks -- -- (2) (15) -- ------- ------- ------- ------- ------- Net earnings (loss) attributable to common stockholder(s) $ (120) 94 (7) (22) (96) ======= ======= ======= ======= ======= - - ------------------------
* Restated - see note 3 to the TCI Communications, Inc. consolidated financial statements included in Part II of this report. II-2 Item 7. Management's Discussion and Analysis of Financial Condition and Results - - ------ ----------------------------------------------------------------------- of Operations. -------------- General ------- As of January 27, 1994, TCI Communications, Inc. (formerly Tele- Communications, Inc. or "Old TCI") and Liberty Media Corporation ("Liberty") entered into a definitive merger agreement to combine the two companies (the "TCI/Liberty Combination"). The transaction was consummated on August 4, 1994 and was structured as a tax free exchange of Class A and Class B shares of both companies and preferred stock of Liberty for like shares of a newly formed holding company, TCI/Liberty Holding Company. In connection with the TCI/Liberty Combination, Old TCI changed its name to TCI Communications, Inc. ("TCIC" or the "Company") and TCI/Liberty Holding Company changed its name to Tele-Communications, Inc. ("TCI"). TCIC is a subsidiary of TCI. During the fourth quarter of 1994, TCI was reorganized (the "Reorganization") based upon four lines of business: Domestic Cable and Communications; Programming; International Cable Programming ("TINTA"); and Technology/Venture Capital. Upon Reorganization, certain of the assets of TCIC were transferred to the other operating units. The most significant transfers were as follows: (i) Turner Broadcasting System, Inc. ("TBS") and Discovery Communications, Inc. were transferred to the Programming unit and (ii) TCI/US WEST Cable Communications Group ("TeleWest UK") was transferred to TINTA. In the first quarter of 1995, TCIC transferred certain additional assets to TINTA. On August 3, 1995, the stockholders of TCI authorized the Board of Directors of TCI to issue a new class of stock ("Liberty Group Stock") which is intended to reflect the separate performance of the Programming Unit ("Liberty Media Group"). While the Liberty Group Stock constitutes common stock of TCI, the issuance of the Liberty Group Stock did not result in any transfer of assets or liabilities of TCI or any of its subsidiaries or affect the rights of holders of TCI's or any of its subsidiaries' debt. On August 10, 1995, TCI distributed one hundred percent of the equity value attributable to Liberty Media Group (the "Distribution") to its security holders of record on August 4, 1995. Additionally, the stockholders of TCI approved the redesignation of the previously authorized TCI Class A and Class B common stock into Series A TCI Group and Series B TCI Group common stock ("TCI Group Stock"). In connection with the Distribution, subsidiaries of TCIC exchanged all of the TCI Class A common stock and TCI preferred stock owned by such subsidiaries for 267,944 shares of a new series of TCI Series Preferred Stock designated Convertible Redeemable Participating Preferred Stock Series F (the "Series F Preferred Stock"). Subsequent to such exchange, a holder of 78,077 shares of Series F Preferred Stock converted its holdings into 100,524,364 shares of Series A TCI Group Stock. II-3 Summary of Operations --------------------- The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to revenue and the percentage increase or decrease of the dollar amount of such items as compared to the prior period. This summary provides trend data relating to TCIC's normal recurring operations. Other items of significance are discussed separately under the captions "Other Income and Expense", "Income Taxes" and "Net Earnings (Loss)" below.
Relationship to Period to Period Revenue Increase Years ended Years ended December 31, December 31, ------------------- -------------------- 1995 1994 1993 1994-95 1993-94 ----- ----- ----- --------- --------- Revenue 100% 100% 100% 19% 4% Operating costs and expenses before depreciation and amortization 60 58 56 23% 8% Depreciation and amortization 24 23 22 24% 8% ---- ---- ---- Operating income 16% 19% 22% (2%) (11%) ==== ==== ====
On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994, the Federal Communications Commission ("FCC") adopted certain rate regulations required by the 1992 Cable Act and imposed a moratorium on certain rate increases. As a result of such actions, TCIC's basic and tier service rates and its equipment and installation charges (the "Regulated Services") are subject to the jurisdiction of local franchising authorities and the FCC. The regulations established bench mark rates in 1993, which were further reduced in 1994, to which the rates charged by cable operators for Regulated Services were required to conform. The FCC also allowed cable operators to justify rates under "cost of service" rules, which allow "high cost" systems to establish rates in excess of the benchmark level. The FCC's interim cost of service rules allowed a cable operator to recover through rates for regulated cable services its normal operating expenses plus a rate of return equal to 11.25 percent on the rate base. However, the FCC significantly limited the inclusion in the rate base of acquisition costs in excess of the book value of tangible assets. As a result, the Company pursued cost of service justifications in only a few cases. On December 15, 1995, the FCC adopted slightly more favorable cost of service rules. The regulations also provide mechanisms for adjusting rates when regulated tiers are affected by channel additions or deletions. Additional programming costs resulting from channel additions can be accorded the same external treatment as other program costs increases, and cable operators presently are permitted to recover a mark-up on their programming expenses. Under one option, operators are allowed a flat ($.20) fee increase per channel added to an existing cable programming services tier ("CPST"), with an aggregate cap on such increases ($1.20) plus a license fee reserve ($.30) through 1996. In 1997, an additional flat ($.20) fee increase will be available, and the license fees for additional channels and for increases in existing channels will no longer be subject to the aggregate cap. This optional approach for adding services is schedule to expires on December 31, 1997. II-4 TCIC reduced its rates in 1993 and 1994 and limited its rate increase in 1995 in response to FCC regulations. TCIC believes that it has complied, in all material respects, with the provisions of the 1992 Cable Act, including its rate setting provisions. However, TCIC's rates for Regulated Services are subject to review by the FCC, if a complaint has been filed, or by the appropriate franchise authority, if such authority has been certified. If, as a result of the review process, a system cannot substantiate its rates, it could be required to retroactively reduce its rates to the appropriate benchmark and refund the excess portion of rates received. Any refunds of the excess portion of tier service rates would be retroactive to the date of complaint. Any refunds of the excess portion of all other Regulated Service rates would be retroactive to one year prior to the implementation of the rate reductions. On October 30, 1995, the FCC accepted for comment a proposed resolution of all complaints against the CPST currently pending against cable systems owned by TCIC. If the proposed resolution is accepted by the FCC, TCIC will settle all pending complaints by a one-time credit to each subscriber on CPST regulated franchises. The aggregate amount of such credits is approximately $9 million and had previously been accrued by TCIC. In addition, the FCC will find that the CPST rates in CPST regulated franchises on September 15, 1995 comply with federal regulations. TCIC has committed not to file any additional cost-of- service filings until May 15, 1996 in franchises that were subject to CPST regulations prior to September 15, 1995. However, TCIC will be able to avail itself of the other mechanisms under FCC rules to recover costs, including abbreviated cost-of-service filings covering system rebuilds and upgrades. In the proposed resolution, TCIC does not admit any violation of, or any failure to conform to, the 1992 Cable Act or the rules promulgated thereunder. The comment period has ended and TCIC is awaiting final action by the FCC. On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law. Because the 1996 Telecom Act does not deregulate CPST rates until 1999 (and basic service tier rates will remain regulated thereafter), TCIC believes that the 1993 and 1994 rate regulations have had and will continue to have a material adverse effect on its results of operations. Revenue increased by approximately 19% from 1994 to 1995. Such increase was the result of growth in subscriber levels within TCIC's cable television systems (3%), increases in the rates charged to TCIC's subscribers from inflation increases, the provision of new channels and increases in equipment costs (4%), the effect of certain acquisitions (8%), growth in TCIC's satellite subscribers (4%), growth in revenue generated by TCIC's common carrier microwave assets (1%), and growth in advertising sales (1%), net of a decrease in revenue due to the transfer of Netlink USA to the Programming unit in the Reorganization (2%). Revenue increased by approximately 4% from 1993 to 1994. Such increase was the result of growth in subscriber levels within TCIC's cable television systems (5%), the effect of certain acquisitions (2%) and certain new services (1%), net of a decrease in revenue (4%) due to rate reductions required by rate regulation implemented pursuant to the 1992 Cable Act. In the second half of 1994, as a result of the FCC revision of its rate regulations which reduced benchmark rates, TCIC experienced an additional decrease, in excess of that which was incurred in 1993, in prices charged for its Regulated Services. Included in TCIC's total revenue is revenue generated by TCIC's common carrier microwave assets amounting to $80 million, $45 million and $55 million for the years ended December 31, 1995, 1994 and 1993, respectively. II-5 Operating costs and expenses before depreciation and amortization have increased 23% for the year ended December 31, 1995 compared to the corresponding period of 1994. Such increase is consistent with the increase in revenue discussed above and is due primarily to acquisitions and increased direct broadcast satellite expenses. As a percent of revenue, operating expenses and selling, general and administrative expenses were relatively comparable over the 1995 and 1994 periods. During 1995, the Company changed its approach to how it ordered and stored excess cable distribution equipment. The Company created material support centers and consolidated all of its excess inventory. In conjunction with this change, the Company incurred $5 million of costs. Additionally, during 1995, the Company incurred approximately $22 million in expenses related to initiatives to improve its customer service, to begin the redesign of its computer and accounting systems and to promote and market the Company's products. During the fourth quarter of 1995, the Company incurred $25 million in expenses related to payment of bonuses to the majority of its employees. Programming expenses represented $979 million (32%), $845 million (34%) and $740 million (32%) of total operating costs and expenses before depreciation and amortization during 1995, 1994 and 1993, respectively. TCIC cannot determine whether and to what extent increases in the cost of programming will affect its future operating costs. However, such programming costs have increased at a greater percentage than increases in Regulated Services. The Company will experience an increase in programming costs in the first five months of 1996 without increasing its rates charged to its customers at that time. In June of 1996, the Company will be entitled to an increase in its service rates for increased programming costs and inflation. FCC regulations provide for the Company to further increase its rates by an additional amount intended to recover increased programming costs incurred during the first five months of 1996 and not previously recovered, as well as interest on said amounts. TCIC has an investment in a direct broadcast satellite partnership, Primestar Partners ("Primestar"). Primestar provides programming and marketing support to each of its cable partners who then provide satellite service to their customers. During 1995, TCIC's revenue and expenses related to such satellite service have increased significantly as the number of TCIC's Primestar subscribers increased from approximately 100,000 subscribers at January 1, 1995 to approximately 550,000 subscribers at December 31, 1995. During the year ended December 31, 1995, revenue increased from $30 million to $207 million and operating, selling, general and administrative expenses increased from $18 million to $197 million, as compared to the year ended December 31, 1994. TCIC incurs significant sales commissions and installation costs when customers initially subscribe. Therefore, as long as TCIC continues to launch this new service and increase its Primestar subscriber base at such a rapid pace, management expects operating costs and expenses will increase as well. Operating costs and expenses before depreciation and amortization increased 8% for the year ended December 31, 1994 compared to the corresponding period of 1993. TCIC incurred $29 million of programming and marketing costs associated with the launch in 1994 of a new premium programming service to its subscribers. In 1993, TCIC incurred certain one-time direct charges relating to the implementation of the FCC rate regulations. The increase in TCIC's depreciation expense in 1995 is due to acquisitions, as well as increased capital expenditures incurred to upgrade and install optical fiber technology in TCIC's cable systems. The systems, which facilitate digital transmission of voice, video and data signals, will have optical fiber to neighborhood nodes with coaxial cable distribution downstream from that point. The increase in amortization expense in 1995 is due to acquisitions. The Company records compensation relating to stock appreciation rights and restricted stock awards granted to certain employees. Such compensation is subject to future adjustment based upon market value, and ultimately, on the final determination of market value when the rights are exercised or the restricted stock awards are vested. II-6 Other Income and Expense ------------------------ TCIC's interest expense increased $185 million or 24% during 1995 as compared to 1994 and $46 million or 6% during 1994 as compared to 1993. Such increases are the result of higher interest rates and debt balances. TCIC's weighted average interest rate on borrowings was 8.1%, 7.5% and 7.2% during 1995, 1994 and 1993, respectively. TCIC had an investment in TeleWest UK in 1994, a company that is currently operating and constructing cable television and telephone systems in the United Kingdom ("UK"). TeleWest UK, which was accounted for under the equity method, comprised $40 million and $28 million of TCIC's share of its affiliates' losses in 1994 and 1993, respectively. In February 1994, TCIC acquired a consolidated investment in Flextech p.l.c. ("Flextech"). Flextech accounted for net losses in 1994 of $21 million (before deducting the minority interests' 40% share of such losses). In addition, TCIC had other less significant investments in video distribution and programming businesses located in the UK, other parts of Europe, Asia, Latin America and certain other foreign countries. In the aggregate, such other investments accounted for $44 million of TCIC's share of its affiliates' losses in 1994. In connection with the Reorganization, TCIC's ownership in the aforementioned entities was transferred to the International Cable and Programming unit effective December 1, 1994, and TCIC is no longer exposed to the risk associated with unfavorable fluctuations in foreign currency exchange rates nor will it continue to incur the aforementioned losses associated with such investments. Prior to the Reorganization, TCI and US WEST, Inc. each exchanged their respective 50% ownership interest in TeleWest UK for 302,250,000 ordinary shares and 76,500,000 convertible preference shares of TeleWest Communications plc ("TeleWest Communications") (the "TeleWest Exchange"). Following the completion of the TeleWest Exchange, TeleWest Communications conducted an initial public offering in November of 1994 in which it sold 243,740,000 ordinary shares for aggregate net proceeds of (Pounds)401 million (the "TeleWest IPO"). Upon completion of the TeleWest Exchange and the TeleWest IPO, TCI and US WEST, Inc. each became the owners of 36% of the ordinary shares and 38% of the total outstanding ordinary and convertible preference shares of TeleWest Communications. As a result of the TeleWest IPO and the associated dilution of TCI's ownership interest of TeleWest Communications, TCIC recognized a gain amounting to $161 million (before deducting the related tax expense of $57 million) in 1994. On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of Liberty's 50% general partnership interest in American Movie Classics Company ("AMC"). The gain recognized by Liberty in connection with the disposition of AMC was $183 million and is included in TCIC's share of Liberty's earnings prior to the TCI/Liberty Combination. During 1995, 1994 and 1993, TCIC recorded losses of $6 million, $9 million and $17 million, respectively, from early extinguishments of debt. There may be additional losses associated with early extinguishments of debt in the future. Interest and dividend income was $34 million, $35 million and $34 million in 1995, 1994 and 1993, respectively. Included in the 1994 and 1993 amounts were $5 million of dividends earned on TCIC's investment in TBS. Subsequent to the Reorganization, TCIC no longer is the recipient of such stock dividends. Income Taxes ------------ New tax legislation was enacted in the third quarter of 1993 which, among other matters, increased the corporate Federal income tax rate from 34% to 35%. TCIC reflected the tax rate change in its consolidated statements of operations. Such tax rate change resulted in an increase of $76 million to TCIC's income tax expense and deferred income tax liability in the third quarter of 1993. II-7 Net Earnings (Loss) ------------------- TCIC's net loss of $120 million for the year ended December 31, 1995 represented a decrease of $214 million as compared to TCIC's net earnings of $94 million for the corresponding period of 1994. Such decrease is the net result of an increase in interest expense due to higher debt levels, the dilution of share of earnings of Liberty due to the TCI/Liberty Combination, TCIC's recognition of a nonrecurring gain resulting from the TeleWest IPO in 1994 and a decrease in operating income. TCIC's net earnings of $94 million for the year ended December 31, 1994 represented an increase of $99 million as compared to TCIC's net loss (before preferred stock dividends) of $5 million for the corresponding period of 1993. Such increase is principally the result of the effect of improved share of earnings from Liberty prior to the TCI/Liberty Combination (principally resulting from the gain recognized by Liberty upon the sale of its investment in AMC), TCIC's recognition of a nonrecurring gain resulting from the TeleWest IPO and the associated dilution of TCIC's ownership interest in TeleWest Communications, and the reduction in income tax expense (principally resulting from the required recognition in the third quarter of 1993 of the cumulative effect of the change in the Federal income tax rate from 34% to 35%), net of the effect of the aforementioned reduction in rates charged for Regulated Services and the decrease in gain on disposition of assets. Inflation has not had a significant impact on TCIC's results of operations during the three-year period ended December 31, 1995. Recent Accounting Pronouncements -------------------------------- In March of 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal years beginning after December 15, 1995. Statement No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. TCIC will adopt Statement No. 121 effective January 1, 1996. The effect of such adoption is not expected to be significant. Statement of Financial Accounting Standards No. 123, Accounting for Stock- Based Compensation ("Statement No. 123") was issued by the FASB in October 1995. Statement No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non- employees. The Company will include the disclosures required by Statement No. 123 in the notes to future financial statements. II-8 Liquidity and Capital Resources ------------------------------- During 1994, TCIC, Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox" and together with TCIC and Comcast, the "Cable Partners") and Sprint Corporation ("Sprint") formed a partnership ("WirelessCo") to engage in the business of providing wireless communications services on a nationwide basis. Through WirelessCo, of which TCIC owns a 30% interest, the partners have been participating in auctions ("PCS Auctions") of broadband personal communications services ("PCS") licenses being conducted by the FCC. In the first round auction, which concluded during the first quarter of 1995, WirelessCo was the winning bidder for PSC licenses for 29 markets, including New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate license cost for these licenses was approximately $2.1 billion. WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a PCS license granted under the FCC's pioneer preference program for the Washington-Baltimore market. WirelessCo acquired its 49% limited partnership interest in APC for $23 million and has agreed to make capital contributions to APC equal to 49/51 of the cost of APC's PCS license. Additional capital contributions may be required in the event APC is unable to finance the full cost of its PCS license. WirelessCo may also be required to finance the build- out expenditures for APC's PCS system. Cox, which holds a pioneer preference PCS license for the Los Angeles-San Diego market, and WirelessCo have also agreed on the general terms and conditions upon which Cox (with a 51% interest) and WirelessCo (with a 49% interest) would form a partnership to hold and develop a PCS system using the Los Angeles-San Diego license. APC and the Cox partnership would affiliate their PCS systems with WirelessCo and be part of WirelessCo's nationwide integrated network, offering wireless communications services under the "Sprint" brand. The Company owns a 30% interest in WirelessCo. During 1994, subsidiaries of Cox, Sprint and the Company also formed a separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest. PhillieCo was the winning bidder in the first round auction for a PCS license for the Philadelphia market at a license cost of $85 million. To the extent permitted by law, the PCS system to be constructed by PhillieCo would also be affiliated with WirelessCo's nationwide network. WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest in, affiliate with or acquire licenses from other successful bidders. The capital that WirelessCo will require to fund the construction of the PCS systems, in addition to the license costs and investments described above, will be substantial. In March of 1995, the Cable Partners and Sprint (collectively, the "Partners") formed two new partnerships of which the principal partnership is MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests in WirelessCo and through which they formed another partnership, NewTelco, L.P. ("NewTelco") to engage in the business of providing local wireline communications services to residences and businesses on a nationwide basis. The Cable partners agreed to contribute their interests in Teleport Communications Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco. TCG is one of the largest competitive access providers in the United States in terms of route miles. II-9 Effective January 31, 1996, the Partners amended the MajorCo partnership agreement (the "Partnership Agreement") and certain other agreements related thereto. Under the Partnership Agreement, the business of MajorCo and its subsidiaries will be the provision of certain wireless and other services described in the Partnership Agreement. The Partners intend for WirelessCo and its subsidiary partnerships to be the exclusive vehicles through which they engage in the wireless telephony service businesses, subject to certain exceptions. MajorCo will no longer be authorized to engage in the business of providing local wireline communications services to residences and businesses. In connection with the amendment of the Partnership Agreement, the Partners also agreed to the termination of the agreement to contribute the Cable Partners' interests in TCG to NewTelco. Pursuant to separate agreements, each of the Cable Partners and Sprint have agreed to negotiate in good faith on a market-by-market basis for the provision of local wireline telephony services over the cable television facilities of the respective Cable Partner under the Sprint brand. Accordingly, local wireline telephony offerings in each market would be the subject of individual agreements to be negotiated with Sprint rather than being provided by MajorCo, as originally contemplated. The Cable Partners and Sprint also reaffirmed their intention to continue to attempt to integrate the business of TCG with that of MajorCo. In addition, each Cable Partner agreed to certain restrictions on its ability to offer, promote, or package certain of its products or services with certain products and services of other persons and agreed to make its facilities available to Sprint for specified purposes to the extent and on the terms that it has made such facilities available to others for such purposes. Such agreements have a term of five years, but under certain circumstances may terminate after three years. Execution of the foregoing agreements was a condition to the effectiveness of a previously approved business plan for the build out of WirelessCo's nationwide network for wireless personal communications services. Pursuant to the business plan, the Partners are obligated to make additional cash capital contributions to MajorCo in the aggregate amount of approximately $1.9 billion during the two-year period that commenced January 1, 1996. The business plan contemplates that MajorCo will require additional equity thereafter. As of January 26, 1995, TCI, TCIC, and TeleCable Corporation ("TeleCable") consummated a transaction whereby TeleCable was merged into TCIC. The aggregate $1.6 billion purchase price was satisfied by TCIC's assumption of approximately $300 million of TeleCable's net liabilities and the issuance to TeleCable's shareholders of approximately 42 million shares of TCI Class A common stock and 1 million shares of TCI Convertible Preferred stock, Series D (the "Series D Preferred Stock") with an aggregate initial liquidation value of $300 million. The Series D Preferred Stock, which accrues dividends at a rate of 5.5% per annum, is convertible into 10 million shares of Series A TCI Group Stock and 2.5 million shares of Series A Liberty Group Stock. The Series D Preferred Stock is redeemable for cash at the option of TCI after five years and at the option of either TCI or the holder after ten years. II-10 In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the purchase by TCIC of all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the time of purchase, will own Viacom's cable systems and related assets. The transaction has been structured as a tax-free reorganization in which Cable Sub will initially transfer all of its non-cable assets, as well as all of its liabilities other than current liabilities, to a new subsidiary of Viacom ("New Viacom Sub"). Cable Sub will also transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to be arranged by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub will retain cable assets with an estimated value at closing of approximately $2.2 billion and the obligation to repay the Loan Proceeds borrowed under the Loan Facility. Repayment of the Loan Proceeds will be non-recourse to Viacom and New Viacom Sub. Viacom will offer to the holders of shares of Viacom Class A Common Stock and Viacom Class B Common Stock (collectively, "Viacom Common Stock") the opportunity to exchange (the "Exchange Offer") a portion of their shares of Viacom Common Stock for shares of Class A Common Stock, par value $100 per share, of Cable Sub ("Cable Sub Class A Stock"). The Exchange Offer will be subject to a number of conditions, including a condition (the "Minimum Condition") that sufficient tenders are made of Viacom Common Stock that permit the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange Offer to equal the total number of shares of Cable Sub Class A Stock issuable in the Exchange Offer. Immediately following the completion of the Exchange Offer, TCIC will acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350 million (which will be used to reduce Cable Sub's obligations under the Loan Facility). At the time of such acquisition, the Cable Sub Class A Stock received by Viacom stockholders pursuant to the Exchange Offer will automatically convert into a series of senior cumulative exchangeable preferred stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of $100 per share (the "Stated Value"). The terms of the Exchangeable Preferred Stock, including its dividend, redemption and exchange features, will be designed to cause the Exchangeable Preferred Stock to initially trade at the Stated Value. The Exchangeable Preferred Stock, in the opinion of two investment banks, will be exchangeable, at the option of the holder commencing after the fifth anniversary of the date of issuance, for shares of Series A TCI Group Stock. The Exchangeable Preferred Stock will also be redeemable, at the option of Cable Sub, after the fifth anniversary of the date of issuance, and will be subject to mandatory redemption on the tenth anniversary of the date of issuance at a price equal to the Stated Value per share plus accrued and unpaid dividends, payable in cash or, at the election of Cable Sub, in shares of Series A TCI Group Stock or in combination of the foregoing. If insufficient tenders are made by Viacom stockholders in the Exchange Offer to permit the Minimum Condition to be satisfied, Viacom will extend the Exchange Offer for up to 15 business days and, during such extension, TCI and Viacom are to negotiate in good faith to determine mutually acceptable changes to the terms and conditions for the Exchangeable Preferred Stock and the Exchange Offer that each believes in good faith will cause the Minimum Condition to be fulfilled and that would cause the Exchangeable Preferred Stock to trade at a price equal to the Stated Value immediately following the expiration of the Exchange Offer. In the event the Minimum Condition is not thereafter met, TCI and Viacom will each have the right to terminate the transaction. In addition, either party may terminate the transaction if the Exchange Offer has not commenced by June 24, 1996 or been consummated by July 24, 1996. II-11 Consummation of the transaction is subject to a number of conditions, including receipt of a favorable letter ruling from the Internal Revenue Service that the transaction qualifies as a tax-free transaction and the satisfaction or waiver of all of the conditions of the Exchange Offer. A request for a letter ruling from the Internal Revenue Service has been filed by Viacom. TCIC believes that, based upon the unique and complex structure of the transaction, there exists significant uncertainty as to whether a favorable ruling will be obtained. In light of the foregoing, management of TCIC has concluded that consummation of the transaction is not yet probable. Accordingly, no assurance can be given that the transaction will be consummated. At December 31, 1995, Cable Sub provided service to approximately 1.2 million basic subscribers and had total assets of $1,067 million. For the year ended December 31, 1995, Cable Sub had revenues of $442 million and net earnings of $34 million. It is expected that if the transaction is consummated, the Company would account for such acquisition under the purchase method of accounting. Accordingly, the cost to acquire Cable Sub estimated at approximately $2.2 billion (reflecting the Loan Proceeds of $1.7 billion and the estimated aggregate Stated Value of the Exchangeable Preferred Stock of $500 million) would be allocated to the assets and liabilities acquired according to their respective fair values, with any excess being treated as intangible assets. As such, the Company will, if such transaction is consummated, reflect additional interest expense, depreciation, amortization and minority share of losses of consolidated subsidiaries. On a pro forma basis, if the transaction had been consummated under its current terms on or before January 1, 1995, Cable Sub would have reflected loss before taxes of approximately $51 million for the year ended December 31, 1995. On a pro forma basis, Cable Sub would reflect an approximate $21 million of preferred stock dividend requirements on an annual basis assuming, solely for the purpose of this presentation, a dividend rate of 4.25% per annum on the Exchangeable Preferred Stock. On a pro forma basis, the Company would reflect the foregoing financial impacts of Cable Sub in its consolidated results of operations except that the preferred stock dividend requirement of Cable Sub would be reflected as minority interest in the Company's statement of operations and the Company would incur an additional approximately $28 million of interest expense per year arising from the assumed borrowing by the Company for its $350 million capital contribution to Cable Sub. Pursuant to an underwritten public offering, TCI sold 19,550,000 shares of TCI Class A common stock in February of 1995. TCI received approximately $401 million. Such proceeds were immediately used to reduce TCIC outstanding indebtedness under credit facilities. II-12 As security for borrowings under one of TCIC's bank credit facilities, TCIC has pledged 100,524,364 shares of Series A TCI Group Stock held by a subsidiary of TCIC. During the year ended December 31, 1995, TCIC sold approximately $1.5 billion of publicly-placed fixed-rate senior and medium term notes with interest rates ranging from 6.8% to 8.8% and maturity dates ranging through 2015. The proceeds from the sale of these notes were used primarily to repay variable-rate bank debt. Subsequent to December 31, 1995, the Company issued (i) 4.6 million shares of Series A Cumulative Exchangeable Preferred Stock in a public offering for net cash proceeds of $223.1 million and (ii) $1 billion of publicly-placed fixed rate senior and medium term notes with interest rates ranging from 6.9% to 7.9% and maturing dates ranging through 2026. In addition, a subsidiary of the Company (a special purpose entity formed as a Delaware business trust) issued 20 million preferred securities of 8.72% Trust Originated Preferred Securities for net cash proceeds of $486 million. The Company used the proceeds from the aforementioned debt and equity securities to retire overnight commercial paper and to repay variable rate indebtedness. The Company has a credit facility which matures in September of 1996. The outstanding balance of such facility was $602 million at December 31, 1995. The Company currently anticipates that it will refinance such borrowings but there can be no assurance that it can do so on terms acceptable to the Company. The Company had approximately $2.1 billion in unused lines of credit at December 31, 1995 excluding amounts related to lines of credit which provide availability to support commercial paper. Although the Company was in compliance with the restrictive covenants contained in its credit facilities at said date, additional borrowings under the credit facilities are subject to the Company's continuing compliance with such restrictive covenants (which relate primarily to the maintenance of certain ratios of cash flow to total debt and cash flow to debt service, as defined). The Company believes that the aforementioned FCC 1993 and 1994 rate regulations will not materially impact the availability under its subsidiaries' lines of credit or its ability to repay indebtedness as it matures. See note 6 to the accompanying consolidated financial statements for additional information regarding the material terms of the Company's lines of credit. One measure of liquidity is commonly referred to as "interest coverage." Interest coverage, which is measured by the ratio of Operating Cash Flow (operating income before depreciation, amortization and other non-cash operating credits or charges)($2,043 million, $1,801 million and $1,858 million in 1995, 1994 and 1993, respectively) to interest expense ($962 million, $777 million and $731 million in 1995, 1994 and 1993, respectively), is determined by reference to the consolidated statements of operations. The Company's interest coverage ratio was 212%, 232% and 254% for 1995, 1994 and 1993, respectively. The decrease in the Company's interest coverage in 1995 is caused by increased interest expense due to higher interest rates and debt levels in 1995. Management of the Company believes that the foregoing interest coverage ratio is adequate in light of the consistency and nonseasonal nature of its cable television operations and the relative predictability of the Company's interest expense, 45% of which results from fixed rate indebtedness. Operating Cash Flow is a measure of value and borrowing capacity within the cable television industry and is not intended to be a substitute for cash flows provided by operating activities, a measure of performance prepared in accordance with generally accepted accounting principles, and should not be relied upon as such. Operating Cash Flow, as defined, does not take into consideration substantial costs of doing business, such as interest expense, and should not be considered in isolation to other measures of performance. Another measure of liquidity is net cash provided by operating activities, as reflected in the accompanying consolidated statements of cash flows. Net cash provided by operating activities ($1,263 million, $1,142 million and $1,251 million in 1995, 1994 and 1993, respectively) reflects net cash from the operations of the Company available for the Company's liquidity needs after taking into consideration the aforementioned additional substantial costs of doing business not reflected in Operating Cash Flow. Amounts expended by the Company for its investing activities exceed net cash provided by operating activities. However, management believes that net cash provided by operating activities, the ability of the Company and its subsidiaries to obtain additional financing (including the subsidiaries available lines of credit and access to public debt markets), issuances and sales of the Company's equity or equity of its subsidiaries, proceeds from disposition of assets will provide adequate sources of short-term and long-term liquidity in the future. See the Company's consolidated statements of cash flows included in the accompanying consolidated financial statements. II-13 In order to achieve the desired balance between variable and fixed rate indebtedness and to diminish its exposure to extreme increases in variable interest rates, the Company has entered into various interest rate exchange agreements and interest rate hedge agreements. At December 31, 1995, after considering the net effect of various interest rate hedge and exchange agreements (see note 6 to the consolidated financial statements) with notional amounts aggregating $1,918 million, TCIC had $5,701 million (or 45%) of fixed- rate debt with a weighted average interest rate of 8.8% and $6,934 million (or 55%) of variable-rate debt with a weighted average interest rate of 6.3% at December 31, 1995. Pursuant to the interest rate exchange agreements, the Company pays (i) fixed interest rates ranging from 6.1% to 9.9% on notional amounts of $602 million at December 31, 1995 and (ii) variable interest rates on notional amounts of $2,520 million at December 31, 1995. During the years ended December 31, 1995, 1994 and 1993, the Company's net payments pursuant to its fixed rate exchange agreements were $13 million, $26 million and $38 million, respectively. During the years ended December 31, 1995, 1994 and 1993, the Company's net receipts (payments) pursuant to its variable rate exchange agreements were (less than $1 million), $36 million and $31 million, respectively. The Company is exposed to credit losses for the periodic settlements of amounts due under the interest rate exchange agreements in the event of nonperformance by the other parties to the agreements. However, the Company does not anticipate that it will incur any material credit losses because it does not anticipate nonperformance by the counterparties. Approximately twenty-five percent of the franchises held by the Company, involving approximately 4.4 million basic subscribers, expire within five years. There can be no assurance that the franchises for the Company's systems will be renewed as they expire, although the Company believes that its cable television systems generally have been operated in a manner which satisfies the standards established by the Cable Communications Policy Act of 1984, as supplemented by the renewal provisions of the 1992 Cable Act, for franchise renewal. However, in the event they are renewed, the Company cannot predict the impact of any new or different conditions that might be imposed by the franchising authorities in connection with the renewals. To date they have not varied significantly from the original terms. A significant competitive impact is expected from medium power and higher power direct broadcast satellites ("DBS") that use high frequencies to transmit signals that can be received by dish antennas much smaller in size than traditional home satellite dishes ("HSDs"). The Company has an interest in an entity, Primestar, that distributes a multi-channel programming service via a medium power communications satellite to HSDs of approximately 3 feet in diameter. At December 31, 1995, Primestar, through its partners, served an estimated 940,000 HSDs in the United States. Two other DBS operators, DirecTV, a subsidiary of GM Hughes Electronics, and United States Satellite Broadcasting, a subsidiary of Hubbard Broadcasting, Inc., offer video services that can be received by HSDs that measure approximately eighteen inches in diameter. Such DBS operators have the right to distribute substantially all of the significant cable television programming services currently carried by cable television systems. The competition from DBS will likely continue to grow. One DBS operator is preparing to launch a new DBS satellite. AT&T Corp. recently made a large investment in DirecTV and several other major companies are preparing to develop and operate high-power DBS systems, including MCI Communications Corp. ("MCI") and News Corp. MCI recently acquired rights to satellite frequencies for DBS in an FCC auction. II-14 The 1996 Telecom Act eliminated the statutory and regulatory restrictions that prevented telephone companies from competing with cable operators for the provision of video services by any means. The 1996 Telecom Act allows local telephone companies, including the Bell Operating Companies, to compete with cable television operators both inside and outside their telephone service areas. The Company expects that it will face substantial competition from telephone companies for the provision of video services. The Company assumes that all major telephone companies have already entered or soon will enter the business of providing video services. Most major telephone companies have greater financial resources than the Company, and the 1992 Cable Act ensures that telephone company providers of video services will have access to all of the significant cable television programming services. Additionally, the 1996 Telecom Act eliminates certain federal restrictions on utility holding companies and thus frees all utility companies to provide cable television services. The Company expects this could result in another source of significant competition in the delivery of video services. The Company is upgrading and installing optical fiber technology in its cable systems at a rate such that in approximately two years TCIC anticipates that it will be serving the majority of its customers with this technology. The systems, which facilitate digital transmission of voice, video, and data signals, will have optical fiber to neighborhood nodes with coaxial cable distribution downstream from that point. The Company made capital expenditures of $1,665 million in 1995 and the Company expects to expend similar amounts in 1996 to provide for the continued rebuilding of its cable systems. However, such proposed expenditures are subject to reevaluation based upon changes in the Company's liquidity, including those resulting from rate regulation. TCIC has guaranteed notes payable and other obligations of affiliated and other companies with outstanding balances of approximately $185 million at December 31, 1995. Although there can be no assurance, management of TCIC believes that it will not be required to meet its obligations under such guarantees, or if it is required to meet any of such obligations, that they will not be material to TCIC. The Company is obligated to pay fees for the license to exhibit certain qualifying films that are released theatrically by various motion picture studios through December 31, 2005 (the "Film License Obligations"). The aggregate minimum liability under certain of the license agreements is approximately $135 million. The aggregate amount of the Film License Obligations under other license agreements is not currently estimable because such amount is dependent upon certain variable factors. TCIC has also committed to provide additional debt or equity funding to certain of its affiliates. At December 31, 1995, such commitments aggregated $24 million. The Company's various partnerships and other affiliates accounted for under the equity method generally fund their acquisitions, required debt repayments and capital expenditures through borrowings under and refinancing of their own credit facilities (which are generally not guaranteed by the Company) and through net cash provided by their own operating activities. II-15 Item 8. Financial Statements and Supplementary Data. - - ------ ------------------------------------------- The consolidated financial statements of TCI Communications, Inc. are filed under this Item, beginning on Page II-17. The financial statement schedules required by Regulation S-X are filed under Item 14 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and - - ------ --------------------------------------------------------------- Financial Disclosure. -------------------- None. II-16 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Stockholders TCI Communications, Inc.: We have audited the accompanying consolidated balance sheets of TCI Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications, Inc.) as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholder's(s') equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TCI Communications, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Denver, Colorado March 18, 1996 II-17 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Balance Sheets December 31, 1995 and 1994
1995 1994 * ---------- -------- Assets amounts in millions - - ------ Cash $ -- 6 Trade and other receivables, net 262 198 Investments in affiliates, accounted for under the equity method, and related receivables (note 4) 1,062 341 Property and equipment, at cost: Land 63 68 Distribution systems 8,942 7,589 Support equipment and buildings 1,147 921 ------- ------ 10,152 8,578 Less accumulated depreciation 3,547 2,999 ------- ------ 6,605 5,579 ------- ------ Franchise costs 13,618 10,994 Less accumulated amortization 2,055 1,697 ------- ------ 11,563 9,297 ------- ------ Other assets, at cost, net of 489 459 amortization ------- ------ $19,981 15,880 ======= ======
*Restated - see note 3. (continued) II-18 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Balance Sheets, continued
1995 1994 * ----------- -------- Liabilities and Stockholder's Equity amounts in millions - - ------------------------------------ Accounts payable $ 176 74 Accrued interest 226 179 Accrued programming expense 209 178 Other accrued expenses 473 388 Debt (note 6) 12,635 10,712 Deferred income taxes (note 8) 4,261 3,299 Other liabilities 66 96 ------- ------ Total liabilities 18,046 14,926 ------- ------ Minority interests in equity of consolidated subsidiaries 206 271 Stockholder's equity (note 7): Class A common stock, $1 par value. Authorized 910,553 shares; issued and outstanding 811,655 shares 1 1 Class B common stock, $1 par value. Authorized 94,447 shares; issued and outstanding 94,447 shares -- -- Additional paid-in capital 3,122 2,842 Unrealized holding gains for available-for-sale securities, net of taxes 7 2 Accumulated deficit (370) (250) ------- ------ 2,760 2,595 Investment in Tele-Communications, Inc. ("TCI") (note 3) (1,145) (1,102) Due to (from) TCI 114 (810) ------- ------ Total stockholder's equity 1,729 683 ------- ------ Commitments and contingencies (note 11) $19,981 15,880 ======= ======
*Restated - see note 3. See accompanying notes to consolidated financial statements. II-19 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Statements of Operations Years ended December 31, 1995, 1994 and 1993
1995 1994* 1993* -------- ------ ------ amounts in millions Revenue (note 9) $5,118 4,318 4,153 Operating costs and expenses: Operating 1,568 1,315 1,190 Selling, general and administrative 1,507 1,202 1,105 Compensation relating to stock appreciation rights 17 -- 31 Adjustment to compensation relating to stock appreciation rights -- (5) -- Depreciation 848 685 622 Amortization 375 303 289 ------ ----- ----- 4,315 3,500 3,237 ------ ----- ----- Operating income 803 818 916 Other income (expense): Interest expense (962) (777) (731) Interest and dividend income (note 9) 34 35 34 Share of earnings of Liberty Media Corporation ("Old Liberty") (note 3) -- 128 7 Share of losses of other affiliates, net (note 4) (43) (114) (76) Gain on sale of stock by equity investee (note 4) -- 161 -- Other, net (1) (25) 14 ------ ----- ----- (972) (592) (752) ------ ----- ----- Earnings (loss) before income taxes (169) 226 164 Income tax benefit (expense) 49 (132) (169) ------ ----- ----- Net earnings (loss) (120) 94 (5) Dividend requirements on preferred stocks -- -- (2) ------ ----- ----- Net earnings (loss) attributable to common stockholder(s) $ (120) 94 (7) ====== ===== =====
* Restated - see note 3. See accompanying notes to consolidated financial statements. II-20 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Statements of Stockholder's(s') Equity Years ended December 31, 1995, 1994 and 1993
Unrealized Cumulative holding foreign gains for Common stock Additional currency available- Investment ---------------- paid-in translation for-sale Accumulated Treasury in Class A Class B capital adjustment securities* deficit* stock TCI* -------- ----------- ------------ ----------- ----------- ----------- ----------- ---------- amounts in millions Balance at January 1, 1993* $ 462 48 1,909 (19) -- (339) (333) -- Net loss -- -- -- -- -- (5) -- -- Issuance of common stock upon conversion of notes 20 -- 383 -- -- -- -- -- Issuance of common stock upon exercise of options -- -- 7 -- -- -- -- -- Dividends on redeemable preferred stock -- -- (2) -- -- -- -- -- Foreign currency translation adjustment -- -- -- (10) -- -- -- -- Acquisition and retirement of common stock -- (1) (4) -- -- -- -- -- ------- ---------- ----------- ---------- ----------- -------- ---------- ------ Balance at December 31, 1993* 482 47 2,293 (29) -- (344) (333) -- Unrealized holding gains for available-for-sale securities as of January 1, 1994 -- -- -- -- 297 -- -- -- Net earnings -- -- -- -- -- 94 -- -- Conversion of redeemable preferred stock 1 -- 17 -- -- -- -- -- Issuance of common stock upon conversion of notes 3 -- -- -- -- -- -- -- Exchange of TCI Communications, Inc. ("TCIC") common stock and Old Liberty common stock and preferred stock owned by subsidiaries of TCIC for TCI common stock and preferred stock in the TCI/Liberty Combination (note 3) -- -- -- -- -- -- 333 (651) Reclassification and change of common stock (note 7) (485) (47) 532 -- -- -- -- -- Foreign currency translation adjustment -- -- -- 24 -- -- -- -- Reduction in unrealized holding gains for available-for-sale securities (note 1) -- -- -- -- (141) -- -- -- Change in due from TCI -- -- -- -- -- -- -- -- Effect of Reorganization (note 1) -- -- -- 5 (154) -- -- (451) ------- ---------- ----------- ---------- ----------- -------- ---------- ------ Balance at December 31, 1994 $ 1 -- 2,842 -- 2 (250) -- (1,102) ======= ========== =========== ========== =========== ======== ========== ====== Due Total (from) to stockholder's(s') TCI equity --------- ------- Balance at January 1, 1993* -- 1,728 Net loss -- (5) Issuance of common stock upon conversion of notes -- 403 Issuance of common stock upon exercise of options -- 7 Dividends on redeemable preferred stock -- (2) Foreign currency translation adjustment -- (10) Acquisition and retirement of common stock -- (5) -------- ----- Balance at December 31, 1993* -- 2,116 Unrealized holding gains for available-for-sale securities as of January 1, 1994 -- 297 Net earnings -- 94 Conversion of redeemable preferred stock -- 18 Issuance of common stock upon conversion of notes -- 3 Exchange of TCI Communications, Inc. ("TCIC") common stock and Old Liberty common stock and preferred stock owned by subsidiaries of TCIC for TCI common stock and preferred stock in the TCI/Liberty Combination (note 3) -- (318) Reclassification and change of common stock (note 7) -- -- Foreign currency translation adjustment -- 24 Reduction in unrealized holding gains for available-for-sale securities (note 1) -- (141) Change in due from TCI (810) (810) Effect of Reorganization -- (600) (note 1) -------- ----- Balance at December 31, 1994 (810) 683 ======== =====
* Restated-see note 3. (continued) II-21 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Statements of Stockholder's(s') Equity, continued Years ended December 31, 1995, 1994 and 1993
Unrealized Cumulative holding foreign gains for Common stock Additional currency available- Investment ---------------- paid-in translation for-sale Accumulated Treasury in Class A Class B capital adjustment securities* deficit* stock TCI* -------- ----------- ------------ ----------- ----------- ----------- ----------- ---------- amounts in millions Balance at December 31, 1994* $1 -- 2,842 -- 2 (250) -- (1,102) Net loss -- -- -- -- -- (120) -- -- Effect of Reorganization (note 1) -- -- -- -- -- -- -- (6) Effect of implementation of Tax Sharing Agreement (note 8) -- -- -- -- -- -- -- -- Retirement of TCI Class A common stock received in Reorganization -- -- 37 -- -- -- -- (37) TCI Class A common stock issued in acquisition of remaining minority interest of Heritage Communications, Inc. contributed to TCIC (note 5) -- -- 234 -- -- -- -- -- Contribution of investments from subsidiaries of TCI to TCIC -- -- 9 -- -- -- -- -- Issuance of TCI Class A common stock and TCI preferred stock in acquisition (note 5) -- -- -- -- -- -- -- -- Turner Broadcasting System, Inc. stock received in acquisition transferred to a subsidiary of TCI -- -- -- -- -- -- -- -- Proceeds from issuance of TCI Class A common stock to public -- -- -- -- -- -- -- -- Proceeds from issuance of TCI Class A common stock in private offering -- -- -- -- -- -- -- -- Change in unrealized holding gains for available-for-sale securities -- -- -- -- 5 -- -- -- Change in due to/from TCI -- -- -- -- -- -- -- -- ------- ---------- ------ ----- ---------- ----------- --- ----- ---------- ------ Balance at December 31, 1995 $1 -- 3,122 -- 7 (370) -- (1,145) ======= ========== ====== ===== ========== =========== === ===== ========== ====== Due Total (from) to stockholder's(s') TCI equity --------- ------- Balance at December 31, 1994* (810) 683 Net loss -- (120) Effect of Reorganization (note 1) (75) (81) Effect of implementation of Tax Sharing Agreement (note 8) (76) (76) Retirement of TCI Class A common stock received in Reorganization -- -- TCI Class A common stock issued in acquisition of remaining minority interest of Heritage Communications, Inc. contributed to TCIC (note 5) 58 292 Contribution of investments from subsidiaries of TCI to TCIC -- 9 Issuance of TCI Class A common stock and TCI preferred stock in acquisition (note 5) 1,313 1,313 Turner Broadcasting System, Inc. stock received in acquisition transferred to a subsidiary of TCI (7) (7) Proceeds from issuance of TCI Class A common stock to public 401 401 Proceeds from issuance of TCI Class A common stock in private offering 30 30 Change in unrealized holding gains for available-for-sale securities -- 5 Change in due to/from TCI (720) (720) ----- ----- Balance at December 31, 1995 114 1,729 ===== =====
*Restated - see note 3. See accompanying notes to consolidated financial statements. II-22 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994 and 1993
1995 1994* 1993* -------- ------- ------- amounts in millions (see note 2) Cash flows from operating activities: Net earnings (loss) $ (120) 94 (5) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,223 988 911 Compensation relating to stock appreciation rights 17 -- 31 Adjustment to compensation relating to stock appreciation rights -- (5) -- Share of earnings of Old Liberty -- (128) (7) Share of losses of other affiliates 43 114 76 Gain on sale of stock by equity investee -- (161) -- Deferred income tax expense (56) 45 140 Other noncash charges (credits) (29) 5 6 Changes in operating assets and liabilities, net of the effect of acquisitions: Change in receivables (52) 16 (32) Change in accrued interest 42 22 63 Change in other accruals and payables 195 152 68 ------- ------ ------ Net cash provided by operating activities 1,263 1,142 1,251 ------- ------ ------ Cash flows from investing activities: Cash paid for acquisitions (259) (494) (158) Capital expended for property and equipment (1,665) (1,235) (947) Cash proceeds from disposition of assets 49 36 149 Additional investments in and loans to affiliates and others (764) (384) (361) Repayment of loans by affiliates and others 8 145 62 Other investing activities (82) (71) 85 ------- ------ ------ Net cash used in investing activities (2,713) (2,003) (1,170) ------- ------ ------ Cash flows from financing activities: Borrowings of debt 7,719 4,409 6,305 Repayments of debt (6,020) (3,348) (6,321) Change in due to/from TCI (249) (189) -- Preferred stock dividends of subsidiaries (6) (6) (6) Preferred stock dividends -- -- (2) Repurchase of preferred stock -- -- (92) Issuances of common stock -- -- 6 Repurchases of common stock -- -- (4) ------- ------ ------ Net cash provided (used) by financing activities 1,444 866 (114) ------- ------ ------ Net increase (decrease) in cash (6) 5 (33) Cash at beginning of year 6 1 34 ------- ------ ------ Cash at end of year $ -- 6 1 ======= ====== ======
*Restated - see note 3. See accompanying notes to consolidated financial statements. II-23 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements December 31, 1995, 1994 and 1993 (1) Summary of Significant Accounting Policies ------------------------------------------ Principles of Consolidation --------------------------- The accompanying consolidated financial statements include the accounts of TCI Communications, Inc. (formerly Tele-Communications, Inc. or "Old TCI") and those of all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. TCIC is a subsidiary of TCI. Nature of Operations -------------------- TCIC (the "Company"), through its subsidiaries and affiliates, is principally engaged in the construction, acquisition, ownership, and operation of cable television systems. TCIC operates its cable television systems throughout the continental United States through its four regional operating divisions -- Central, Great Lakes, Southeast and West. Reorganization -------------- During the fourth quarter of 1994, TCI was reorganized (the "Reorganization") based upon four lines of business: Domestic Cable and Communications; Programming; International Cable and Programming ("TINTA"); and Technology/Venture Capital. Upon Reorganization, certain of the assets of TCIC were transferred to the other operating units. The most significant transfers were as follows: (i) equity securities of Turner Broadcasting System, Inc. ("TBS") and Discovery Communications, Inc. were transferred to the Programming unit and (ii) TeleWest Communications plc ("TeleWest UK") was transferred to TINTA. In conjunction with the Reorganization, TCIC reduced its unrealized gain on available-for-sale securities by $154 million, as a result of the transfer of TBS common stock. In the first quarter of 1995, TCIC transferred certain additional assets to TINTA. Receivables ----------- Receivables are reflected net of an allowance for doubtful accounts. Such allowance at December 31, 1995 and 1994 was not material. (continued) II-24 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Investments ----------- All marketable equity securities held by TCIC are classified as available- for-sale or trading and are carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried net of taxes as a separate component of stockholder's equity. Other investments in which the ownership interest is less than 20% but are not considered marketable securities are generally carried at cost. For those investments in affiliates in which TCIC's voting interest is 20% to 50%, the equity method of accounting is generally used. Under this method, the investment, originally recorded at cost, is adjusted to recognize TCIC's share of the net earning or losses of the affiliates as they occur rather than as dividends or other distributions are received, limited to the extent of TCIC's investment in, advances to and commitments for the investee. TCIC's share of net earnings or losses of affiliates includes the amortization of the difference between TCIC's investment and its share of the net assets of the investee. Recognition of gains on sales of properties to affiliates accounted for under the equity method is deferred in proportion to TCIC's ownership interest in such affiliates. Changes in TCIC's proportionate share of the underlying equity of a subsidiary or equity method investee, which result from the issuance of additional equity securities by such subsidiary or equity investee, generally are recognized as gains or losses in TCIC's consolidated statements of operations. Long-Lived Assets ----------------- (a) Property and Equipment ---------------------- Property and equipment is stated at cost, including acquisition costs allocated to tangible assets acquired. Construction costs, including interest during construction and applicable overhead, are capitalized. During 1995, 1994 and 1993, interest capitalized was not material. Depreciation is computed on a straight-line basis using estimated useful lives of 3 to 15 years for distribution systems and 3 to 40 years for support equipment and buildings. (continued) II-25 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Repairs and maintenance are charged to operations, and renewals and additions are capitalized. At the time of ordinary retirements, sales or other dispositions of property, the original cost and cost of removal of such property are charged to accumulated depreciation, and salvage, if any, is credited thereto. Gains or losses are only recognized in connection with the sales of properties in their entirety. (b) Franchise Costs --------------- Franchise costs include the difference between the cost of acquiring cable television systems and amounts assigned to their tangible assets. Such amounts are generally amortized on a straight-line basis over 40 years. Costs incurred by TCIC in obtaining franchises are being amortized on a straight-line basis over the life of the franchise, generally 10 to 20 years. In March of 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal years beginning after December 15, 1995. Statement No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and either the undiscounted future cash flows estimated to be generated by those assets or the fair market value are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. TCIC will adopt Statement No. 121 effective January 1, 1996. The effect of such adoption is not expected to be significant. Interest Rate Derivatives ------------------------- Amounts receivable or payable under derivative financial instruments used to manage interest rate risks arising from TCIC's financial liabilities are recognized as interest expense. Gains and losses on early terminations of derivatives are included in the carrying amount of the related debt and amortized as yield adjustments over the remaining terms of the debt. TCIC does not use such instruments for trading purposes. Minority Interests ------------------ Recognition of minority interests' share of losses of consolidated subsidiaries is limited to the amount of such minority interests' allocable portion of the common equity of those consolidated subsidiaries. Further, the minority interests' share of losses is not recognized if the minority holders of common equity of consolidated subsidiaries have the right to cause TCIC to repurchase such holders' common equity. Included in minority interests in equity of consolidated subsidiaries is $49 million and $50 million in 1995 and 1994, respectively, of preferred stocks (and accumulated dividends thereon) of certain subsidiaries. The current dividend requirements on these preferred stocks aggregate $6 million per annum and such dividend requirements are reflected as minority interests in the accompanying consolidated statements of operations. (continued) II-26 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Trust Originated Preferred Securities/sm/ ------------------------------------- Subsequent to December 31, 1995, TCI Communications Financing I (the "Trust"), a wholly owned subsidiary of the Company, issued $16 million in common securities and $500 million of 8.72% Trust Originated Preferred Securities/sm/ (the "Preferred Securities" and together with the common securities, the "Trust Securities"). The Trust exists for the exclusive purpose of issuing Trust Securities and investing the proceeds thereof into an aggregate principal amount of $516 million of 8.72% Subordinated Deferrable Interest Notes due January 31, 2045 (the "Subordinated Debt Securities") of the Company. The Subordinated Debt Securities are unsecured obligations of the Company and are subordinate and junior in right of payment to certain other indebtedness of the Company. Upon redemption of such Subordinated Debt Securities, the Preferred Securities will be mandatorily redeemable. The Company effectively provides a full and unconditional guarantee of the Trust's obligations under the Preferred Securities. The Company will present the Preferred Securities as a separate line item in its balance sheet captioned "Company-obligated mandatorily redeemable preferred securities of subsidiary trust." Investment in TCI ----------------- On August 3, 1995, the stockholders of TCI authorized the Board of Directors of TCI to issue a new class of stock ("Liberty Group Stock") which is intended to reflect the separate performance of the Programming Unit ("Liberty Media Group"). While the Liberty Group Stock constitutes common stock of TCI, the issuance of the Liberty Group Stock did not result in any transfer of assets or liabilities of TCI or any of its subsidiaries or affect the rights of holders of TCI's or any of its subsidiaries' debt. On August 10, 1995, TCI distributed one hundred percent of the equity value attributable to the Liberty Media Group (the "Distribution") to its security holders of record on August 4, 1995. Additionally, the stockholders of TCI approved the redesignation of the previously authorized TCI Class A and Class B common stock into Series A TCI Group and Series B TCI Group common stock ("TCI Group Stock"). In connection with the Distribution, subsidiaries of TCIC exchanged all of the TCI Class A common stock and TCI preferred stock owned by such subsidiaries for 267,944 shares of a new series of TCI Series Preferred Stock designated Convertible Redeemable Participating Preferred Stock Series F (the "Series F Preferred Stock"). Subsequent to such exchange, a subsidiary holding 78,077 shares of Series F Preferred Stock converted its holdings into 100,524,364 shares of Series A TCI Group Stock. (continued) II-27 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Stock Based Compensation ------------------------ Statement of Financial Accounting Standards No. 123, Accounting for Stock- Based Compensation ("Statement No. 123") was issued by the FASB in October 1995. Statement No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. The Company will include the disclosures required by Statement No. 123 in the notes to future financial statements. Estimates --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification ---------------- Certain amounts have been reclassified for comparability with the 1995 presentation. (2) Supplemental Disclosures to Consolidated Statements of Cash Flows ----------------------------------------------------------------- Cash paid for interest was $920 million, $754 million and $641 million for the years ended December 31, 1995, 1994 and 1993, respectively. Also, during these periods, cash paid for income taxes was not material. (continued) II-28 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Significant noncash investing and financing activities are as follows:
Years ended December 31, ---------------------- 1995 1994 1993 -------- ----- ----- amounts in millions Cash paid for acquisitions: Fair value of assets acquired $ 2,979 539 172 Liabilities assumed, net of current assets (250) (13) (7) Deferred tax liability recorded in acquisitions (913) -- (7) Minority interests in equity of acquired entities 48 (32) -- Common stock of TCI issued in acquisition contributed to TCIC (234) Increase in amounts due to TCI resulting from common stock of TCI issued in acquisition (1,371) -- -- ------- ---- ---- Cash paid for acquisitions $ 259 494 158 ======= ==== ==== Reversal of deferred tax liability recorded in TCI/Liberty Combination (note 3) $ -- 38 -- ======= ==== ==== Receipt of notes receivable upon disposition of Liberty common stock and preferred stock (note 3) $ -- -- 182 ======= ==== ==== Noncash capital contribution to Community Cable Television ("CCT") $ -- -- 22 ======= ==== ==== Noncash exchange of equity investment for consolidated subsidiary and equity investments $ -- -- 22 ======= ==== ====
(continued) II-29 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements (3) TCI/Liberty Combination ----------------------- As of January 27, 1994, Old TCI and Old Liberty entered into a definitive merger agreement to combine the two companies (the "TCI/Liberty Combination"). The transaction was consummated on August 4, 1994 and was structured as a tax free exchange of Class A and Class B Shares of both companies and preferred stock of Old Liberty for like shares of a newly formed holding company, TCI/Liberty Holding Company. Old TCI stockholders received one share of TCI for each of their shares. Old Liberty common stockholders received 0.975 of a share of TCI for each of their common shares. In connection with the TCI/Liberty Combination, Old TCI changed its name to TCI Communications, Inc. and TCI/Liberty Holding Company changed its name to Tele-Communications, Inc. In connection with the Reorganization, the assets of Old Liberty which produce and distribute cable television programming services were contributed to a new subsidiary of TCI, "New Liberty". Old Liberty and New Liberty are referred to collectively herein as "Liberty". TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070 shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock. Upon consummation of the TCI/Liberty Combination, TCIC received 3,390,883 shares of TCI Class A common stock and 55,070 shares of Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B Preferred Stock"). Upon consummation of the TCI/Liberty Combination, the remaining classes of preferred stock of Liberty held by TCIC were converted into shares of TCI Class A Preferred Stock which has a substantially equivalent fair market value to that which was given up. Subsequently, such preferred stock was exchanged for Series F Preferred Stock in connection with the Distribution. TCIC's ownership in TCI's common stock, Class B Preferred Stock and Series F Preferred Stock have been recorded as investment in TCI in stockholder's equity at TCIC's historical cost. Due to the significant economic interest held by TCIC through its ownership of Liberty preferred stock and Liberty common stock and other related party considerations, TCIC accounted for its investment in Liberty under the equity method prior to the TCI/Liberty Combination. Accordingly, TCIC did not recognize any income relating to dividends, including preferred stock dividends, and TCIC recorded the earnings or losses generated by Liberty (by recognizing 100% of Liberty's earnings or losses before deducting preferred stock dividends) through the date the TCI/Liberty Combination was consummated. (continued) II-30 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Summarized unaudited results of operations of Liberty for the period from January 1, 1994 through August 4, 1994 and for the year ended December 31, 1993 are as follows:
Consolidated Operations 1994 1993 ----------------------- --------- ---------- amounts in millions Revenue $ 790 1,153 Operating expenses (726) (1,105) Depreciation and amortization (32) (49) ----- ------ Operating income (loss) 32 (1) Interest expense (22) (31) Other, net 118 39 ----- ------ Net earnings $ 128 7 ===== ======
During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its common stock. As a result of the repurchase, Liberty's ownership of BET was increased from 19% to 22%. Therefore, Liberty is deemed to exercise significant influence over BET and, accordingly, has adopted the equity method of accounting for its investment in BET. As a result, Liberty restated its financial statements. Accordingly, TCIC restated its financial statements, which resulted in a decrease to accumulated deficit and an increase to investment in TCI by $5 million at December 31, 1994. In addition, TCIC increased its share of earnings of Liberty by $2 million for the period from January 1, 1994 through the TCI/Liberty Combination and $3 million for the year ended December 31, 1993. Effective February 9, 1995 and pursuant to an Agreement and Plan of Merger, QVC Programming Holdings, Inc., a corporation which is jointly owned by Comcast Corporation ("Comcast") and Liberty, merged (the "QVC Merger") with and into QVC, Inc. ("QVC") with QVC continuing as the surviving corporation. Liberty owns an approximate 43% interest of the post-merger QVC. Liberty begun accounting for its investment in QVC under the cost method in May 1994, upon its determination to remain outside of the previous QVC stockholders agreement. Prior to such determination, Liberty accounted for its investment in QVC under the equity method. Upon consummation of the QVC Merger, Liberty was deemed to exercise significant influence over QVC and, as such, adopted the equity method of accounting for its investment in QVC. As a result, Liberty restated its financial statements. Accordingly, TCIC restated its financial statements, which resulted in a decrease to accumulated deficit and an increase to investment in TCI by $1 million at December 31, 1994. In addition, TCIC increased its share of earnings of Liberty by $1 million for the period from May 1, 1994 through the TCI/Liberty Combination. (continued) II-31 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of Liberty's 50% general partnership interest in American Movie Classics Company ("AMC"). The gain recognized by Liberty in connection with the disposition of AMC was $183 million and is included in TCIC's share of Liberty's earnings prior to the TCI/Liberty Combination. (4) Investments in Other Affiliates ------------------------------- TCIC has various investments accounted for under the equity method. The most significant investment held by TCIC at December 31, 1995 was its investment in MajorCo, L.P. ("MajorCo"), a partnership formed by TCIC, Comcast, Cox Communications, Inc. ("Cox") and Sprint Corporation ("Sprint") (carrying value of $689 million). See note 11. Additionally, TCIC has an investment in TelePort Communications Group, Inc. and TCG Partners (collectively, "TCG") (carrying value of $244 million). (continued) II-32 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Summarized unaudited financial information for affiliates, other than Liberty, accounted for under the equity method is as follows:
December 31, --------------------- 1995 1994 ----------- -------- Combined Financial Position amounts in millions --------------------------- Property and equipment, net $1,066 777 Franchise costs, net 152 100 Other assets, net 422 313 ------ ----- Total assets $1,640 1,190 ====== ===== Debt $ 904 635 Due to TCIC 137 2 Other liabilities 228 180 Owners' equity 371 373 ------ ----- Total liabilities and equity $1,640 1,190 ====== ===== Years ended December 31, ---------------------------- 1995 1994 1993 ----- ------ ----- Combined Operations amounts in millions ------------------- Revenue $ 546 651 713 Operating expenses (491) (684) (648) Depreciation and amortization (97) (139) (127) ----- ------ ----- Operating loss (42) (172) (62) Interest expense (35) (45) (37) Other, net 30 126 98 ----- ------ ----- Net loss $ (47) (91) (1) ===== ====== =====
TCIC had an investment in TeleWest UK, a company that is currently operating and constructing cable television and telephone systems in the United Kingdom ("UK"). TeleWest UK, which was accounted for under the equity method, contributed $40 million and $28 million of TCIC's share of its affiliates' losses in 1994 and 1993, respectively. In February 1994, TCIC acquired a consolidated investment in Flextech p.l.c. ("Flextech"). Flextech accounted for net losses in 1994 of $21 million (before deducting the minority interests' 40% share of such losses). In addition, TCIC had other less significant investments in video distribution and programming businesses located in the UK, other parts of Europe, Asia, Latin America and certain other foreign countries. In the aggregate, such other investments accounted for $44 million of TCIC's share of its affiliates' losses in 1994. In connection with the Reorganization, TCIC's ownership in the aforementioned entities was transferred to the International Cable and Programming unit effective December 1, 1994. (continued) II-33 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements As a result of the TeleWest UK's November 1994 initial public offering and the associated dilution of TCI's ownership interest of TeleWest UK, TCIC recognized a gain amounting to $161 million (before deducting the related tax expense of $57 million). Effective December 1, 1994, such ownership of TeleWest Communications was transferred to the International Cable and Programming unit in the Reorganization. Certain of TCIC's affiliates are general partnerships and any subsidiary of TCIC that is a general partner in a general partnership is, as such, liable as a matter of partnership law for all debts of that partnership in the event liabilities of that partnership were to exceed its assets. (5) Acquisitions ------------ As of January 26, 1995, TCI, TCIC and TeleCable Corporation ("TeleCable") consummated a transaction, whereby TeleCable was merged into TCIC. The aggregate $1.6 billion purchase price was satisfied by TCIC's assumption of approximately $300 million of TeleCable's net liabilities and the issuance to TeleCable's stockholders of approximately 42 million shares of TCI Class A common stock and 1 million shares of TCI Convertible Preferred Stock, Series D with an aggregate initial liquidation value of $300 million. The acquisition of TeleCable was accounted for by the purchase method. Accordingly, TeleCable's results of operations have been consolidated with those of TCIC since its date of acquisition. On a pro forma basis, TCIC's revenue would have been increased by $25 million and $302 million for the years ended December 31, 1995 and 1994, respectively, and net loss for the year ended December 31, 1995 would have been decreased by $1 million and net earnings for the year ended December 31, 1994 would have been increased by $21 million, had TeleCable been consolidated with TCIC on January 1, 1994. The foregoing unaudited pro forma financial information was based upon historical results of operations adjusted for acquisition costs and, in the opinion of management, is not necessarily indicative of the results had TCIC operated TeleCable since January 1, 1994. (continued) II-34 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Effective January 26, 1995, TCIC purchased from Comcast the 19.9% minority interest in Heritage Communications, Inc. owned by Comcast for aggregate consideration of $292 million, the majority of which was paid in shares of TCI Class A common stock. (6) Debt ---- Debt is summarized as follows:
Weighted average December 31, interest rate at ------------------- December 31, 1995 1995 1994 ------------------ ---------- ------- amounts in millions Parent company debt: Senior notes 8.5% $ 6,713 5,412 Bank credit facilities 6.7% 179 869 Commercial paper 6.4% 1,440 445 Other debt 1 2 ------- ------ 8,333 6,728 Debt of subsidiaries: Bank credit facilities 6.8% 3,258 2,828 Notes payable 10.2% 934 1,024 Convertible notes (a) 9.5% 45 45 Commercial paper 6.1% 29 -- Other debt 36 87 ------- ------ $12,635 10,712 ======= ======
(a) These convertible notes, which are stated net of unamortized discount of $186 million on December 31, 1995 and 1994, mature on December 18, 2021. The notes require (so long as conversion of the notes has not occurred) an annual interest payment through 2003 equal to 1.85% of the face amount of the notes. At December 31, 1995, the notes were convertible, at the option of the holders, into an aggregate of 38,707,574 shares of Series A TCI Group Stock and 9,676,893 shares of Series A Liberty Group Stock. TCIC's bank credit facilities and various other debt instruments generally contain restrictive covenants which require, among other things, the maintenance of certain earnings, specified cash flow and financial ratios (primarily the ratios of cash flow to total debt and cash flow to debt service, as defined), and include certain limitations on indebtedness, investments, guarantees, dispositions, stock repurchases and dividend payments. As security for borrowings under one of TCIC's bank credit facilities, TCIC has pledged 100,524,364 shares of Series A TCI Group Stock held by a subsidiary of TCIC. (continued) II-35 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements In order to achieve the desired balance between variable and fixed rate indebtedness, TCIC has entered into various interest rate exchange agreements pursuant to which it pays (i) fixed interest rates (the "Fixed Rate Agreements") ranging from 6.1% to 9.9% on notional amounts of $602 million at December 31, 1995 and (ii) variable interest rates (the "Variable Rate Agreements") on notional amounts of $2,520 million at December 31, 1995. During the years ended December 31, 1995, 1994 and 1993, TCIC's net payments pursuant to the Fixed Rate Agreements were $13 million, $26 million and $38 million, respectively; and TCIC's net receipts (payments) pursuant to the Variable Rate Agreements were (less than $1 million), $36 million and $31 million, respectively. After giving effect to TCIC's interest rate exchange agreements, approximately 45% of TCIC's indebtedness bears interest at fixed rates. TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as follows:
Fixed Rate Agreements Variable Rate Agreements --------------------------------------- ----------------------------------------- Expiration Interest Rate Notional Expiration Interest Rate Notional Date To Be Paid Amount Date To Be Received Amount ------------- -------------- -------- -------------- --------------- -------- amounts in millions amounts in millions April 1996 9.9% $ 30 April 1996 6.8% $ 50 May 1996 8.3% 50 July 1996 8.2% 10 June 1996 6.1% 42 August 1996 8.2% 10 July 1996 8.2% 10 September 1996 4.6% 150 August 1996 8.2% 10 April 1997 7.0% 200 November 1996 8.9% 150 September 1998 4.8%-5.2% 300 October 1997 7.2%-9.3% 80 April 1999 7.4% 100 December 1997 8.7% 230 September 1999 7.2%-7.4% 300 ---- February 2000 5.8%-6.6% 650 $602 March 2000 5.8%-6.0% 675 ==== September 2000 5.1% 75 ------ $2,520 ======
TCIC is exposed to credit losses for the periodic settlements of amounts due under these interest rate exchange agreements in the event of nonperformance by the other parties to the agreements. However, TCIC does not anticipate that it will incur any material credit losses because it does not anticipate nonperformance by the counterparties. The fair value of the interest rate exchange agreements is the estimated amount that TCIC would pay or receive to terminate the agreements at December 31, 1995, taking into consideration current interest rates and assuming the current creditworthiness of the counterparties. TCIC would be required to pay an estimated $25 million at December 31, 1995 to terminate the agreements. The fair value of TCIC's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to TCIC for debt of the same remaining maturities. The fair value of debt, which has a carrying value of $12,635 million, was $13,228 million at December 31, 1995. (continued) II-36 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements TCIC is required to maintain unused availability under bank credit facilities to the extent of outstanding commercial paper. At December 31, 1995, TCIC had approximately $2.1 billion in unused lines of credit excluding amounts related to lines of credit which provide availability to support commercial paper. Also, TCIC pays fees, ranging from 1/4% to 1/2% per annum, on the average unborrowed portion of the total amount available for borrowings under bank credit facilities. Annual maturities of debt for each of the next five years are as follows:
Parent Total --------- --------- amounts in millions 1996 $1,858* $3,332** 1997 171 518 1998 343 759 1999 232 746 2000 403 901
* Includes $1,440 million of commercial paper. ** Includes $1,469 million of commercial paper. (7) Stockholder's Equity -------------------- Subsequent to December 31, 1995, the Company restated its Certificate of Incorporation to change the number of authorized shares to 910,553 shares of Class A common stock, par value $1.00 per share, 94,447 shares of Class B common stock, par value $1.00 per share, and 5,000,000 shares of preferred stock, par value $.01 per share. Thereafter, the Company issued 4,600,000 shares of Cumulative Exchangeable Preferred Stock with an initial liquidation value of $230 million. Holders of the Class A common stock have 100 votes per share and holders of the Class B common stock have 1,000 votes per share. Each share of Class B common stock is convertible, at the option of the holder, into one share of Class A common stock. At December 31, 1995 all of the common stock of TCIC is owned by TCI. Employee Benefit Plans ---------------------- TCI has several employee stock purchase plans (the "Plans") to provide employees an opportunity for ownership in TCI and to create a retirement fund. Terms of the Plans generally provide for employees to contribute up to 10% of their compensation to a trust for investment in TCI Group Stock and Liberty Group Stock. TCI, by annual resolution of the Board of Directors, generally contributes up to 100% of the amount contributed by employees. Certain of TCIC's subsidiaries have their own employee benefit plans. Contributions to all plans aggregated $27 million, $19 million and $16 million for 1995, 1994 and 1993, respectively. (continued) II-37 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Stock Options ------------- TCIC had granted or assumed certain options and/or stock appreciation rights. All such options and/or stock appreciation rights previously granted by TCIC were assumed by TCI in conjunction with the TCI/Liberty Combination. Additionally, in 1995, certain officers and other key employees of TCIC were granted options with tandem stock appreciation rights and were awarded restricted stock of Series A TCI Group Stock, Series A Liberty Group Stock and/or Series A TINTA Stock. Estimates of the compensation relating to the stock appreciation rights granted and/or restricted stock awarded to employees of TCIC have been recorded through December 31, 1995, but are subject to future adjustment based upon market value and, ultimately, on the final determination of market value when the rights are exercised or vested. (8) Income Taxes ------------ TCI files a consolidated Federal income tax return with all of its 80% or more owned subsidiaries. Consolidated subsidiaries in which TCI owns less than 80% each file a separate income tax return. TCIC and all of its 80% or more owned subsidiaries, subsequent to the TCI/Liberty Combination, is included in the consolidated Federal income tax return of TCI. Income tax expense for TCIC is based on those items in the consolidated calculation applicable to TCIC. Intercompany tax allocation represents an apportionment of tax expense or benefit (other than deferred taxes) among subsidiaries of TCI in relation to their respective amounts of taxable earnings or losses. The payable or receivable arising from the intercompany tax allocation is recorded as an increase or decrease in amounts due to or from affiliated companies included as a component of stockholder's equity. A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and certain other subsidiaries of TCI was implemented effective July 1, 1995. The Tax Sharing Agreement formalizes certain of the elements of pre- existing tax sharing arrangement and contains additional provisions regarding the allocation of certain consolidated income tax attributes and the settlement procedures with respect to the intercompany allocation of current tax attributes. The Tax Sharing Agreement encompasses U.S. federal, state, local and foreign tax consequences and relies upon the U.S. Internal Revenue Code of 1986 as amended, and any applicable state, local and foreign tax law and related regulations. Beginning on the July 1, 1995 effective date, TCIC is responsible to TCI for its share of current consolidated income tax liabilities. TCI is responsible to TCIC to the extent that TCIC's income tax attributes generated after the effective date are utilized by TCI to reduce its consolidated income tax liabilities. Accordingly, all tax attributes generated by TCIC's operations after the effective date including, but not limited to, net operating losses, tax credits, deferred intercompany gains, and the tax basis of assets are inventoried and tracked for the entities comprising TCIC. In connection with the implementation of the Tax Sharing Agreement, TCIC recorded an increase to its deferred income tax liability and a decrease to its amounts due to TCI of $76 million. (continued) II-38 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Income tax benefit (expense) for the years ended December 31, 1995, 1994 and 1993 consists of:
Current Deferred Total -------- --------- ------ amounts in millions Year ended December 31, 1995: Intercompany allocation $ 1 46 47 State and local (8) 10 2 ---- ---- ---- $ (7) 56 49 ==== ==== ==== Year ended December 31, 1994: Intercompany allocation $(73) (35) (108) State and local (14) (10) (24) ---- ---- ---- $(87) (45) (132) ==== ==== ==== Year ended December 31, 1993: Federal $(14) (120) (134) State and local (15) (20) (35) ---- ---- ---- $(29) (140) (169) ==== ==== ====
Income tax benefit (expense) differs from the amounts computed by applying the Federal income tax rate of 35% as a result of the following:
Years ended December 31, ---------------------- 1995 1994 1993 ------ ------ ------ amounts in millions Computed "expected" tax benefit (expense) $ 59 (79) (57) Dividends excluded for income tax purposes -- 1 4 Amortization not deductible for tax purposes (18) (12) (12) Minority interest in earnings of consolidated subsidiaries 4 (1) (1) Recognition of losses of consolidated partnership -- (10) (8) State and local income taxes, net of Federal income tax benefit 2 (21) (23) Valuation allowance for net operating loss carryforward (6) -- -- Valuation allowance for foreign corporation -- (9) -- Adjustment to deferred tax assets and liabilities for enacted change in Federal income tax rate -- -- (76) Other 8 (1) 4 ----- ---- ---- $ 49 (132) (169) ===== ==== ====
(continued) II-39 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below:
December 31, --------------------- 1995 1994 ----------- -------- amounts in millions Deferred tax assets: Net operating loss carryforwards $ 470 489 Less - valuation allowance (88) (99) Investment tax credit carryforwards 116 122 Less - valuation allowance (41) (36) Alternative minimum tax credit carryforwards -- 89 Investments in affiliates, due principally to losses of affiliates recognized for financial statement purposes in excess of losses recognized for income tax purposes 169 171 Future deductible amounts principally due to non-deductible accruals 25 13 Other 11 5 ------ ----- Net deferred tax assets 662 754 ------ ----- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation 1,161 1,160 Franchise costs, principally due to differences in amortization 3,403 2,598 Investment in affiliates, due principally to undistributed earnings of affiliates 191 210 Leases capitalized for tax purposes 53 -- Other 115 85 ------ ----- Total gross deferred tax liabilities 4,923 4,053 ------ ----- Net deferred tax liability $4,261 3,299 ====== =====
The valuation allowance for deferred tax assets as of December 31, 1995 was $129 million. Such balance decreased by $6 million from December 31, 1994. (continued) II-40 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements At December 31, 1995, TCIC had net operating loss carryforwards for income tax purposes aggregating approximately $902 million of which, if not utilized to reduce taxable income in future periods, $134 million in 2003, $116 million in 2004, $344 million in 2005, $245 million in 2006, $18 million in 2009 and $45 million in 2010. Certain subsidiaries of TCIC had additional net operating loss carryforwards for income tax purposes aggregating approximately $245 million and these net operating losses are subject to certain rules limiting their usage. At December 31, 1995, TCIC had remaining available investment tax credits of approximately $61 million which, if not utilized to offset future Federal income taxes payable, expire at various dates through 2005. Certain subsidiaries of TCIC had additional investment tax credit carryforwards aggregating approximately $55 million and these investment tax credit carryforwards are subject to certain rules limiting their usage. At July 1, 1995, TCIC also had available alternative minimum tax credit carryforwards ("Alt Min Carryforwards") of $76 million. Pursuant to the Tax Sharing Agreement, for as long as TCIC is included in TCI's consolidated Federal income tax return, any benefit attributable to the Alt Min Carryforwards will be reserved to TCI. Accordingly, TCIC's deferred tax liability at December 31, 1995 has not been reduced for such future deductible amounts. In the event that TCI's ownership of TCIC goes below 80% and TCIC is no longer included in TCI's consolidated Federal income tax return, and TCIC subsequently realizes a benefit from the Alt Min Carryforwards, TCIC will be required to pay to TCI the amount of such realized benefit plus any associated interest thereon. Certain of the Federal income tax returns of TCI and its subsidiaries which filed separate income tax returns are presently under examination by the Internal Revenue Service for the years 1981 through 1992. A subsidiary of TCIC has filed a petition in United States Tax Court protesting the disallowance of certain Transitional Investment Tax Credits and such issue will likely be litigated in 1996. In the opinion of management, any additional tax liability, not previously provided for, resulting from these examinations, ultimately determined to be payable, should not have a material adverse effect on the consolidated financial position of TCIC. New tax legislation was enacted in the third quarter of 1993 which, among other matters, increased the corporate Federal income tax rate from 34% to 35%. TCIC has reflected the tax rate change in its consolidated statements of operations. Such tax rate change resulted in an increase of $76 million to income tax expense and deferred income tax liability. (9) Transactions with Related Parties --------------------------------- TCIC purchases sports and other programming from certain subsidiaries of Liberty. Charges to TCIC (which are based upon customary rates charged to others) for such programming were $73 million, $59 million and $44 million for the years ended December 31, 1995 and 1994 and 1993, respectively. Such amounts are included in operating expenses in the accompanying consolidated statements of operations. (continued) II-41 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Certain TCIC 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 year ended December 31, 1995, Liberty, TINTA and the Technology/Venture Capital unit were allocated $3 million, $3 million and $1 million in corporate general and administrative costs by TCIC, respectively. Liberty leases satellite transponder facilities from TCIC. Charges by TCIC for such arrangements for the years ended December 31, 1995, 1994 and 1993, aggregated $15 million, $8 million and $4 million, respectively. TCI Starz, Inc., a subsidiary of TCI, has a 50.1% general partnership interest in QE+ Ltd Limited Partnership ("QE+"), which distributes STARZ!, a first-run movie premium programming service launched in 1994. Liberty holds the remaining 49.9% partnership interest. TCIC has entered into a long-term affiliation agreement with QE+ in respect to the distribution of the STARZ! service. Rates per subscriber specified in the agreement are based upon customary rates charged to other cable system operators. Payments to QE+ for 1995 were approximately $31 million. The affiliation agreement also 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 TCIC. The affiliation agreement also requires TCIC to make payments to QE+ with respect to a guaranteed minimum number of subscribers totaling approximately $339 million for the years 1996, 1997 and 1998. At December 31, 1995, TCIC had an $86 million intercompany receivable from TCI Starz, Inc. which represented the net effect of advances to QE+ by TCI Starz, Inc. in the amount of $117 million offset by TCIC's purchase of programming from QE+ of $31 million. Such receivable is non-interest bearing for five years from the date of the advances. (continued) II-42 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements A consolidated subsidiary of Liberty, Home Shopping Network, Inc. pays a commission to TCIC for merchandise sales to customers who are subscribers of TCIC's cable systems. Aggregate commissions to TCIC were $6 million, $7 million and $1 million for the years ended December 31, 1995, 1994 and 1993, respectively. Such amounts are recorded in revenue in the accompanying consolidated statements of operations. TCIC and a certain subsidiary of TCI ("Liberty Cable") own a general partnership, which acquires and operates cable television systems, with TCIC owning a 49.999% interest and Liberty Cable owning the remaining 50.001% interest. Pursuant to a cable television management agreement, a subsidiary of TCIC provides management services for cable television systems owned by CCT. The subsidiary receives a fee equal to 3% of the gross cable television revenue of the Partnership. TCIC and Liberty Cable are parties to an Option-Put Agreement (the "Option- Put Agreement"), as amended. Under the Option-Put Agreement, between January 1, 1997 and January 31, 1997, Liberty Cable will have the right to require TCIC to purchase Liberty Cable's interest in CCT and a loan receivable for an amount equal to $77 million plus interest on such amount accruing at the rate of 11.6% per annum from June 3, 1993. Liberty Cable purchases from TCIC, at TCIC's cost plus an administrative fee, certain pay television and other programming. Charges for such programming were $13 million, $11 million and $10 million for the years ended December 31, 1995, 1994 and 1993, respectively. Such amounts are recorded in revenue in the accompanying consolidated statements of operations. A subsidiary of TINTA purchases from TCIC, at TCIC's cost plus an administrative fee, certain pay television and other programming. Charges for such programming were $3 million for each of the years ended December 31, 1995, 1994 and 1993. TINTA has indemnified TCIC for any loss, claim or liability that TCIC may incur by reason of certain guarantees and credit enhancements made by TCIC on TINTA's behalf. TCIC advanced certain subsidiaries of TCI interest-bearing loans during 1995 and 1994. Interest earned by TCIC on such intercompany loans aggregated $12 million and $5 million for the years ended December 31, 1995 and 1994, respectively. Such amounts are included in interest and dividend income in the accompanying consolidated statements of operations. (10) Transactions with Officers and Directors ---------------------------------------- Effective January 31, 1996, a director purchased one-third of the Company's interest in two limited partnerships and obtained two ten-year options to purchase the Company's remaining partnership interests. The purchase price for the one-third partnership interests was 37.209 shares of WestMarc Communications, Inc. (a wholly-owned subsidiary of the Company) Series C Cumulative Compounding Preferred Stock owned by such director, and the purchase price for the ten-year options was $100 for each option. All options are exercisable for cash in the aggregate amount of $3 million. (continued) II-43 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements (11) Commitments and Contingencies ----------------------------- During 1994, TCIC, Comcast, Cox (collectively, the "Cable Partners") and Sprint formed a partnership ("WirelessCo") to engage in the business of providing wireless communications services on a nationwide basis. Through WirelessCo, of which TCIC owns a 30% interest, the partners have been participating in auctions ("PCS Auctions") of broadband personal communications services ("PCS") licenses being conducted by the Federal Communications Commission ("FCC"). In the first round auction, which concluded during the first quarter of 1995, WirelessCo was the winning bidder for PSC licenses for 29 markets, including New York, San Francisco- Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate license cost for these licenses was approximately $2.1 billion. WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a PCS license granted under the FCC's pioneer preference program for the Washington-Baltimore market. WirelessCo acquired its 49% limited partnership interest in APC for $23 million and has agreed to make capital contributions to APC equal to 49/51 of the cost of APC's PCS license. Additional capital contributions may be required in the event APC is unable to finance the full cost of its PCS license. WirelessCo may also be required to finance the build-out expenditures for APC's PCS system. Cox, which holds a pioneer preference PCS license for the Los Angeles-San Diego market, and WirelessCo have also agreed on the general terms and conditions upon which Cox (with a 51% interest) and WirelessCo (with a 49% interest) would form a partnership to hold and develop a PCS system using the Los Angeles-San Diego license. APC and the Cox partnership would affiliate their PCS systems with WirelessCo and be part of WirelessCo's nationwide integrated network, offering wireless communications services under the "Sprint" brand. During 1994, subsidiaries of Cox, Sprint and TCIC also formed a separate partnership ("PhillieCo"), in which TCIC owns a 35.3% interest. PhillieCo was the winning bidder in the first round auction for a PCS license for the Philadelphia market at a license cost of $85 million. To the extent permitted by law, the PCS system to be constructed by PhillieCo would also be affiliated with WirelessCo's nationwide network. (continued) II-44 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest in, affiliate with or acquire licenses from other successful bidders. The capital that WirelessCo will require to fund the construction of the PCS systems, in addition to the license costs and investments described above, will be substantial. In March of 1995, the Cable Partners and Sprint (collectively, the "Partners") formed two new partnerships, of which the principal partnership is MajorCo, to which they contributed their respective interests in WirelessCo and through which they formed another partnership, NewTelco, L.P. ("NewTelco") to engage in the business of providing local wireline communications services to residences and businesses on a nationwide basis. The Cable Partners agreed to contribute their interests in TCG to NewTelco. TCG is one of the largest competitive access providers in the United States in terms of route miles. Effective January 31, 1996, the Partners amended the MajorCo partnership agreement (the "Partnership Agreement") and certain other agreements related thereto. Under the Partnership Agreement, the business of MajorCo and its subsidiaries will be the provision of certain wireless and other services described in the Partnership Agreement. The partners intend for WirelessCo and its subsidiary partnerships to be the exclusive vehicles through which they engage in the wireless telephony service businesses, subject to certain exceptions. MajorCo will no longer be authorized to engage in the businesses of providing local wireline communications services to residences and businesses. In connection with the amendment of the Partnership Agreement, the Partners also agreed to the termination of the agreement to contribute the Cable Partners' interest in TCG to NewTelco. Pursuant to separate agreements, each of the Cable Partners and Sprint have agreed to negotiate in good faith on a market-by-market basis for the provision of local wireline telephony services over the cable television facilities of the respective Cable Partner under the Sprint brand. Accordingly, local wireline telephony offerings in each market would be the subject of individual agreements to be negotiated with Sprint, rather than being provided by MajorCo, as originally contemplated. The Cable Partners and Sprint also reaffirmed their intention to continue to attempt to integrate the business of TCG with that of MajorCo. In addition, each Cable Partner agreed to certain restrictions on its ability to offer, promote, or package certain of its products or services with certain products and services of other persons and agreed to make its facilities available to Sprint for specified purposes to the extent and on the terms that it has made such facilities available to others for such purposes. Such agreements have a term of five years, but under certain circumstances may terminate after three years. Execution of the foregoing agreements was a condition to the effectiveness of a previously approved business plan for the build out of WirelessCo's nationwide network for wireless personal communications services. Pursuant to the business plan, the Partners are obligated to make additional cash capital contributions to MajorCo in the aggregate amount of approximately $1.9 billion during the two-year period that commenced January 1, 1996. The business plan contemplates that MajorCo will require additional equity thereafter. (continued) II-45 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the purchase by TCIC of all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the time of purchase, will own Viacom's cable systems and related assets. The transaction has been structured as a tax-free reorganization in which Cable Sub will initially transfer all of its non-cable assets, as well as all of its liabilities other than current liabilities, to a new subsidiary of Viacom ("New Viacom Sub"). Cable Sub will also transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to be arranged by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub will retain cable assets with an estimated value at closing of approximately $2.2 billion and the obligation to repay the Loan Proceeds borrowed under the Loan Facility. Repayment of the Loan Proceeds will be non-recourse to Viacom and New Viacom Sub. Viacom will offer to the holders of shares of Viacom Class A Common Stock and Viacom Class B Common Stock (collectively, "Viacom Common Stock") the opportunity to exchange (the "Exchange Offer") a portion of their shares of Viacom Common Stock for shares of Class A Common Stock, par value $100 per share, of Cable Sub ("Cable Sub Class A Stock"). The Exchange Offer will be subject to a number of conditions, including a condition (the "Minimum Condition") that sufficient tenders are made of Viacom Common Stock that permit the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange Offer to equal the total number of shares of Cable Sub Class A Stock issuable in the Exchange Offer. (continued) II-46 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements Immediately following the completion of the Exchange Offer, TCIC will acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350 million (which will be used to reduce Cable Sub's obligations under the Loan Facility). At the time of such acquisition, the Cable Sub Class A Stock received by Viacom stockholders pursuant to the Exchange Offer will automatically convert into a series of senior cumulative exchangeable preferred stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of $100 per share (the "Stated Value"). The terms of the Exchangeable Preferred Stock, including its dividend, redemption and exchange features, will be designed to cause the Exchangeable Preferred Stock, in the opinion of two investment banks, to initially trade at the Stated Value. The Exchangeable Preferred Stock will be exchangeable, at the option of the holder commencing after the fifth anniversary of the date of issuance, for shares of Series A TCI Group Stock. The Exchangeable Preferred Stock will also be redeemable, at the option of Cable Sub, after the fifth anniversary of the date of issuance, and will be subject to mandatory redemption on the tenth anniversary of the date of issuance at a price equal to the Stated Value per share plus accrued and unpaid dividends, payable in cash or, at the election of Cable Sub, in shares of Series A TCI Group Stock, or in any combination of the foregoing. If insufficient tenders are made by Viacom stockholders in the Exchange Offer to permit the Minimum Condition to be satisfied, Viacom will extend the Exchange Offer for up to 15 business days and, during such extension, TCI and Viacom are to negotiate in good faith to determine mutually acceptable changes to the terms and conditions for the Exchangeable Preferred Stock and the Exchange Offer that each believes in good faith will cause the Minimum Condition to be fulfilled and that would cause the Exchangeable Preferred Stock to trade at a price equal to the Stated Value immediately following the expiration of the Exchange Offer. In the event the Minimum Condition is not thereafter met, TCI and Viacom will each have the right to terminate the transaction. In addition, either party may terminate the transaction if the Exchange Offer has not commenced by June 24, 1996 or been consummated by July 24, 1996. Consummation of the transaction is subject to a number of conditions, including receipt of a favorable letter ruling from the Internal Revenue Service that the transaction qualifies as a tax-free transaction and the satisfaction or waiver of all of the conditions of the Exchange Offer. A request for a letter ruling from the Internal Revenue Service has been filed by Viacom. TCIC believes that, based upon the unique and complex structure of the transaction, there exists significant uncertainty as to whether a favorable ruling will be obtained. In light of the foregoing, management of TCIC has concluded that consummation of the transaction is not yet probable. No assurance can be given that the transaction will be consummated. (continued) II-47 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994, the FCC adopted certain rate regulations required by the 1992 Cable Act and imposed a moratorium on certain rate increases. As a result of such actions, TCIC's basic and tier service rates and its equipment and installation charges (the "Regulated Services") are subject to the jurisdiction of local franchising authorities and the FCC. Basic and tier service rates are evaluated against competitive benchmark rates as published by the FCC, and equipment and installation charges are based on actual costs. Any rates for Regulated Services that exceeded the benchmarks were reduced as required by the 1993 and 1994 rate regulations. The rate regulations do not apply to the relatively few systems which are subject to "effective competition" or to services offered on an individual service basis, such as premium movie and pay-per-view services. TCIC believes that it has complied in all material respects with the provisions of the 1992 Cable Act, including its rate setting provisions. However, TCIC's rates for Regulated Services are subject to review by the FCC, if a complaint has been filed, or the appropriate franchise authority, if such authority has been certified. If, as a result of the review process, a system cannot substantiate its rates, it could be required to retroactively reduce its rates to the appropriate benchmark and refund the excess portion of rates received. Any refunds of the excess portion of tier service rates would be retroactive to the date of complaint. Any refunds of the excess portion of all other Regulated Service rates would be retroactive to one year prior to the implementation of the rate reductions. On October 30, 1995, the FCC accepted for comment a proposed resolution of all complaints against the cable programming services tier ("CPST") currently pending against cable systems owned by TCIC. If the proposed resolution is accepted by the FCC, TCIC will settle all pending complaints by a one-time credit to each subscriber in CPST regulated franchises. The aggregate amount of such credits is approximately $9 million. Such amount had previously been accrued by TCIC. In addition, the FCC will find that the CPST rates in CPST regulated franchises on September 15, 1995 comply with federal regulations. TCIC has committed not to file any additional cost-of-service filings until May 15, 1996 in franchises that were subject to CPST regulation prior to September 15, 1995. However, TCIC will be able to avail itself of the other mechanisms under FCC rules to recover costs, including abbreviated cost-of-service filings covering system rebuilds and upgrades. In the proposed resolution, TCIC does not admit any violation of, or any failure to conform to, the 1992 Cable Act or the rules promulgated thereunder. The comment period has ended and TCIC is awaiting action by the FCC. TCIC has guaranteed notes payable and other obligations of affiliated and other companies with outstanding balances of approximately $185 million at December 31, 1995. Although there can be no assurance, management of TCIC believes that it will not be required to meet its obligations under such guarantees, or if it is required to fulfill any of such obligations, that they will not be material to TCIC. (continued) II-48 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements In connection with the launch of a premium service in 1994, TCIC became a direct obligor or guarantor of the payment of certain amounts that may be due pursuant to motion picture output, distribution, and license agreements. As of December 31, 1995, the maximum amount of such obligations or guarantees was approximately $135 million. The future obligations of TCIC with respect to these agreements is not currently determinable because such amount is dependent upon certain variable factors. TCIC has also committed to provide additional debt or equity funding to certain of its affiliates. At December 31, 1995, such commitments aggregated $24 million. TCIC leases business offices, has entered into pole rental agreements, transponder lease agreements and uses certain equipment under lease arrangements. Minimum rental expense under such arrangements amounted to $112 million, $76 million and $70 million in 1995, 1994 and 1993, respectively. Future minimum lease payments under noncancellable operating leases for each of the next five years are summarized as follows (amounts in millions): Years ending December 31, ------------ 1996 $ 66 1997 64 1998 59 1999 57 2000 51 It is expected that, in the normal course of business, expiring leases will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amount shown for 1996. Certain key employees of the Company hold restricted stock awards and options with tandem SARs to acquire shares of certain subsidiaries' common stock. Estimates of the compensation related to the restricted stock awards and options and/or SARs have been recorded in the accompanying consolidated financial statements, but are subject to future adjustment based upon the market value of the respective common stock and, ultimately, on the final market value when the rights are exercised or the restricted stock awards are vested. TCIC has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements. II-49 (continued) TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Notes to Consolidated Financial Statements (12) Quarterly Financial Information (Unaudited) -------------------------------------------
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter --------- -------- -------- -------- amounts in millions 1995: ----- Revenue $ 1,169 1,262 1,310 1,377 Operating income $ 230 208 222 143 Income tax benefit (expense) $ (4) 14 15 24 Net earnings (loss) $ 4 (28) (26) (70) 1994: ----- Revenue $ 1,060 1,081 1,072 1,105 Operating income $ 234 205 181 198 Income tax expense: As previously reported $ (31) (21) (29) Adjustment for effect of adopting equity method of accounting for investments: BET -- (1) -- ----- ----- ----- As adjusted $ (31) (22) (29) (50) ===== ===== ===== ===== Net earnings: As previously reported $ 32 6 23 Adjustment for effect of adopting equity method of accounting for investments: QVC -- -- 1 BET -- 1 -- ----- ----- ----- As adjusted $ 32 7 24 31 ===== ===== ===== =====
II-50 PART III. Item 10. Directors and Executive Officers of the Registrant. - - -------- -------------------------------------------------- The following lists the directors and executive officers of TCI Communications, Inc. ("TCIC" or the "Company"), their birth dates, a description of their business experience and positions held with the Company as of January 31, 1996. All officers are appointed for an indefinite term, serving at the pleasure of the Board of Directors. Name Positions - - ---------------------- --------------------------------------------------- Bob Magness Chairman of the Board of TCIC since 1973 and TCIC Born June 3, 1924 director from 1968; Chairman of the Board and director of Tele-Communications, Inc. ("TCI") since June of 1994. John C. Malone Director of TCIC since 1973; Chief Executive Born March 7, 1941 Officer of TCIC from March of 1992 to October of 1994 and President of TCIC from 1973 to October of 1994; TCI director since June of 1994; Chief Executive Officer and President of TCI since January of 1994; is President and a director of many of TCI's subsidiaries; also a director of Turner Broadcasting System, Inc., BET Holdings, Inc., Home Shopping Network, Inc. and The Bank of New York. Chairman of the Board and a director of Tele-Communications International, Inc. ("International") since May 1995. Kim Magness TCIC director from 1985 to August of 1994; Born May 17, 1952 reinstated as TCIC director in January of 1996; TCI director since June of 1994; manages numerous personal and business investments, and is Chairman and President of a company developing liners for irrigation canals. John W. Gallivan Chairman of the Board of Kearns-Tribune Born June 28, 1915 Corporation ("Kearns"), a newspaper publishing concern; also a director of Silver King Mining Company; TCI director since June of 1994; TCIC director from 1980 to August of 1994; reinstated as TCIC director in January of 1996. Donne F. Fisher Director of TCIC since 1980 and of TCI since June Born May 24, 1938 of 1994. Executive Vice President of TCIC from December of 1991 to October of 1994; was previously Senior Vice President of TCIC since 1982 and Treasurer since 1970; Executive Vice President of TCI from January of 1994 through January 1, 1996. On January 1, 1996, Mr. Fisher resigned his position of Executive Vice President of TCI; also a director of General Communication, Inc. Brendan R. Clouston President and Chief Executive Officer of TCIC Born April 28, 1953 since October of 1994; Executive Vice President and Chief Operating Officer of TCI from March of 1992 to October of 1994; previously Senior Vice President of TCI since December of 1991; Executive Vice President of TCI since January of 1994; from January of 1987 through December of 1991, held various executive positions with United Artists Entertainment Company ("UAE") and its predecessor, United Artists Communications, Inc. ("UACI"), most recently Executive Vice President and Chief Financial Officer. (continued) III-1 Name Positions - - --------------------- --------------------------------------------------- Stephen M. Brett Appointed Senior Vice President and General Born September 20, 1940 Counsel of TCIC as of December of 1991. Executive Vice President, General Counsel and Secretary of TCI since January of 1994. Vice President and Secretary and a director of most of TCI's subsidiaries. From August of 1988 through December of 1991, was Executive Vice President-Legal and Secretary of UAE and its predecessor, UACI. Barry P. Marshall Executive Vice President and Chief Operating Born March 4, 1946 Officer of TCIC since October of 1994. Executive Vice President and Chief Operating Officer of TCI Cable Management Corporation, TCIC's primary operating subsidiary, from March of 1992 through January 1, 1994, where he directly oversaw all of TCIC's regional operating divisions. From 1986 to March of 1992, was Vice President and Chief Operating Officer of TCIC's largest regional operating division. Gary K. Bracken Controller of TCIC since 1969. Appointed Senior Born July 29, 1939 Vice President of TCIC in December of 1991. Was named Vice President and Principal Accounting Officer of TCIC in 1982. Bernard W. Schotters Appointed Senior Vice President-Finance and Born November 25, 1944 Treasurer of TCIC in December of 1991. Was appointed Vice President-Finance of TCIC in 1984. Vice President and Treasurer of most of TCI's subsidiaries. Robert N. Thomson Appointed Senior Vice President of TCIC in Born December 19, 1943 February of 1995. Senior Vice President of Communications and Policy Planning for TCIC from 1991 to October of 1994. Previously, Vice President of Government Affairs for TCIC from January of 1987 to 1991. Gary S. Howard TCIC Senior Vice President since October 1994 and Born February 22, 1951 TCI Vice President from December 1991 through October of 1994. President of Primestar by TCI. Senior Vice President of United Artists Entertainment Company from June 1989 to December 1991. Sadie N. Decker TCIC Senior Vice President from October, 1994; was Born October 8, 1939 Vice President from April, 1993 through October, 1994; Executive Director with Martin Marietta Astronautics (the predecessor company to Lockheed-Martin Astronautics) from 1985 through April, 1993. Gerald W. Gaines Appointed TCIC Senior Vice President of Telephony Born May 29, 1956 Services in October 1994; President and Chief Executive Officer of TCI Telephony Services, Inc. since April, 1995; was President and founder of GCG, Inc. (a management services firm serving the telecommunications industry) from 1991 to 1994. (continued) III-2 Name Positions - - --------------------------- --------------------------------------------------- Barbara J. Mowry TCIC Senior Vice President-Customer Satisfaction Born January 27, 1948 since June 1995; was president and chief executive officer of The Mowry Company from 1990 through June, 1995. Jedd S. Palmer TCIC Senior Vice President-Programming from Born July 28, 1954 August, 1994; was Vice President-Programming from 1992 through August, 1994 and Director of Programming from January, 1991 through early 1992. Camille K. Jayne TCIC Senior Vice President since January, 1996; Born June 15, 1952 was Vice President/Senior Consultant with Ryan Partnership from 1994 through January, 1996; prior to that was Senior Director/Co-Chairman New Ventures of Ameritech Regional Bell Operating Company from 1992 through 1994; was First Vice President of Comerica Bank from 1987 through 1992. There are no family relations, of first cousin or closer, among the above named individuals, by blood, marriage or adoption, except that Bob Magness and Kim Magness are father and son. During the past five years, none of the above persons have had any involvement in such legal proceedings as would be material to an evaluation of his ability or integrity. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires TCIC's officers and directors, and persons who own more than ten percent of a registered class of TCIC's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish TCIC 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 TCIC with respect to its most recent fiscal year, or written representations that no Forms 5 were required, TCIC believes that, during the year ended December 31, 1995, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with. III-3 Item 11. Executive Compensation. - - ------- ---------------------- (a) Summary Compensation Table of TCI Communications, Inc. On August ------------------------------------------------------ 3, 1995, TCI amended its Restated Certificate of Incorporation to, among other things, (i) redesignate the TCI Class A Common Stock as "Tele-Communications, Inc. Series A TCI Group Common Stock" ("Series A Stock") and TCI's Class B Common Stock as "Tele-Communications, Inc. Series B TCI Group Common Stock" ("Series B Stock") and (ii) authorize two additional series of TCI common stock, designated as "Tele-Communications, Inc. Series A Liberty Media Group Common Stock" ("Liberty Series A Stock") and "Tele-Communications, Inc. Series B Liberty Media Group Common Stock" ("Liberty Series B Stock "). Thereafter, TCI distributed to the holders of TCI common stock one-fourth of a share of the corresponding series of Liberty Media Group common stock in respect of each share of TCI Group common stock held of record as of August 4, 1995, the record date for such distribution (the "Distribution"). Certain of the stock options with tandem stock appreciation rights relative to Series A Stock and Liberty Series A Stock indicated in the following tables were granted prior to the foregoing redesignation and Distribution. Options to purchase TCI Class A common stock outstanding at the time of the Distribution were adjusted by issuing to the holders of such options separate options to purchase that number of shares of Liberty Series A Stock which the holder would have been entitled to receive had the holder exercised such option to purchase TCI Class A common stock prior to the record date for the Distribution and reallocating a portion of the aggregate exercise price of the previously outstanding options to the newly issued options to purchase Liberty Series A Stock. The following table shows, for the years ended December 31, 1995, 1994 and 1993 all forms of compensation for the Chief Executive Officer and each of the five most highly compensated executive officers of TCIC, whose total annual salary and bonus exceeded $100,000 for the year ended December 31, 1995:
Long-Term Compensation ---------------------- Annual Compensation Awards -------------------------- ---------------------- Other Securities Annual Restricted Underlying Compen- Stock Options/ All Other sation Award(s) SARs Compensation Position Year Salary ($) Bonus($) ($)(1) ($)(2) (#) ($)(6) - - -------- ---- --------- ------- ------ ---------- ------------ ------------ Brendan R. Clouston 1995 $550,000 -- $3,181 $2,062,500 1,000,000 (3) $15,000 President and Chief 1994 $525,000 -- $1,000 --- 625,000 (4) $15,000 Executive Officer 1993 $519,231 -- $ 263 --- 625,000 (5) $15,000 Barry P. Marshall 1995 $367,500 -- $2,934 $ 309,375 75,000 (3) $13,816 Executive Vice 1994 $349,947 -- $ 538 --- 125,000 (4) $13,811 President and 1993 $363,462 -- $1,143 --- 250,000 (5) $13,746 Chief Operating Officer Gary S. Howard 1995 $262,500 $23,210 $3,415 $ 309,375 150,000 (3) $15,000 Senior Vice 1994 $226,462 $23,210 $1,052 --- 62,500 (4) $15,000 President 1993 $208,119 $23,210 $2,401 --- 62,500 (5) $15,000 Gary K. Bracken 1995 $248,063 -- $3,735 $ 206,250 75,000 (3) $15,000 Senior Vice President 1994 $233,624 -- $5,630 --- 62,500 (4) $15,000 and Controller 1993 $225,000 -- $ 567 --- 93,750 (5) $15,000 Bernard S. Schotters 1995 $248,063 -- $3,662 $ 515,625 300,000 (3) $15,000 Senior Vice 1994 $236,250 -- $2,775 --- 62,500 (4) $15,000 President and 1993 $233,654 -- $2,926 --- 93,750 (5) $15,000 Treasurer Robert N. Thomson 1995 $248,063 -- $2,705 $ 206,250 50,000 (3) $12,480 Senior Vice 1994 $236,250 -- $1,846 --- 62,500 (4) $12,480 President 1993 $233,654 -- $1,914 --- 93,750 (5) $12,960 - - --------------------
(1) Consists of amounts reimbursed during the year for the payment of taxes. (2) TCI has a stock incentive plan, the Tele-Communications, Inc. 1994 Stock Incentive Plan (the "1994 Plan"). On December 13, 1995, pursuant to the 1994 Plan, Mr. Clouston was granted 100,000 restricted shares of Series A Stock, Mr. Marshall and Mr. Howard were each granted 15,000 restricted shares of Series A Stock, Mr. Bracken and Mr. Thomson were each granted 10,000 restricted shares of Series A Stock and Mr. Schotters was granted 25,000 restricted shares of Series A Stock. Such restricted shares vest as to 50% of such shares on December 13, 1999 and as to the remaining 50% on December 13, 2000. The value of such restricted shares at the end of 1995 was $1,987,500 for Mr. Clouston, $298,125 each for Messrs. Marshall and Howard, $198,750 each for Messrs. Bracken and Thomson and $496,875 for Mr. Schotters based upon the closing price of Series A Stock on December 29, 1995. TCI has not paid cash dividends on the Series A Stock and does not anticipate declaring and paying cash dividends on the Series A Stock at any time in the foreseeable future. (continued) III-4 (3) For additional information regarding this award, see Option/SAR Grants Table below. (4) On November 17, 1994, pursuant to the 1994 Plan, certain executive officers and other key employees were granted an aggregate of 3,191,000 options in tandem with stock appreciation rights to acquire shares of Series A Stock at an adjusted purchase price of $16.50 per share and an aggregate of 797,750 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock at a purchase price of $22.00 per share. Such options vest evenly over five years, become exercisable beginning on November 17, 1995 and expire on November 17, 2004. Notwithstanding the vesting schedule as set forth in the option agreement, the option shares shall become available for purchase if grantee's employment with the Company (a) shall terminate by reason of (i) termination by the Company without cause (ii) termination by the grantee for good reason (as defined in the agreement) or (iii) disability, (b) shall terminate pursuant to provisions of a written employment agreement, if any, between the grantee and the Company which expressly permits the grantee to terminate such employment upon occurrence of specified events (other than the giving of notice and passage of time), or (c) if grantee dies while employed by the Company. Further, the option shares will become available for purchase in the event of an Approved Transaction, Board Change, or Control Purchase (each as defined in the 1994 Plan), unless in the case of an Approved Transaction, the TCI Compensation Committee under the circumstances specified in the 1994 Plan determines otherwise. (5) On October 12, 1993 certain executive officers and other key employees were granted an aggregate of 1,355,000 options in tandem with stock appreciation rights to acquire shares of Series A Stock at an adjusted purchase price of $12.50 per share and 338,750 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock at a purchase price of $16.75 per share. On November 12, 1993, an additional grant of stock options in tandem with stock appreciation rights to purchase an aggregate of 600,000 shares of Series A Stock was made to Messrs. Clouston and an executive officer of TCI at an adjusted purchase price of $12.50 per share and an aggregate of 150,000 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock at a purchase price of $16.75 per share. Such options vest evenly over four years, first became exercisable on October 12, 1994 and expire on October 12, 2003. Notwithstanding the vesting schedule as set forth in the option agreement, the option shares shall become available for purchase if grantee's employment with the Company (a) shall terminate by reason of (i) termination by the Company without cause (ii) termination by the grantee for good reason (as defined in the agreement) or (iii) disability, (b) shall terminate pursuant to provisions of a written employment agreement, if any, between the grantee and the Company which expressly permits the grantee to terminate such employment upon occurrence of specified events (other than the giving of notice and passage of time), or (c) if grantee dies while employed by the Company. Further, the option shares will become available for purchase in the event of an Approved Transaction, Board Change, or Control Purchase (each as defined in the Plan), unless in the case of an Approved Transaction, the TCI Compensation Committee under the circumstances specified in the Plan determines otherwise. (continued) III-5 (6) Includes dollar value of annual TCI contributions to the TCI Employee Stock Purchase Plan ("ESPP") in which all named executive officers are fully vested. Directors who are not employees of the Company 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: Years of service Vesting Percentage ---------------- ------------------ Less than 1 0 1-2 20 2-3 30 3-4 45 4-5 60 5-6 80 6 or more 100 Participant contributions are fully vested. Although TCI has not expressed an intent to terminate the ESPP, it may do so at any time. The ESPP provides for full and immediate vesting of all participants' rights upon termination. (continued) III-6 (b) Option/SAR Grants Table of TCI Communications, Inc. The following --------------------------------------------------- table shows all individual grants of stock options and stock appreciation rights ("SARs") granted to each of the named executive officers of TCIC during the year ended December 31, 1995:
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) ($/Sh) Date ($) - - ---------------------- ----------- --------------- ------------ ----------- -------------- --------------- Brendan R. Clouston Series A 1,000,000 (1) $17.00 $20.625 (7) August 4, 2005 $14,133,800 (9) Barry P. Marshall Series A 75,000 (2) $17.00 $20.625 (7) August 4, 2005 $ 1,060,035 (9) Gary S. Howard Series A 150,000 (3) $17.00 $20.625 (7) August 4, 2005 $ 2,120,070 (9) Gary K. Bracken Series A 75,000 (2) $17.00 $20.625 (7) August 4, 2005 $ 1,060,035 (9) Bernard W. Schotters Series A 250,000 (4) $17.00 $20.625 (7) August 4, 2005 $ 3,533,450 (9) TINTA Series A 50,000 (5) $16.00 $25.375 (8) August 4, 2005 $ 864,180 (10) Robert N. Thomson Series A 50,000 (6) $17.00 $20.625 (7) August 4, 2005 $ 706,690 (9) - - -------------------------
(1) On December 13, 1995, pursuant to the 1994 Plan, certain executive officers were granted an aggregate of 2,650,000 options in tandem with stock appreciation rights to acquire shares of Series A Stock and an aggregate of 675,000 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock. Additionally, TCI has a stock incentive plan, the Tele-Communications, Inc. 1995 Stock Incentive Plan (the "1995 Plan"). On December 13, 1995, pursuant to the 1995 Plan, certain key employees were granted an aggregate of 2,757,500 options in tandem with stock appreciation rights to acquire shares of Series A Stock and an aggregate of 436,000 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock. Additionally, on December 13, 1995, pursuant to an incentive plan subject to the approval of TCI shareholders (the "1996 Plan"), certain executive officers and directors of TCIC and an officer of TCI were granted an aggregate of 2,000,000 options in tandem with stock appreciation rights to acquire shares of Series A Stock and an aggregate of 1,100,000 options in tandem with stock appreciation rights to acquire shares of Liberty Series A Stock. 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. Clouston's grant, pursuant to the 1994 Plan, of options in tandem with stock appreciation rights represents 37.7% of the total options granted to purchase Series A Stock pursuant to the 1994 Plan and, together with the options granted to purchase Series A Stock pursuant to the 1995 Plan and the 1996 Plan, represents 13.5% of all options granted in 1995 to purchase Series A Stock. (continued) III-7 (2) Mr. Marshall's and Mr. Bracken's grant, pursuant to the 1994 Plan, of options in tandem with stock appreciation rights each represent 2.8% of the total options granted to purchase Series A Stock pursuant to the 1994 Plan and, together with the options granted to purchase Series A Stock pursuant to the 1995 Plan and the 1996 Plan, each represent 1.0% of all options granted in 1995 to purchase Series A Stock. (3) Mr. Howard's grant, pursuant to the 1995 Plan, of options in tandem with stock appreciation rights represents 5.4% of the total options granted to purchase Series A Stock pursuant to the 1995 Plan and, together with the options granted to purchase Series A Stock pursuant to the 1994 Plan and the 1996 Plan, represents 2.0% of all options granted in 1995 to purchase Series A Stock. (4) Mr. Schotters' grant, pursuant to the 1994 Plan, of options in tandem with stock appreciation rights represents 9.4% of the total options granted to purchase Series A Stock pursuant to the 1994 Plan and, together with the options granted to purchase Series A Stock pursuant to the 1995 Plan and the 1996 Plan, represents 3.4% of all options granted in 1995 to purchase Series A Stock. (5) Mr. Schotters was granted 50,000 options in tandem with stock appreciation rights to acquire from TCI shares of Series A Tele-Communications International, Inc. common stock ("TINTA Series A Stock") owned by it. Additionally, Tele-Communications International, Inc. ("International"), a majority owned subsidiary of TCI, has a stock incentive plan (the "International Plan") which is subject to the approval of the International shareholders. On December 13, 1995, pursuant to the International Plan, certain executive officers and other key employees of TCI were granted an aggregate of 1,302,000 options in tandem with stock appreciation rights to acquire shares of TINTA Series A Stock. Each such grant of options vests evenly over 5 years, becomes exercisable beginning August 4, 1996 and expires on August 4, 2005. Mr. Schotters' grant of such options in tandem with stock appreciation rights represents 100% of the total options granted by TCI of options to purchase its ownership of TINTA Series A Stock and, together with the options granted pursuant to the International Plan, represents 3.7% of all options granted to purchase TINTA Series A Stock. (6) Mr. Thomson's grant, pursuant to the 1994 Plan, of options in tandem with stock appreciation rights represents 1.9% of the total options granted to purchase Series A Stock pursuant to the 1994 Plan and, together with the options granted to purchase Series A Stock pursuant to the 1995 Plan and the 1996 Plan, represents 0.7% of all options granted in 1995 to purchase Series A Stock. (7) Represents the closing market price per share of Series A Stock on December 13, 1995. (8) Represents the closing market price per share of TINTA Series A Stock on December 13, 1995. (continued) III-8 (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 5.65% discount rate; (b) a volatility factor based upon the historical trading pattern of Series A Stock; (c) the 10-year option term; and (d) the closing price of Series A Stock on February 8, 1996. 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 5.75% discount rate; (b) a volatility factor based upon the historical trading pattern of TINTA Series A Stock; (c) the 10-year option term; and (d) the closing price of TINTA Series A Stock on January 15, 1996. 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. (c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value -------------------------------------------------------------------- Table of TCI Communications, Inc. The following table shows each exercise of - - --------------------------------- stock options and SARs during the year ended December 31, 1995 by each of the named executive officers of TCIC and the December 31, 1995 number and year-end value of unexercised options and SARs on an aggregated basis:
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at at December 31, December 31, 1995 (#) 1995 ($) Shares Acquired Value Realized Exercisable/ Exercisable/ Name on Exercise (#) ($) Unexercisable Unexercisable ---- --------------- -------------- ------------- ------------- Brendan Clouston Exercisable Series A -- $2,396,875 (1) 265,000 $1,794,375 Liberty Series A -- $ 873,438 (1) 66,250 $ 618,281 Unexercisable Series A -- -- 1,610,000 $6,733,750 Liberty Series A -- -- 152,500 $1,334,063 Barry Marshall Exercisable Series A -- -- 240,000 $1,690,000 Liberty Series A -- -- 60,000 $ 581,250 Unexercisable Series A -- -- 335,000 $1,813,125 Liberty Series A -- -- 65,000 $ 553,125
(continued) III-9
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at at December 31, December 31, 1995 (#) 1995 ($) Shares Acquired Value Realized Exercisable/ Exercisable/ Name on Exercise (#) ($) Unexercisable Unexercisable ---- --------------- -------------- ------------- ------------- Gary Howard Exercisable Series A 9,714 $75,046 65,000 $ 439,375 Liberty Series A 2,428 $25,008 16,250 $ 151,406 Unexercisable Series A -- -- 235,000 $ 898,125 Liberty Series A -- -- 21,250 $ 162,656 Gary Bracken Exercisable Series A -- -- 92,500 $ 642,188 Liberty Series A -- -- 23,125 $ 221,016 Unexercisable Series A -- -- 182,500 $ 848,438 Liberty Series A -- -- 26,875 $ 219,609 Bernard Schotters Exercisable Series A -- -- 92,500 $ 642,188 Liberty Series A -- -- 23,125 $ 221,016 Unexercisable Series A -- -- 357,500 $1,351,563 Liberty Series A -- -- 26,875 $ 219,609 TINTA Series A -- -- 50,000 $ 337,500 Robert Thomson Exercisable Series A -- -- 92,500 $ 642,188 Liberty Series A -- -- 23,125 $ 221,016 Unexercisable Series A -- -- 157,500 $ 776,563 Liberty Series A -- -- 26,875 $ 219,609
___________________________ (1) Mr. Clouston received an aggregate payment of $3,270,313 from the Company (based on the market value of Series A Stock of $19.875 per share and Liberty Series A Stock of $27.50 per share) in September of 1995, in cancellation of his options with tandem stock appreciation rights covering 325,000 shares of Series A Stock and 81,250 shares of Liberty Series A Stock. (continued) III-10 (d) Compensation of directors. There are no arrangements whereby any of ------------------------- TCIC's directors received compensation for services as a director during 1995. (e) Employment Contracts and Termination of Employment and Change of ---------------------------------------------------------------- Control Arrangements. The Company has no employment contracts or termination of - - -------------------- employment and change of control arrangements for any of the named executive officers of TCIC. (f) Additional information with respect to Compensation Committee ------------------------------------------------------------- Interlocks and Insider Participation in Compensation Decisions. The members of - - -------------------------------------------------------------- TCI's compensation committee are Messrs. Robert A. Naify and John W. Gallivan, both directors of TCI and, as to Mr. Gallivan, a director of TCIC. TCIC has no separate compensation committee, and compensation decisions relative to TCIC are determined by TCI's compensation committee. Dr. Malone is a director of TCIC and is Chairman of the Board and a member of the compensation committee of International. Item 12. Security Ownership of Certain Beneficial Owners and Management. - - ------- -------------------------------------------------------------- (a) Security ownership of certain beneficial owners. The following table ----------------------------------------------- sets forth, as of January 31, 1996, information with respect to the ownership of TCIC Class A common stock ("Class A Stock"), Class B common stock ("Class B Stock") and Cumulative Exchangeable Preferred Stock, Series A ("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 TCIC, 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.
Name and address of Amount and Nature Percent Voting Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1) - - ---------------- -------------------- ----------------------- ----------- --------- Class A Tele-Communications, 811,655 100% 97.4% Class B Inc. 94,447 100% Series A Pref. 5619 DTC Parkway -- -- Englewood, CO Class A The TCW Group, Inc. -- -- * Class B 865 South Figueroa -- -- Series A Pref. Street 516,000 11.2% Los Angeles, CA
________________________ * Less than one percent (1) Based on 811,655 shares of Class A Stock, 94,447 shares of Class B Stock and 4,600,000 shares of Series A Preferred Stock outstanding on January 31, 1996. The Class A Stock has 100 votes per share and the Class B Stock has 1,000 votes per share. (continued) III-11 (b) Security ownership of management. The following table sets forth, as -------------------------------- of January 31, 1996, information with respect to the ownership of TCIC's voting securities (Class A Stock, Class B Stock and Series A Preferred Stock) and ownership of TCI's voting securities (Series A Stock, Series B Stock, Liberty Series A Stock and Liberty Series B Stock (other than directors' qualifying shares), Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B preferred Stock"), Convertible Preferred Stock, Series C ("Series C Preferred Stock"), Redeemable Convertible TCI Group Preferred Stock, Series G ("Series G Preferred Stock") and Redeemable Convertible Liberty Media Group Preferred Stock, Series H ("Series H Preferred Stock")), by all directors and each of the named executive officers of TCIC, and by all executive officers and directors of TCIC as a group. Shares issuable upon exercise or vesting of convertible securities or restricted shares are deemed to be outstanding for the purpose of computing the percentage ownership and overall voting power of persons beneficially owning such securities, but have not been deemed to be outstanding for the purpose of computing the percentage ownership or overall voting power of any other person. Voting power in the table is computed with respect to a general election of directors. The number of Series A Stock, Series B Stock, Liberty Series A Stock and Liberty 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 ESPP and shares held by the trustee of UAE's Employee Stock Ownership Plan for their respective accounts. So far as is known to TCIC, the persons indicated below have sole voting and investment power with respect to the shares indicated as owned by them except as otherwise stated in the notes to the table and except for the shares held by the trustee of TCI's ESPP for the benefit of such person, which shares are voted at the discretion of the trustee. (continued) III-12
Name of Amount and Nature Percent Voting Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1) -------------- ---------------- ----------------------- ----------- --------- Class A Bob Magness -- -- -- Class B -- -- Series A Pref. -- -- Series A 5,626,938 (2)(3)(4) * 26.2% Series B 37,132,076 (2)(4)(7) 43.9% Liberty Series A 1,406,734 (2)(3)(4) * Liberty Series B 9,283,019 (2)(4) 43.8% Class B Pref. 125,000 7.7% Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A John C. Malone -- -- -- Class B -- -- Series A Pref. -- -- Series A 2,171,395 (5) * 17.8% Series B 25,287,083 (6)(7)(8) 29.9% Liberty Series A 542,819 (5) * Liberty Series B 6,349,270 (6)(7)(8) 30.0% Class B Pref. 306,000 (6)(8) 18.9% Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Donne F. Fisher -- -- -- Class B -- -- Series A Pref. -- -- Series A 536,367 (9) * * Series B 249,072 * Liberty Series A 136,358 (9) * Liberty Series B 62,268 * Class B Pref. 3,464 * Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A John W. Gallivan -- -- -- Class B -- -- Series A Pref. -- -- Series A 52,124 (10) * * Series B -- -- Liberty Series A 13,031 (10) * Liberty Series B -- -- Class B Pref. 14 * Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- --
(continued) III-13
Name of Amount and Nature Percent Voting Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1) -------------- ---------------- ----------------------- ----------- --------- Class A Kim Magness -- -- -- Class B -- -- Series A Pref. -- -- Series A 50,000 (11) * * Series B 518,000 * Liberty Series A 12,500 (11) * Liberty Series B 129,500 * Class B Pref. -- -- Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Brendan R. Clouston -- -- -- Class B -- -- Series A Pref. -- -- Series A 1,985,391 (12) * * Series B 230 * Liberty Series A 221,347 (12) Liberty Series B 57 * Class B Pref. -- -- Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Barry Marshall -- -- -- Class B -- -- Series A Pref. -- -- Series A 637,606 (13) * Series B -- -- Liberty Series A 136,848 (13) Liberty Series B -- -- Class B Pref. -- -- Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Gary Howard -- -- -- Class B -- -- Series A Pref. -- -- Series A 348,058 (14) * * Series B -- -- Liberty Series A 46,115 (14) * Liberty Series B -- -- Class B Pref. -- -- Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- --
(continued) III-14
Name of Amount and Nature Percent Voting Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1) -------------- ---------------- ----------------------- ----------- --------- Class A Gary Bracken -- -- -- Class B -- -- Series A Pref. -- -- Series A 485,424 (15) * * Series B 3,000 * Liberty Series A 100,469 (15) * Liberty Series B 750 * Class B Pref. 810 * Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Bernard Schotters -- -- -- Class B -- -- Series A Pref. -- -- Series A 619,556 (16) * * Series B 1,716 * Liberty Series A 88,131 (16) * Liberty Series B 429 * Class B Pref. 1,022 * Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A Robert Thomson -- -- -- Class B -- -- Series A Pref. -- -- Series A 267,285 (17) * * Series B -- -- Liberty Series A 51,770 (17) * Liberty Series B -- -- Class B Pref. -- -- Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- -- Class A All directors -- -- -- Class B and executive -- -- Series A Pref. officers -- -- Series A as a group 14,709,468 (2)(3)(4)(5) 2.5% 44.7% (17 persons) (9)(10)(11)(12) (13)(14)(15)(16) (17) Series B 63,191,177 (2)(4)(6)(7)(8) 74.6% Liberty Series A 3,008,392 (2)(3)(4)(5)(9) 2.1% (10)(11)(12)(13) (14)(15)(16)(17) Liberty Series B 15,825,293 (2)(4)(6)(7)(8) 74.7% Class B Pref. 436,332 (6)(8) 26.9% Series C Pref. -- -- Series G Pref. -- -- Series H Pref. -- --
_________________________ * Less than one percent. (continued) III-15 (1) Based on 811,655 shares of Class A Stock, 94,447 shares of Class B Stock, 4,600,000 shares of Series A Preferred Stock, 571,692,645 shares of Series A Stock (after elimination of shares of TCI held by subsidiaries of TCI), 84,685,554 shares of Series B Stock, 142,896,264 shares of Liberty Series A Stock, 21,196,868 shares of Liberty Series B Stock, 1,620,026 shares of Class B Preferred Stock, 70,575 shares of Series C Preferred Stock, 7,259,380 shares of Series G Preferred Stock and 7,259,380 shares of Series H Preferred Stock outstanding on January 31, 1996. (2) Mr. Magness, as executor of the Estate of Betsy Magness, is the beneficial owner of all shares of Series A Stock, Series B Stock, Liberty Series A Stock and Liberty Series B Stock held of record by the Estate of Betsy Magness. The number of shares held by Mr. Magness includes 2,105,332 shares of Series A Stock, 6,346,212 shares of Series B Stock, 526,333 shares of Liberty Series A Stock and 1,586,553 shares of Liberty Series B Stock of which Mr. Magness is beneficial owner as executor. (3) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1992 to acquire 1,000,000 shares of Series A Stock and 250,000 shares of Liberty Series A Stock. Options to acquire 600,000 and 150,000 shares of Series A Stock and Liberty Series A Stock, respectively, are currently exercisable. Additionally assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to acquire 1,000,000 shares of Series A Stock and 250,000 shares of Liberty Series A Stock. None of the options are exercisable until August 4, 1996. Such grant is subject to the approval by shareholders of the 1996 Plan. (4) Mr. Magness and Kearns are parties to a buy-sell agreement, entered into in October of 1968, as amended, under which neither party may dispose of their shares without notification of the proposed sale to the other, who may then buy such shares at the offered price, sell all of their shares to the other at the offered price or exchange one of their Series A shares for each Series B share or one of their Liberty Series A shares for each Liberty Series B share held by the other and purchase any remaining Series B shares or Liberty Series B shares at the offered price. There are certain exceptions, including transfers to specified persons or entities, certain public sales of Series A shares or Liberty Series A shares and exchanges of Series A shares for Series B shares or Liberty Series A shares for Liberty Series B shares. (5) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1992 to acquire 1,000,000 shares of Series A Stock and 250,000 shares of Liberty Series A Stock. Options to acquire 600,000 and 150,000 shares of Series A Stock and Liberty Series A Stock, respectively, are currently exercisable. Additionally assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to acquire 1,000,000 shares of Series A Stock and 250,000 shares of Liberty Series A Stock. None of the options are exercisable until August 4, 1996. Such grant is subject to the approval by shareholders of the 1996 Plan. (6) Includes 1,173,000 shares of Series B Stock, 293,250 shares of Liberty Series B Stock and 6,900 shares of Class B Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, but Dr. Malone has disclaimed any beneficial ownership of such shares. (continued) III-16 (7) Pursuant to a letter agreement, dated June 17, 1988, Mr. Magness and Kearns each agreed with Dr. Malone that prior to making a disposition of a significant portion of their respective holdings of Series B Stock or Liberty Series B Stock, he or it would first offer Dr. Malone the opportunity to purchase such shares. (8) The number of shares of Series B Stock, Liberty Series B Stock and Class B Preferred Stock held by Dr. Malone includes 3,120,000, 780,000 and 40,000 TCI Restricted Voting Shares, respectively, that are subject to repurchase by TCI under certain circumstances. Until they cease to be subject to TCI's repurchase right (March 28, 1996), such shares may not be transferred and, with respect to any matter submitted to a vote of the stockholders of TCI, the votes represented thereby will be cast in the same proportion as all other votes are cast with respect to such matter. The number of shares of Series A Stock, Series B Stock, Liberty Series A Stock, Liberty Series B Stock and Class B Preferred Stock held by Dr. Malone which are not subject to such repurchase rights and voting requirements represent 16.1% of the total voting power of the shares of TCI common stock, TCI Class B Preferred Stock and Series C Preferred Stock outstanding (excluding 3,120,000, 780,000 and 40,000 TCI Restricted Voting Shares from such total voting power). (9) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1994 to acquire 200,000 shares of Series A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire 40,000 shares of Series A Stock and 10,000 shares of Liberty Series A Stock are currently exercisable. (10) Includes 1,524 shares of Series A Stock and 381 shares of Liberty Series A Stock held by Mr. Gallivan's wife. TCI has an option plan for its directors who are not employees of TCI (the "Director Stock Option Plan"). Pursuant to such plan, TCI granted options to each such director, effective as of November 16, 1994, to purchase 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Such options have a purchase price of $16.50 per share and $22.50 per share, respectively, and vest and become exercisable over a five-year period, commencing November 16, 1995 and will expire on November 16, 2004. Assumes the exercise in full of options granted, pursuant to the Director Stock Option Plan, to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. (11) Assumes the exercise in full of options granted, pursuant to the Director Stock Option Plan, to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. (continued) III-17 (12) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1992 to acquire 300,000 shares of Series A Stock and 75,000 shares of Liberty Series A Stock. Options to acquire 100,000 shares of Series A Stock and 25,000 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 375,000 shares of Series A Stock and 93,750 shares of Liberty Series A Stock. Options to acquire 125,000 shares of Series A Stock and 31,250 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 200,000 shares of Series A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire 40,000 shares of Series A Stock and 10,000 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 1,000,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 100,000 Series A restricted stock. None of the stock is currently vested. (13) 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 Series A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire 120,000 shares of Series A Stock and 30,000 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 200,000 shares of Series A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire 100,000 shares of Series A Stock and 25,000 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 100,000 shares of Series A Stock and 25,000 shares of Liberty Series A Stock. Options to acquire 20,000 shares of Series A Stock and 5,000 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 75,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 15,000 Series A restricted stock. None of the stock is currently vested. (continued) III-18 (14) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1992 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 30,000 shares of Series A Stock and 7,500 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 25,000 shares of Series A Stock and 6,250 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 150,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 15,000 Series A restricted stock. None of the stock is currently vested. (15) 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 Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 37,500 shares of Series A Stock and 9,375 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 75,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 10,000 Series A restricted stock. None of the stock is currently vested. (continued) III-19 (16) 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 Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 37,500 shares of Series A Stock and 9,375 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 250,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 25,000 Series A restricted stock. None of the stock is currently vested. (17) Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in November of 1992 to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock are currently exercisable. Additionally assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1993 to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire 37,500 shares of Series A Stock and 9,375 shares of Liberty Series A Stock are currently exercisable. Also assumes the exercise in full of stock options in tandem with stock appreciation rights in November of 1994 to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock are currently exercisable. Assumes the exercise in full of stock options granted in tandem with stock appreciation rights in December of 1995 to purchase 50,000 shares of Series A Stock. None of the options are exercisable until August 4, 1996. Additionally assumes the vesting in full of 10,000 Series A restricted stock. None of the stock is currently vested. (continued) III-20 (18) Certain executive officers and directors of TCIC (10 persons, including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) hold options which were granted in tandem with stock appreciation rights in November of 1992, to acquire an aggregate of 2,888,500 shares of Series A Stock and an aggregate of 722,125 shares of Liberty Series A Stock at purchase prices of $12.50 per shares and $16.75 per share, respectively. Options to acquire 1,653,100 shares of Series A Stock and 413,275 shares of Liberty Series A Stock are currently exercisable. Additionally, certain executive officers (9 persons including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) hold stock options granted in tandem with stock appreciation rights in October and November of 1993 to acquire an aggregate of 1,015,000 shares of Series A Stock and an aggregate of 253,750 shares of Liberty Series A Stock at purchase prices of $12.50 per share and $16.75 per share, respectively. Options to acquire 445,000 shares of Series A Stock and 111,250 shares of Liberty Series A Stock are currently exercisable. Also, certain executive officers and directors (12 persons including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) 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 Series A Stock and an aggregate of 268,750 shares of Liberty Series A Stock at purchase prices of $16.50 per share and $22.50 per share, respectively. Options to acquire 215,000 shares of Series A Stock and 53,750 shares of Liberty Series A Stock are currently exercisable. Additionally, certain executive officers and directors (14 persons, including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) hold stock options which were granted, pursuant to the 1994 Plan and the 1996 Plan (the 1996 Plan is subject to approval by shareholders) in tandem with stock appreciation rights in December of 1995 to acquire an aggregate of 4,775,000 shares of Series A Stock at $17.00 per share. None of the options are exercisable until August 4, 1996. Additionally, certain executive officers and directors (3 persons) hold stock options which were granted, pursuant to the 1994 Plan and the 1996 Plan, in tandem with stock appreciation rights in December of 1995 to acquire an aggregate of 575,000 shares of Liberty Series A Stock at a purchase price of $24.00 per share. None of the options are exercisable until August 4, 1996. Also, certain executive officers (11 persons, including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) hold an aggregate of 260,000 shares of Series A restricted stock. None of the shares are currently vested. One executive officer holds 10,000 shares of Liberty Series A restricted stock. None of the shares are currently vested. Also, two directors, who are also directors of TCI, hold options to purchase an aggregate of 100,000 shares of Series A Stock and an aggregate of 25,000 shares of Liberty Series A Stock at purchase prices of $16.50 per share and $22.50 per share, respectively. Options to purchase 20,000 shares of Series A Stock and 5,000 shares of Liberty Series A Stock are currently exercisable. All of the aforementioned options with tandem stock appreciation rights, options and restricted stock are reflected in this table assuming the exercise or vesting in full of such securities. (continued) III-21 No equity securities in any subsidiary of the Company, other than directors' qualifying shares, are owned by any of the Company's executive officers or directors, except that Mr. Bob Magness, a director of the Company, owns 944 shares of WestMarc Series C Cumulative Compounding Redeemable Preferred Stock; Mr. Kim Magness, a director of the Company, owns 31 shares of WestMarc Series C Cumulative Compounding Redeemable Preferred Stock; and Dr. Malone, a director and an executive officer of the Company, owns, as trustee for his children, 68 shares of WestMarc Series C Cumulative Compounding Redeemable Preferred Stock. (c) Change of control. The Company knows of no arrangements, including any ----------------- pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. Item 13. Certain Relationships and Related Transactions. - - ------- ---------------------------------------------- (a) Transactions with management and others. --------------------------------------- Pursuant to a Restricted Stock Award Agreement dated December 10, 1992, the Company transferred to Mr. Fisher, a director of the Company, 124.03 shares (having a liquidation value of $4 million) of WestMarc Series C Cumulative Compounding 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 Series C Cumulative Compounding Preferred Stock and forfeited the balance of such shares. As described below, effective as of January 31, 1996, the 37.209 vested shares of WestMarc Series C Cumulative Compounding Preferred Stock owned by Mr. Fisher were used by one of his affiliates as the consideration for the purchase of certain partnership interests held by subsidiaries of the Company. (continued) III-22 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. Donne F. Fisher, a director of the Company purchased one-third of ECP's partnership interest in HCP and one-third of the partnership interest of each of ATM, TCINV, TCIU and Tempo Cable in HCLP, a ten- year option to purchase the 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 Series C Cumulative Compounding Preferred Stock of WestMarc Communications, Inc., a subsidiary of the Company (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:
Cash Exercise Price Number of WestMarc Shares Of Option ------------------------- ------------------- 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 ======= ==========
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 (i) 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. Pursuant to a tax sharing agreement (the "Tax Sharing Agreement"), federal income taxes are calculated, with certain adjustments, on a separate return basis for each corporation included in TCI's consolidated tax group, applying provisions of the Internal Revenue Code of 1986, as amended, and related regulations as if each such corporation filed a separate return for federal income tax purposes. Based upon these separate calculations, an allocation of tax liabilities is made such that TCIC is responsible to TCI for its gross share of TCI's consolidated federal income tax liabilities, such gross share being determined without regard to (a) tax benefits that are attributable to TCI and its other consolidated corporations or (b) certain tax benefits that are attributable to TCIC but that are taken into account in determining TCI's consolidated federal income tax benefit carryovers. Similarly, TCI would reimburse TCIC for tax benefits attributable to TCIC and actually used by TCI in determining its consolidated federal income tax liability. Tax attributes, including but not limited to net operating losses, foreign tax credits, alternative minimum tax net operating losses, alternative minimum tax credits, deferred intercompany gains and tax basis in assets will be inventoried and tracked for the consolidated entities comprising each of TCIC and TCI and its other consolidated subsidiaries. In addition, pursuant to the Tax Sharing Agreement, state and local income taxes are calculated on a separate return basis for TCI and TCIC (applying provisions of state and local tax law and related regulations as if TCIC was a separate unitary or combined group for tax purposes) and TCI's combined or unitary tax liability is allocated between TCI and TCIC based upon such separate calculation. TCI has retained the right to file all returns, make all elections and control all audits and contests. The Tax Sharing Agreement will terminate as to TCIC at such time as TCIC is no longer permitted to file a consolidated federal income tax return for federal income tax purposes with TCI. Under current Internal Revenue Service regulations, TCIC and TCI must file a consolidated return until such time as TCI owns less than 80% of the total voting power of the capital stock of TCIC or owns stock representing less than 80% in value of the total value of the capital stock of TCIC. TCIC 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 TCIC, pursuant to which International has agreed to indemnify TCIC for any payment made by TCIC, or any claim, loss or liability that TCIC may otherwise incur, by reason of such obligations. International has not made any payments to TCIC pursuant to the Indemnification Agreement. TCIC purchases sports and other programming from certain subsidiaries of Liberty Media Corporation "Liberty". Charges to TCIC (which are based upon customary rates charged to others) for such programming were $73 million for the year ended December 31, 1995. Certain TCIC 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 year ended December 31, 1995, Liberty, International and the Technology/Venture Capital unit were allocated $3 million, $2 million and $1 million in corporate general and administrative costs by TCIC, respectively. Liberty leases satellite transponder facilities from TCIC. Charges by TCIC for such arrangement for the year ended December 31, 1995 aggregated $15 million. TCI Starz, Inc., a subsidiary of TCI, has 50.1% general partnership interest in QE+ Ltd Limited partnership ("QE+"), which distributes STARZ!, a first-run movie premium programming service launched in 1994. Liberty holds the remaining 49.9% partnership interest. TCIC has entered into a long-term affiliation agreement with QE+ in respect to the distribution of the STARZ! service. Rates per subscriber specified in the agreement are based upon customary rates charged to other cable system operators. Payments to QE+ for 1995 were approximately $31 million. The affiliation agreement also 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 TCIC. The affiliation agreement also requires TCIC to make payments to QE+ with respect to a guaranteed minimum number of subscribers totaling approximately $339 million for the years 1996, 1997 and 1998. At December 31, 1995, TCIC had an $86 million intercompany receivable from TCI Starz, Inc. which represented the net effect of advances to QE+ by TCI Starz, Inc. in the amount of $117 million offset by TCIC's purchase of programming from QE+ of $31 million. Such receivable is non-interest bearing for five years from the date of the advances. A consolidated subsidiary of Liberty, Home Shopping Network, Inc. pays a commission to TCIC for merchandise sales to customers who are subscribers of TCIC's cable systems. Aggregate commissions to TCIC were $6 million for the year ended December 31, 1995. TCIC and a certain subsidiary of TCI ("Liberty Cable") own a general partnership, which acquires and operates cable television systems, with TCIC owning a 49.999% interest and Liberty Cable owning the remaining 50.001% interest. Pursuant to a cable television management agreement, a subsidiary of TCIC provides management services for cable television systems owned by CCT. The subsidiary receives a fee equal to 3% of the gross cable television revenue of the Partnership. TCIC and Liberty Cable are parties to an Option-Put Agreement (the "Option-Put Agreement"), as amended. Under the Option-Put Agreement, between January 1, 1997 and January 31, 1997, Liberty Cable will have the right to require TCIC to purchase Liberty Cable's interest in CCT and a loan receivable for an amount equal to $77 million plus interest on such amount accruing at the rate of 11.6% per annum from June 3, 1993. Liberty Cable purchases from TCIC, at TCIC's cost plus an administrative fee, certain pay television and other programming. Charges for such programming were $13 million for the year ended December 31, 1995. A subsidiary of International purchase programming services from a subsidiary of TCIC. The charges, which approximate such TCIC subsidiary's cost and are based on the aggregate number of subscribers served by the subsidiary of International, aggregated $3 million during the year ended December 31, 1995. The subsidiary of International also has management agreements with certain subsidiaries of TCIC whereby such subsidiaries' management provides administrative services and has assumed managerial responsibility for cable television system operations and construction. As compensation for these services, the subsidiary of International pays a monthly fee calculated on a per-subscriber basis. Charges for such services were $1 million during the year ended December 31, 1995. TCIC advanced certain subsidiaries of TCI interest-bearing loans during 1995. Interest earned by TCIC on such intercompany loans aggregated $12 million for the year ended December 31, 1995. The Company believes that the foregoing business dealings with management during 1995 were based upon terms no less advantageous to TCIC than those which would be available in dealing with unaffiliated persons. (b) Certain business relationships ------------------------------ See Item 13(a) above. (c) Indebtedness of management -------------------------- None. III-23 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - - ------- ---------------------------------------------------------------- (a) (1) Financial Statements Included in Part II of this Report: Page No. -------- Independent Auditors' Report II-17 Consolidated Balance Sheets, December 31, 1995 and 1994 II-18 to II-19 Consolidated Statements of Operations, Years ended December 31, 1995, 1994 and 1993 II-20 Consolidated Statements of Stockholder's(s') Equity, Years ended December 31, 1995, 1994 and 1993 II-21 to II-22 Consolidated Statements of Cash Flows, Years ended December 31, 1995, 1994 and 1993 II-23 Notes to Consolidated Financial Statements, December 31, 1995, 1994 and 1993 II-24 to II-49 IV-1 (a) (2) Financial Statement Schedules ----------------------------- Included in Part IV of this Report: Financial Statement Schedules required to be filed: Page No. -------- Independent Auditors' Report IV-12 Schedule I - Condensed Information as to the Financial Position of the Registrant, December 31, 1995 and 1994; Condensed Information as to the Operations and Cash Flows of the Registrant, Years ended December 31, 1995, 1994 and 1993 IV-13 to IV-15 Schedule II - Valuation and Qualifying Accounts, Years ended December 31, 1995, 1994 and 1993 IV-16 IV-2 (a) (3) Exhibits ---------- Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K): 3 - Articles of Incorporation and Bylaws: 3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as amended on January 11, 1996 and February 6, 1996. 3.2 Bylaws as adopted August 4, 1994. Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10 - Material Contracts: 10.1 Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Company's Form S-4 Registration Statement (Commission File No. 33-54263). 10.2 Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.* Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File No. 0-20421). 10.3 Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and Bob Magness.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.4 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob Magness.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.5 Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and John C. Malone.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.6 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and John C. Malone.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). (continued) IV-3 10 - Material contracts, continued: 10.7 Employment Agreement, dated as of January 1, 1992, between Tele- Communications, Inc. and Donne F. Fisher.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.8 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and Donne F. Fisher.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.9 Restricted Stock Award Agreement, made as of December 10, 1992, among Tele-Communications, Inc., Donne F. Fisher and WestMarc Communications, Inc.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.10 Consulting Agreement, dated as of January 1, 1996, between Tele- Communications, Inc. and Donne F. Fisher. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.11 Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.12 Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.13 Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and a director of Tele- Communications, Inc. relating to assumption of options and related stock appreciation rights granted outside of an employee benefit plan pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). (continued) IV-4 10 - Material contracts, continued: 10.14 Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and grantee relating to assumption of options and related stock appreciation rights granted under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). 10.15 Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and grantee relating to assumption of options and related stock appreciation rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). 10.16 Form of Indemnification Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.17 Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.18 Qualified Employee Stock Purchase Plan of Tele-Communications, Inc., as amended.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-57635). 10.19 Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI Group Restricted Stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Form of Restricted Stock Award Agreement for 1995 Award of Series A Liberty Media Group Restricted Stock pursuant to the Tele- Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File No. 0-20421). 10.20 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) IV-5 10 - Material contracts, continued: 10.21 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.22 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.23 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.24 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.25 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.26 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Tele-Communications International, Inc. common stock.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.27 Employee Stock Purchase Plan for Bargaining Unit Employees of United Cable Television of Baltimore Limited Partnership.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-60839). (continued) IV-6 10 - Material contracts, continued: 10.28 Employee Stock Purchase Plan for Bargaining Unit Employees of Heritage Cable Vision Associates, L.P. D/B/A TCI of Michiana.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-60843). 10.29 Employee Stock Purchase Plan for Bargaining Unit Employees of UACC Midwest, Inc. d/b/a TCI of Central Indiana.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64827). 10.30 The Settlement Plan and Rabbi Trust Agreement Entered into Pursuant to Thomas Adams, Mark Adamski, et. al. v. TCI of Northern New Jersey, Inc. and the Tele-Communications, Inc. Employee Stock Purchase Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64829). 10.31 Employee Stock Purchase Plan for Bargaining Unit Employees of TCI of Northern New Jersey, Inc.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64831). 10.32 Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele- Communications, Inc. and TCI Communications, Inc. Subscription Agreement, dated as of July 24, 1995, among Viacom International, Inc., Tele-Communications, Inc. and TCI Communications, Inc. Implementation Agreement, dated as of July 24, 1995, between Viacom International, Inc. and Viacom International Services, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 26, 1995 (Commission File No. 0-5550). 10.33 Amended and Restated Agreement of Limited Partnership of MajorCo, L.P., dated as of January 31, 1996, among Sprint Spectrum, L.P., TCI Network Services, Comcast Telephony Services and Cox Telephony Partnership. Second Amended and Restated Joint Venture Formation Agreement, dated as of January 31, 1996, by and between Sprint Corporation, Tele- Communications, Inc., Comcast Corporation and Cox Communications, Inc. Parents Agreement, dated as of January 31, 1996, by Tele- Communications, Inc. and Sprint Corporation. Incorporated herein by reference to Tele-Communications, Inc.'s Current Report on Form 8-K, dated February 9, 1996 (Commission File No. 0-20421). 10.34 Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February 15, 1994 (Commission File No. 0-5550). (continued) IV-7 10 - Material contracts, continued: 10.35 Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele- Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated April 6, 1994 (Commission File No. 0-5550). 10.36 Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele- Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated August 18, 1994 (Commission File No. 0-20421). 10.37 Agreement and Plan of Merger, dated as of August 8, 1994, among Tele- Communications, Inc., TCI Communications, Inc. and TeleCable Corporation Incorporated herein by reference to Tele-Communications, Inc.'s Current Report on Form 8-K, dated August 18, 1994 (Commission File No. 0-20421). 10.38 Agreement of Purchase and Sale of Partnership Interest, dated as of January 31, 1996, among Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.39 Consent and Amendment of Amended Agreement of Partnership for Halcyon Communications Partners, dated as of January 31, 1996, by and among Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.40 Assignment and Assumption Agreement, made as of January 31, 1996, between ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.41 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and ECP Holdings, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) IV-8 10 - Material contracts, continued: 10.42 Agreement of Purchase and Sale of Partnership Interests, dated as of January 31, 1996, among Halcyon Communications, Inc., American Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.43 Consent and First Amendment of Amended and Restated Agreement of Limited Partnership for Halcyon Communications Limited Partnership, dated as of January 31, 1996, by and among Halcyon Communications, Inc., American Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.44 Assignment and Assumption Agreement, made as of January 31, 1996, between TCI Cablevision of Utah, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.45 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TCI Cablevision of Utah, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.46 Assignment and Assumption Agreement, made as of January 31, 1996, between TCI Cablevision of Nevada, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.47 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TCI Cablevision of Nevada, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.48 Assignment and Assumption Agreement, made as of January 31, 1996, between American Televenture of Minersville, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) IV-9 10 - Material contracts, continued: 10.49 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and American Televenture of Minersville, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.50 Assignment and Assumption Agreement, made as of January 31, 1996, between TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.51 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TEMPO Cable, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 21- Subsidiaries of TCI Communications, Inc. 23- Consent of KPMG Peat Marwick LLP. 27- Financial data schedule *Constitutes management contract or compensatory arrangement. IV-10 (b) Reports on Form 8-K filed during the quarter ended December 31, 1995: Item Date of Report Reported Financial Statements Filed -------------- -------- -------------------------- December 18, 1995 Item 5 None December 21, 1995 Item 5 None and Item 7 IV-11 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Stockholders TCI Communications, Inc.: Under date of March 18, 1996, we reported on the consolidated balance sheets of TCI Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications, Inc.) as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholder's(s') equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which are included in the December 31, 1995 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Denver, Colorado March 18, 1996 IV-12 Schedule I ---------- Page 1 of 3 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Condensed Information as to the Financial Position of the Registrant December 31, 1995 and 1994
Assets 1995 1994* - - ------ ---- ---- amounts in millions Investments in and advances to consolidated subsidiaries - eliminated upon $10,348 7,645 consolidation Other assets, at cost, net of 116 91 amortization ------- ------ $10,464 7,736 ======= ====== Liabilities and Stockholder's Equity - - ------------------------------------ Accrued liabilities $ 402 325 Debt 8,333 6,728 ------- ------ Total liabilities 8,735 7,053 Stockholder's equity (see detail on 1,729 683 page II-19) ------- ------ $10,464 7,736 ======= ====== Guarantees $ 22 23 ======= ======
* Restated -- see note 3 to the consolidated financial statements. IV-13 Schedule I ---------- Page 2 of 3 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Condensed Information as to the Operations of the Registrant Years ended December 31, 1995, 1994 and 1993
1995 1994* 1993* ------ ------ ----- amounts in millions Management costs reimbursed by subsidiaries $ 152 115 98 ----- ---- ---- Operating expenses (income): Selling, general and administrative 116 103 103 Compensation relating to stock appreciation rights 17 -- 31 Adjustment to compensation relating to stock appreciation rights -- (5) -- Interest expense 624 471 369 Interest income, principally from consolidated subsidiaries (625) (472) (370) Depreciation and amortization 19 13 8 Loss (gain) on disposition of assets 1 5 (43) ----- ---- ---- 152 115 98 ----- ---- ---- Earnings from operations before share of losses (earnings) of consolidated subsidiaries -- -- -- Share of losses (earnings) of consolidated subsidiaries 120 (94) 5 ----- ---- ---- Net loss (earnings) $ 120 (94) 5 ===== ==== ====
* Restated -- see note 3 to the consolidated financial statements. IV-14 Schedule I ---------- Page 3 of 3 TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Condensed Information as to Cash Flows of the Registrant Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 -------- ------- ------- amounts in millions Cash flows from operating activities: Earnings before share of losses (earnings) of consolidated subsidiaries $ -- -- -- Adjustments to reconcile earnings before share of losses (earnings) of consolidated subsidiaries to net cash provided by operating activities: Depreciation and amortization 19 13 8 Compensation relating to stock appreciation rights 17 -- 31 Adjustment to compensation relating to stock appreciation rights -- (5) -- Loss (gain) on disposition of 1 5 (43) assets Amortization of debt discount 1 1 27 Change in accrued liabilities 73 43 105 ------- ------ ------ Net cash provided by operating activities 111 57 128 ------- ------ ------ Cash flows from investing activities: Reduction in or additional investments in and advances to consolidated subsidiaries, net (2,592) (1,376) (2,723) Proceeds on disposition of assets -- -- 111 Other investing activities (52) (45) (38) ------- ------ ------ Net cash used by investing activities (2,644) (1,421) (2,650) ------- ------ ------ Cash flows from financing activities: Borrowings of debt 5,255 2,227 3,274 Repayment of debt (3,651) (678) (735) Change in due to/from TCI 929 (189) -- Preferred stock dividends -- -- (2) Repurchase of preferred stock -- -- (92) Issuances of common stock -- -- 6 Repurchases of common stock -- -- (4) ------- ------ ------ Net cash provided by financing activities 2,533 1,360 2,447 ------- ------ ------ Increase (decrease) -- (4) (75) in cash Cash at beginning of -- 4 79 year ------- ------ ------ Cash at end of year $ -- -- 4 ======= ====== ====== Supplemental disclosure of cash flow information - Cash paid during the year for $ 576 448 257 interest ======= ====== ======
See also note 2 to the consolidated financial statements. IV-15 Schedule II ----------- TCI COMMUNICATIONS, INC. AND SUBSIDIARIES (A Subsidiary of Tele-Communications, Inc.) Valuation and Qualifying Accounts Years ended December 31, 1995, 1994 and 1993
Additions Deductions ---------- ----------- Balance at Charged to Write-offs Balance beginning profit net of at end Description of year and loss recoveries of year - - ----------- ------- -------- ---------- ------- amounts in millions Year ended December 31, 1995: Allowance for doubtful receivables - trade $ 15 76 (67) 24 ===== ===== ===== ==== Year ended December 31, 1994: Allowance for doubtful receivables - trade $ 19 57 (61) 15 ===== ===== ===== ==== Year ended December 31, 1993: Allowance for doubtful receivables - trade $ 15 58 (54) 19 ===== ===== ===== ====
IV-16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TCI COMMUNICATIONS, INC. By /s/ Brendan R. Clouston -------------------------- Brendan R. Clouston President and Chief Executive Officer Dated: March 26, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ John C. Malone Chairman of the Board March 26, 1996 - - ----------------------------- and Director John C. Malone /s/ Bob Magness Director March 26, 1996 - - ------------------------------ Bob Magness /s/ Donne F. Fisher Director March 26, 1996 - - ------------------------------ Donne F. Fisher /s/ Brendan R. Clouston President and March 26, 1996 - - ------------------------------ Chief Executive Officer Brendan R. Clouston /s/ Stephen M. Brett Executive Vice President March 26, 1996 - - ------------------------------ and Secretary Stephen M. Brett /s/ Bernard W. Schotters Senior Vice President March 26, 1996 - - ------------------------------ (Principal Financial Officer) Bernard W. Schotters /s/ Gary K. Bracken Senior Vice President and March 26, 1996 - - ------------------------------ Controller Gary K. Bracken (Principal Accounting Officer) IV-17 EXHIBIT INDEX Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K): 3 - Articles of Incorporation and Bylaws: 3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as amended on January 11, 1996 and February 6, 1996. 3.2 Bylaws as adopted August 4, 1994. Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10 - Material Contracts: 10.1 Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Company's Form S-4 Registration Statement (Commission File No. 33-54263). 10.2 Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.* Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended Decmeber 31, 1995 (Commission File No. 0-20421). 10.3 Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and Bob Magness.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.4 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob Magness.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.5 Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and John C. Malone.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.6 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and John C. Malone.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). (continued) 10 - Material contracts, continued: 10.7 Employment Agreement, dated as of January 1, 1992, between Tele-Communications, Inc. and Donne F. Fisher.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.8 Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company, Tele-Communications, Inc. and Donne F. Fisher.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.9 Restricted Stock Award Agreement, made as of December 10, 1992, among Tele-Communications, Inc., Donne F. Fisher and WestMarc Communications, Inc.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992 (Commission File No. 0-5550). 10.10 Consulting Agreement, dated as of January 1, 1996, between Tele-Communications, Inc. and Donne F. Fisher. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.11 Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.12 Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.13 Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and a director of Tele-Communications, Inc. relating to assumption of options and related stock appreciation rights granted outside of an employee benefit plan pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). (continued) 10 - Material contracts, continued: 10.14 Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and grantee relating to assumption of options and related stock appreciation rights granted under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). 10.15 Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding Company and grantee relating to assumption of options and related stock appreciation rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263). 10.16 Form of Indemnification Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993 (Commission File No. 0-5550). 10.17 Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.* Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-5550). 10.18 Qualified Employee Stock Purchase Plan of Tele-Communications, Inc., as amended.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-57635). 10.19 Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI Group Restricted Stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Form of Restricted Stock Award Agreement for 1995 Award of Series A Liberty Media Group Restricted Stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File No. 0-20421). 10.20 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) 10 - Material contracts, continued: 10.21 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.22 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.23 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.24 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A TCI Group common stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.25 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.26 Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of Options with tandem stock appreciation rights to purchase Series A Tele-Communications International, Inc. common stock.* Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.27 Employee Stock Purchase Plan for Bargaining Unit Employees of United Cable Television of Baltimore Limited Partnership.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-60839). (continued) 10 - Material contracts, continued: 10.28 Employee Stock Purchase Plan for Bargaining Unit Employees of Heritage Cable Vision Associates, L.P. D/B/A TCI of Michiana.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-60843). 10.29 Employee Stock Purchase Plan for Bargaining Unit Employees of UACC Midwest, Inc. d/b/a TCI of Central Indiana.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64827). 10.30 The Settlement Plan and Rabbi Trust Agreement Entered into Pursuant to Thomas Adams, Mark Adamski, et. al. v. TCI of Northern New Jersey, Inc. and the Tele-Communications, Inc. Employee Stock Purchase Plan.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64829). 10.31 Employee Stock Purchase Plan for Bargaining Unit Employees of TCI of Northern New Jersey, Inc.* Incorporated herein by reference to the Tele-Communications, Inc. Registration Statement on Form S-8 (Commission File No. 33-64831). 10.32 Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele-Communications, Inc. and TCI Communications, Inc. Subscription Agreement, dated as of July 24, 1995, among Viacom International, Inc., Tele-Communications, Inc. and TCI Communications, Inc. Implementation Agreement, dated as of July 24, 1995, between Viacom International, Inc. and Viacom International Services, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 26, 1995 (Commission File No. 0-5550). 10.33 Amended and Restated Agreement of Limited Partnership of MajorCo, L.P., dated as of January 31, 1996, among Sprint Spectrum, L.P., TCI Network Services, Comcast Telephony Services and Cox Telephony Partnership. Second Amended and Restated Joint Venture Formation Agreement, dated as of January 31, 1996, by and between Sprint Corporation, Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc. Parents Agreement, dated as of January 31, 1996, by Tele-Communications, Inc. and Sprint Corporation. Incorporated herein by reference to Tele-Communications, Inc.'s Current Report on Form 8-K, dated February 9, 1996 (Commission File No. 0-20421). 10.34 Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February 15, 1994 (Commission File No. 0-5550). (continued) 10 - Material contracts, continued: 10.35 Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated April 6, 1994 (Commission File No. 0-5550). 10.36 Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of Merger, dated as of January 27, 1994, by and among Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc. Incorporated herein by reference to the Company's Current Report on Form 8-K, dated August 18, 1994 (Commission File No. 0-20421). 10.37 Agreement and Plan of Merger, dated as of August 8, 1994, among Tele-Communications, Inc., TCI Communications, Inc. and TeleCable Corporation Incorporated herein by reference to Tele-Communications, Inc.'s Current Report on Form 8-K, dated August 18, 1994 (Commission File No. 0-20421). 10.38 Agreement of Purchase and Sale of Partnership Interest, dated as of January 31, 1996, among Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.39 Consent and Amendment of Amended Agreement of Partnership for Halcyon Communications Partners, dated as of January 31, 1996, by and among Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.40 Assignment and Assumption Agreement, made as of January 31, 1996, between ECP Holdings, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.41 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and ECP Holdings, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) 10 - Material contracts, continued: 10.42 Agreement of Purchase and Sale of Partnership Interests, dated as of January 31, 1996, among Halcyon Communications, Inc., American Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.43 Consent and First Amendment of Amended and Restated Agreement of Limited Partnership for Halcyon Communications Limited Partnership, dated as of January 31, 1996, by and among Halcyon Communications, Inc., American Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.44 Assignment and Assumption Agreement, made as of January 31, 1996, between TCI Cablevision of Utah, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.45 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TCI Cablevision of Utah, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.46 Assignment and Assumption Agreement, made as of January 31, 1996, between TCI Cablevision of Nevada, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.47 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TCI Cablevision of Nevada, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.48 Assignment and Assumption Agreement, made as of January 31, 1996, between American Televenture of Minersville, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. (continued) 10 - Material contracts, continued: 10.49 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and American Televenture of Minersville, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.50 Assignment and Assumption Agreement, made as of January 31, 1996, between TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 10.51 Option Agreement, dated as of January 31, 1996, between Fisher Communications Associates, L.L.C. and TEMPO Cable, Inc. Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the year ended December 31, 1995. 21- Subsidiaries of TCI Communications, Inc. 23- Consent of KPMG Peat Marwick LLP. 27- Financial data schedule *Constitutes management contract or compensatory arrangement. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 State of Delaware PAGE 1 Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH DAY OF JANUARY, A.D. 1996, AT 4 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [SEAL OF THE STATE OF DELAWARE APPEARS HERE] [STAMP OF THE /s/ Edward J. Freel SECRETARY'S OFFICE ----------------------------------- APPEARS HERE] Edward J. Freel, Secretary of State AUTHENTICATION: 0685208 8100 7789058 DATE: 960009826 01-16-96 RESTATED CERTIFICATE OF INCORPORATION OF TCI COMMUNICATIONS, INC. TCI COMMUNICATIONS, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: (1) The name of the Corporation is TCI Communications, Inc. The original Certificate of Incorporation of the Corporation was filed on August 20, 1968. The name under which the Corporation was originally incorporated is American Tele-Communications, Inc. The Certificate of Incorporation of the Corporation has heretofore been restated twice with Restated Certificates of Incorporation for the Corporation being filed on July 19, 1979 and August 4, 1994, respectively. (2) This Restated Certificate of Incorporation (the "Certificate") further amends and restates the Certificate of Incorporation of the Corporation. (3) Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, the text of the Certificate of Incorporation is hereby amended and restated to read in its entirety as follows: ARTICLE I NAME The name of the corporation is TCI Communications, Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE The address of the Corporation's registered office in the State of Delaware is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, New Castle, Delaware 19805. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. ARTICLE IV AUTHORIZED STOCK The total number of shares of capital stock which the Corporation shall have authority to issue is 6,005,000 shares, of which 1,005,000 shares shall be common stock ("Common Stock") and five million 5,000,000 shares shall be preferred stock ("Preferred Stock"). Said shares of Common Stock shall be divided into the following classes: (a) 905,553 shares shall be designated as Class A Common Stock with a par value of $1.00 per share ("Class A Common Stock"); and (b) 94,447 shares shall be designated as Class B Common Stock with a par value of $1.00 per share ("Class B Common Stock"). Said shares of Preferred Stock shall be all of one class with a par value of $.01 per share, and shall be issued in one or more series as set forth in Section B below. 2 SECTION A --------- CLASS A COMMON STOCK AND CLASS B COMMON STOCK Each share of the Class A Common Stock and each share of the Class B Common Stock of the Corporation shall, except as otherwise provided in this Article IV, Section A, be identical in all respects and shall have equal rights and privileges. 1. Voting Rights. ------------- Holders of Class A Common Stock shall be entitled to 100 votes for each share of such stock held, and holders of Class B Common Stock shall be entitled to 1,000 votes for each share of such stock held, on all matters presented to such stockholders. Except as may otherwise be required by the laws of the State of Delaware and, with respect to any series of Preferred Stock, except as may be provided in any resolution or resolutions providing for the establishment of such series pursuant to authority vested in the Board of Directors by Article IV, Section B, of this Certificate, the holders of outstanding shares of Class A Common Stock, the holders of outstanding shares of Class B Common Stock and the holders of outstanding shares of each series of Preferred Stock shall vote together as one class with respect to (i) any general election of directors and (ii) all other matters to be voted on by stockholders of the Corporation (including, without limitation, any proposed amendment to this Certificate that would increase the number of authorized shares of any class of Common Stock or any series of Preferred Stock or decrease the number of authorized shares of any such class or series of stock (but not below the number of shares thereof then outstanding)), and no separate vote or consent of the holders of shares of Class A Common Stock, Class B Common Stock or any series of Preferred Stock shall be required for the approval of any such matter. 3 2. Conversion Rights. ----------------- Each share of Class B Common Stock shall be convertible, at the option of the holder thereof, into one share of Class A Common Stock. Any such conversion may be effected by any holder of Class B Common Stock by surrendering such holder's certificate or certificates for the Class B Common Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for the Class B Common Stock, together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of shares of Class B Common Stock represented by such certificate and stating the name or names in which such holder desires the certificate or certificates for Class A Common Stock to be issued. If so required by the Corporation, any certificate for shares surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder of such shares or the duly authorized representative of such holder. Promptly thereafter, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as herein provided. Such conversion shall be deemed to have been made at the close of business on the date of receipt by the Corporation or any such transfer agent of the certificate or certificates, notice and, if required, instruments of transfer referred to above, and the person or persons entitled to receive the Class A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such Class A Common Stock on that date. A number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock outstanding from time to time shall be set aside and reserved for issuance upon conversion of shares of Class B 4 Common Stock. Shares of Class B Common Stock that have been converted hereunder shall remain treasury shares to be disposed of by resolution of the Board of Directors. Shares of Class A Common Stock shall not be convertible into shares of Class B Common Stock. 3. Dividends. Subject to subparagraph 4 of this Section A, whenever --------- a dividend is paid to the holders of Class A Common Stock, the Corporation also shall pay to the holders of Class B Common Stock a dividend per share at least equal to the dividend per share paid to the holders of the Class A Common Stock. Subject to subparagraph 4 of this Section A, whenever a dividend is paid to the holders of Class B Common Stock, the Corporation shall also pay to the holders of the Class A Common Stock a dividend per share at least equal to the dividend per share paid to the holders of the Class B Common Stock. Dividends shall be payable only as and when declared by the Board of Directors out of funds legally available therefor. 4. Share Distributions. If at any time a distribution paid in Class ------------------- A Common Stock, Class B Common Stock, or any other securities of the Corporation or any other entity (hereinafter sometimes called a "share distribution") is to be made with respect to the Class A Common Stock or Class B Common Stock, such share distribution may be declared and paid only as follows: (i) a share distribution consisting of shares of Class A Common Stock (or convertible securities convertible into or exercisable or exchangeable for shares of Class A Common Stock) to holders of Class A Common Stock and Class B Common Stock, on an equal per share basis; or consisting of shares of Class B Common Stock (or convertible securities convertible into or exercisable or exchangeable for shares of Class 5 B Common Stock) to holders of Class B Common Stock and Class A Common Stock, on an equal per share basis; or consisting of shares of Class A Common Stock (or convertible securities convertible into or exercisable or exchangeable for shares of Class A Common Stock) to holders of Class A Common Stock and, on an equal per share basis, shares of Class B Common stock (or like convertible securities convertible into or exercisable or exchangeable for shares of Class B Common Stock) to holders of Class B Common Stock; and (ii) a share distribution consisting of any class or series of securities of the Corporation or any other entity other than Class A Common Stock or Class B Common Stock (or convertible securities convertible into or exercisable or exchangeable for shares of Class A Common Stock or Class B Common Stock), either on the basis of a distribution of identical securities, on an equal per share basis, to holders of Class A Common Stock and Class B Common Stock or on the basis of a distribution of one class or series of securities to holders of Class A Common Stock and another class or series of securities to holders of Class B Common Stock, provided that the securities so distributed (and, if the distribution consists of convertible securities, the securities into which such convertible securities are convertible or for which they are exercisable or exchangeable) do not differ in any respect other than their relative voting rights and related differences in designation, conversion, redemption and share distribution provisions, with holders of the shares of Class B Common Stock receiving the class or series having the higher relative voting rights (without regard to whether such rights differ to a greater or lesser extent than the corresponding differences in voting rights, 6 designation, conversion, redemption and share distribution provisions between the Class A Common Stock and the Class B Common Stock), provided that if the securities so distributed constitute capital stock of a subsidiary of the Corporation, such rights shall not differ to a greater extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Class A Common Stock and the Class B Common Stock, and provided in each case that such distribution is otherwise made on an equal per share basis. The Corporation shall not reclassify, subdivide or combine the Class A Common Stock without reclassifying, subdividing or combining the Class B Common Stock, on an equal per share basis. The Corporation shall not reclassify, subdivide or combine the Class B Common Stock without reclassifying, subdividing or combining the Class A Common Stock, on an equal per share basis. 5. Liquidation and Mergers. Subject to the prior payment in full of ----------------------- the preferential amounts to which any Preferred Stock is entitled, the holders of Class A Common Stock and the holders of Class B Common Stock shall share equally, on a share for share basis, in any distribution of the Corporation's assets upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provisions for payment of the debts and other liabilities of the Corporation. Neither the consolidation or merger of the Corporation with or into any other corporation or corporations nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this subparagraph 5. 7 SECTION B --------- PREFERRED STOCK The Preferred Stock may be issued, from time to time, in one or more series, with such powers, designations, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of each such series adopted by the Board of Directors. The Board of Directors, in such resolution or resolutions (a copy of which shall be filed and recorded as required by law), is also expressly authorized to fix with respect to each series: (i) the distinctive serial designations and the division of such shares into series and the number of shares of a particular series, which may be increased or decreased, but not below the number of shares thereof then outstanding, by a certificate made, signed, filed and recorded as required by law; (ii) the dividend rate or amounts, if any, for the particular series, the date or dates from which dividends on all shares of such series shall be cumulative, if dividends on stock of the particular series shall be cumulative and the relative rights of priority, if any, or participation, if any, with respect to payment of dividends on shares of that series; (iii) the rights of the shares of each series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of each series; 8 (iv) the right, if any, of the holders of a particular series to convert or exchange such stock into or for other classes or series of a class of stock or indebtedness of the Corporation or of another entity, and the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the Board of Directors may determine; (v) the voting rights, if any, of the holders of a particular series (which may be in addition to or in lieu of those specified in this Certificate); and (vi) the terms and conditions, if any, for the Corporation to purchase or redeem shares of a particular series. ARTICLE V DIRECTORS SECTION A --------- NUMBER OF DIRECTORS The governing body of the Corporation shall be a Board of Directors. Subject to any rights of the holders of any series of Preferred Stock to elect additional directors (and the automatic increase of the number of directors during the period such rights are vested if the resolution or resolutions providing for the establishment of such series so provides), the number of directors shall not be less than three (3) and the exact number of directors shall be fixed by the Board of Directors by resolution. Election of directors need not be by written ballot. 9 SECTION B --------- REMOVAL OF DIRECTORS Subject to the rights of the holders of any series of Preferred Stock with respect to directors especially elected by such holders, directors may be removed from office with or without cause upon the affirmative vote of the holders of at least 66% of the total voting power of the then outstanding Class A Common Stock, Class B Common Stock and any series of Preferred Stock entitled to vote at an any general election of directors, voting together as a single class. SECTION C --------- NEWLY CREATED DIRECTORSHIPS AND VACANCIES Subject to the rights of the holders of any series of Preferred Stock with respect to directors especially elected by such holders, vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the number of directors on the Board of Directors, shall be filled by the affirmative vote of a majority of the remaining directors then in office (even though less than a quorum) or by the sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director whose vacancy he has filled. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director, except as may be provided in the terms of any series of Preferred Stock with respect to any additional director especially elected by the holders of such series of Preferred Stock. 10 SECTION D --------- LIMITATION ON LIABILITY AND INDEMNIFICATION 1. Limitation On Liability. ----------------------- To the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this paragraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing at the time of such repeal or modification. 2. Indemnification. --------------- (a) Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Section D. The Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated 11 by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. (b) Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys' fees) incurred by a director or officer in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this paragraph or otherwise. (c) Claims. If a claim for indemnification or payment of expenses under this paragraph is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) Non-Exclusivity of Rights. The rights conferred on any person by this paragraph shall not be exclusive of any other rights which such person may have or hereafter acquires under any statute, provision of this Certificate, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. (e) Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any 12 amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity. 3. Amendment or Repeal. ------------------- Any repeal or modification of the foregoing provisions of this Section D shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. SECTION E --------- AMENDMENT OF BYLAWS The Board of Directors of the Corporation is authorized to adopt, amend, or repeal the bylaws of the Corporation except as and to the extent provided in the bylaws. ARTICLE VI TERM The term of existence of this Corporation shall be perpetual. ARTICLE VII STOCK NOT ASSESSABLE The capital stock of this Corporation shall not be assessable if fully paid. It shall be issued as fully paid, and the private property of the stockholders shall not be liable for the debts, obligations or liabilities of this Corporation. 13 ARTICLE VIII MEETINGS OF STOCKHOLDERS SECTION A --------- ANNUAL AND SPECIAL MEETINGS Subject to the rights of the holders of any series of Preferred Stock, stockholder action may be taken only at an annual or special meeting. Except as otherwise provided in the terms of any series of Preferred Stock or unless otherwise prescribed by law or by another provision of this Certificate, special meetings of the stockholders of the Corporation, for any purpose or purposes, shall be called by the Secretary of the Corporation only (i) upon the written request of the holders of not less than 25% of the total voting power of the outstanding Voting Securities (as defined hereinafter) or (ii) at the request of at least 75% of the members of the Board of Directors then in office. The term "Voting Securities" shall include the Class A Common Stock, the Class B Common Stock and any series of Preferred Stock entitled to vote with the holders of Common Stock generally upon all matters which may be submitted to a vote of stockholders at any annual meeting or special meeting thereof. SECTION B --------- STOCKHOLDER ACTION WITHOUT A MEETING Except as otherwise provided in the terms of any series of Preferred Stock, no action required to be taken or which may be taken at any annual meeting or special meeting of stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, is specifically denied. 14 ARTICLE IX CERTAIN COMPROMISES OR ARRANGEMENTS Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 15 IN WITNESS WHEREOF, said TCI COMMUNICATIONS, INC. has caused this Restated Certificate of Incorporation to be signed by its Vice President this 11th day of January, 1996. TCI COMMUNICATIONS INC. By:[signature appears here] ------------------------ Name: Title: 16 State of Delaware PAGE 1 Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH DAY OF JANUARY, A.D. 1996, AT 4:01 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [SEAL OF THE STATE OF DELAWARE APPEARS HERE] /s/ Edward J. Freel [SEAL APPEARS HERE] -------------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 0685208 8100 7789090 DATE: 960009825 01-16-96 01/11/96 THRU 17:15 FAX 302 658 6548 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 04:01 PM 01/11/1996 960009825 - 685208 TCI COMMUNICATIONS, INC. CERTIFICATE OF DESIGNATIONS ------------ SETTING FORTH A COPY OF A RESOLUTION CREATING AND AUTHORIZING THE ISSUANCE OF A SERIES OF PREFERRED STOCK DESIGNATED AS "CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A" ------------ The undersigned, a Vice President of TCI COMMUNICATIONS, INC., a Delaware corporation (the "Company"), HEREBY CERTIFIES that (i) the Board of Directors, in accordance with Article IV, Section B of the Company's Restarted Certificate of Incorporation, has authorized the creation of the series of Preferred Stock hereafter provided for, has established the voting and exchange rights thereof and has authorized, in accordance with Section 141(c) of the Delaware General Corporation Law (the "DGCL"), a Special Committee of the Board of Directors (the "Special Committee") to adopt the following resolution (which includes the voting and exchange rights of such series as authorized by the Board of Directors) and (ii) the Special Committee has adopted the following resolution, creating the following new series of the Company's Preferred Stock: "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV, Section B of the Prestated Certificate of Incorporation of the Company to the Board of Directors, there is hereby created and authorized the issuance of a new series of the Company's Preferred Stock, par value $.01 per share ("Preferred Stock"), with the following powers, designations, dividend rights, voting powers, rights on liquidation, exchange rights, redemption rights and other preferences and relative, participating, optional or other special rights and with the -1- qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof set forth in the Restated Certificate of Incorporation that are applicable to each series of Preferred Stock) hereinafter set forth: (1) Designation: Number of Shares: The designation of the series of ----------------------------- Preferred Stock, par value $.01 per share, of the Company created hereby shall be "Cumulative Exchangeable Preferred Stock, Series A" (the "Series A Preferred Stock"). The designated number of shares of Series A Preferred Stock shall be 4,600,000. Each share of Series A Preferred Stock shall have a stated value of $50 ("Stated Value"). Any shares of Series A Preferred Stock redeemed or otherwise acquired by the Company shall be retired and shall resume the status of authorized and unissued shares of Preferred Stock, without designation as to series, until such shares are once more designated as part of a particular series of Preferred Stock by the Board of Directors. (2) Certain Definitions. Unless the context otherwise requires, the ------------------- terms defined in this paragraph (2) shall have, for all purposes of this Certificate of Designations, the meanings herein specified: "Average Market Price" as of any Record Date, Redemption Date or Liquidating Payment Date shall mean the average of the daily Closing Prices for the period of ten consecutive Trading Days ending on the third Trading Day preceding such Record Date, Redemption Date or Liquidating Payment Date, respectively, appropriately adjusted in such manner as the Board of Directors in good faith deems appropriate to take in account any stock dividend on the Series A TCI Group Common Stock, or any subdivision, split, combination or reclassification of the Series A TCI Group Common Stock that occurs, or the Ex-Dividend Date for which occurs, during the period following the first Trading Day in such ten-Trading Day period and ending on the last full Trading Day immediately preceding the Dividend Payment Date to which such Record Date relates, such Redemption Date or such Liquidating Payment Date, respectively. "Board of Directors" shall mean the Board of Directors of the Company, and, unless the context indicates otherwise, shall also mean, to the extent permitted by law, any committee thereof authorized, with respect to any particular matter, to exercise the power of the Board of Directors of the Company with respect to such matter. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in The City of New York, New York are authorized or obligated by law or executive order to close. "Cash Equivalent Amount" shall mean an amount equal to 95% of the Average Market Price per share of Series A TCI Group Common Stock, such Average Market Price to be determined (i) in the case of a dividend payment, as of the related Record Date, (ii) in the case of a -2- redemption payment, as of the related Redemption Date and (iii), in the case of a Liquidating Payment, as of the Liquidating Payment Date. "Closing Price" shall mean, on any day, (i) the last sale price (or, if no sale price is reported on that day, the average of the bid and asked prices) of a share of Series A TCI Group Common Stock on the Nasdaq National Market on such day, or (ii), if the primary trading market for the Series A TCI Group Common Stock is not the Nasdaq National Market, then the closing sale price regular way on such day, or, in case no such sale takes place on such day, the reported closing bid price regular way on such day, in each case on the New York Stock Exchange or, if the Series A TCI Group Common Stock is not listed or admitted to trading on such Exchange, then on the principal exchange on which such stock is traded, or (iii) if the Closing Price on such day is not available pursuant to one of the methods specified above, then the average of the bid and asked prices for the Series A TCI Group Common Stock on such day as furnished by any New York Stock Exchange member firm selected from time to time by the Parent Board of Directors for that purpose. "Convertible Securities" shall mean rights, options, warrants and other securities which are exercisable or exchangeable for or convertible into shares of capital stock at the option of the holder thereof. As used herein, Convertible Securities for shares of Series A TCI Group Common Stock do not include the Series B TCI Group Common Stock (whether or not at the time in question the Series B TCI Group Common Stock is convertible into shares of Series A TCI Group Common Stock). "Current Market Price," on the Determination Date for any issuance of rights, warrants or options or any distribution in respect of which the Current Market Price is being calculated, shall mean the average of the daily Closing Prices of the Series A TCI Group Common Stock for the shortest of: (i) the period of 30 consecutive Trading Days commencing 45 Trading Days before such Determination Date, (ii) the period commencing on the date next succeeding the first public announcement of the issuance of rights, warrants or options or the distribution in respect of which the Current Market Price is being calculated and ending on the last full Trading Day before such Determination Date, and (iii) the period, if any, commencing on the date next succeeding the Ex-Dividend Date with respect to the next preceding issuance of rights, warrants or options or distribution for which an adjustment is required by the provisions of subparagraph (6)(b)(i)(D), (ii) or (iii), and ending on the last full Trading Day before such Determination Date. If the record date for an issuance of rights, warrants or options or a distribution for which an adjustment is required by the provisions of subparagraph (6)(b)(i)(D), (6)(ii) or (6)(b)(iii) (the "preceding adjustment event") precedes the record date for the issuance or distribution in respect -3- of which the Current Market Price is being calculated and the Ex-Dividend Date for such preceding adjustment event is on or after the Determination Date for the issuance or distribution in respect of which the Current Market Price is being calculated, then the Current Market Price shall be adjusted by deducting therefrom the fair market value (on the record date for the issuance or distribution in respect of which the Current Market Price is being calculated), as determined in good faith by the Parent Board of Directors, of the capital stock, rights, warrants or options, assets or debt securities issued or distributed in respect of each share of Series A TCI Group Common Stock in such preceding adjustment event. Further, in the event that the Ex-Dividend Date (or in the case of a subdivision, combination or reclassification, the effective date with respect thereto) with respect to a dividend, subdivision, combination or reclassification to which paragraph (6)(b)(i)(A), (B), (C) or (E) applies occurs during the period applicable for calculating the Current Market Price, then the Current Market Price shall be calculated for such period in a manner determined in good faith by the Parent Board of Directors to reflect the impact of such dividend, subdivision, combination or reclassification on the Closing Prices of the Series A TCI Group Common Stock during such period. "Determination Date" for any issuance of rights, warrants or options or any dividend or distribution to which paragraph (6)(b)(ii) or (iii) applies shall mean the earlier of (i) the record date for the determination of stockholders entitled to receive the rights, warrants or options or the dividend or distribution to which such paragraph applies and (ii) the Ex-Dividend Date for such rights, warrants or options or dividend or distribution. "Dividend Payment Date" shall mean the 15th day of each January, April, July and October, commencing with April 15, 1996, or the next succeeding Business Day if any such day is not a Business Day. "Dividend Period" shall mean the period from the Issue Date to but excluding the first Dividend Payment Date and, thereafter, each quarterly period from and including a Dividend Payment Date to but excluding the next Dividend Payment Date. "Exchange Rate" shall mean the kind and amount of securities, assets or other property that as of any date are deliverable upon exchange of a share of Series A Preferred Stock pursuant to the exchange privilege set forth in paragraph (6). The Exchange Rate of a share of Series A Preferred Stock shall initially mean 1.871 shares of Series A TCI Group Common Stock for each share of Series A Preferred Stock, subject to adjustment as set forth in subparagraph (6)(b). In the event that pursuant to paragraph (6) the Series A Preferred Stock becomes exchangeable for more than one class or series of capital stock of the Parent, the term "Exchange Rate," when used with respect to any such class or series, shall mean the number or fraction of shares or other units of such capital stock that as of any date would be issued upon exchange of a share of Series A Preferred Stock. "Exchange Date" shall have the meaning set forth in subparagraph (6)(a). -4- "Ex-Dividend Date" shall mean the date on which "ex-dividend" trading commences for a dividend, an issuance of rights, warrants or options or a distribution to which any of subparagraphs (6)(b)(i), (ii) or (iii) applies in the Nasdaq National Market or on the principal exchange on which the Series A TCI Group Common Stock is then quoted or traded. "Guarantee" shall mean the Guarantee Agreement, dated as of January 10, 1996, entered into by the Parent in favor of the holders from time to time of the Series A Preferred Stock, as such agreement may be amended or supplemented from time to time in accordance with the provisions thereof. "Initial Exchange Date" and "Initial Redemption Date" shall each mean January 15, 2001. "Issue Date" shall mean the date on which shares of Series A Preferred Stock are first issued. "Junior Stock" shall mean (i) each class or series of common stock of the Company, (ii) any other class or series of capital stock of the Company hereafter created, other than (A) any class or series of Parity Stock (except to the extent provided under clause (iii) hereof) and (B) any class or series of Senior Stock, and (iii) any class or series of Parity Stock to the extent that it ranks junior to the Series A Preferred Stock as to dividend rights, rights of redemption or rights on liquidation, as the case may be. For purposes of clause (iii) above, a class or series of Parity Stock shall rank junior to the Series A Preferred Stock as to dividend rights, rights of redemption or rights on liquidation if the holders of shares of Series A Preferred Stock shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, in preference or priority to the holders of shares of such class or series of Parity Stock. "Liquidation Preference," measured per share of the Series A Preferred Stock, shall mean an amount equal to (a) the Stated Value of such share, plus (b) for purposes of determining the amount payable pursuant to paragraph (7) only, an amount equal to all dividends accrued but unpaid on such share, whether or not such unpaid dividends have been declared or there are any funds of the Company legally available for the payment of dividends, to the Liquidating Payment Date. "Liquidating Payment" shall mean an amount equal to the Liquidation Preference of a share of Series A Preferred Stock or, if less, the amount payable in respect of one share of Series A Preferred Stock pursuant to subparagraph (7)(a) upon the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. "Liquidating Payment Date" shall mean the date on which the Company makes the aggregate Liquidating Payment to all holders of outstanding shares of Series A Preferred Stock. "Mandatory Redemption Date" shall mean January 15, 2006. -5- "Mandatory Redemption Price," as to any share of Series A Preferred Stock which is to be redeemed on the Mandatory Redemption Date, shall mean the Liquidation Preference thereof on such date. "Optional Redemption Price" shall have the meaning set forth in subparagraph 4(b). "Other Property" shall mean any security (other than Series A TCI Group Common Stock), assets or other property deliverable upon the surrender of shares of Series A Preferred Stock for exchange in accordance with the provisions of paragraph (6). "Parent" means Tele-Communications, Inc., a Delaware corporation. "Parent Board of Directors" shall mean the Board of Directors of the Parent, and, unless the context indicates otherwise, shall also mean, to the extent permitted by law, any committee thereof authorized, with respect to any particular matter, to exercise the power of the Board of Directors of the Parent with respect to such matter. "Parity Stock" shall mean the Series A Preferred Stock and any class or series of capital stock, whether now existing or hereafter created, of the Company ranking on a parity basis with the Series A Preferred Stock as to dividend rights, rights of redemption or rights on liquidation. Capital stock of any class or series, whether now existing or hereafter created, shall rank on a parity as to dividend rights, rights of redemption or rights on liquidation with the Series A Preferred Stock, whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share or sinking fund or mandatory redemption provisions, if any, are different from those of the Series A Preferred Stock, if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, in proportion to their respective accumulated and accrued and unpaid dividends, redemption prices or liquidation prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series A Preferred Stock. No class or series of capital stock that ranks junior to the Series A Preferred Stock as to rights on liquidation shall rank or be deemed to rank on a parity basis with the Series A Preferred Stock as to dividend rights or rights of redemption, unless the instrument creating or evidencing such class or series of capital stock otherwise expressly provides. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity. "Preferred Stock Directors" has the meaning set forth in subparagraph (11)(b). -6- "Prospectus Condition" shall mean, with respect to any exchange requested by a holder of Series A Preferred Stock pursuant to paragraph (6)(a), that the Parent deliver to such holder or its designee a current prospectus (meeting the requirements of Section 10 of the Securities Act) relating to the Series A TCI Group Common Stock; provided, however, that the Prospectus Condition shall be deemed satisfied if the Parent receives (i) an opinion of counsel (which may be the General Counsel of, or regular outside counsel to, the Parent) to the effect that the Parent is not required, under the Securities Act or the rules and regulations of the Securities and Exchange Commission (the "SEC") promulgated thereunder, to deliver a current prospectus in connection with any exchange of Series A Preferred Stock and the related guarantee of the Parent for shares of Series A TCI Group Common Stock or (ii) a letter from the Division of Corporation Finance (or other appropriate division of the SEC) to the effect that such Division will not raise objection or recommend any enforcement action to the SEC if the Parent does not deliver a current prospectus in connection with an exchange of Series A Preferred Stock and the related guarantee of the Parent for shares of Series A TCI Group Common Stock. "Record Date" for the dividends payable on any Dividend Payment Date shall mean the first day of the month during which such Dividend Payment Date shall occur, as and if designated by the Board of Directors. "Redeemable Capital Stock" has the meaning set forth in subparagraph (6)(b)(i). "Redemption Date," as to any share of Series A Preferred Stock shall mean (i), for purposes of subparagraph 4(a),the Mandatory Redemption Date and (ii), for purposes of subparagraph (4)(b),the date fixed by the Board of Directors for the redemption of such share; provided, that no such date will be a Redemption Date unless the applicable of the Mandatory Redemption Price or the Optional Redemption Price is actually paid in full on such date or the consideration sufficient for the payment thereof, and for no other purpose, has been set apart or deposited in trust as contemplated by subparagraph (4)(f). "Redemption Notice" shall have the meaning set forth in subparagraph (4)(d). "Redemption Price," at to any share of Series A Preferred Stock, shall mean (i), if such share is to be redeemed pursuant to subparagraph (4)(a), the Mandatory Redemption Price and (ii), if such share is to be redeemed pursuant to subparagraph (4)(b), the applicable Optional Redemption Price. "Redemption Securities" shall mean securities of an issuer other than the Parent that are distributed by the Parent in payment, in whole or in part, of the call, redemption, exchange or other acquisition price for Redeemable Capital Stock. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations promulgated thereunder. -7- "Senior Stock" shall mean any class or series of capital stock of the Company hereafter created ranking prior to the Series A Preferred Stock as to dividend rights, rights of redemption or rights on liquidation. Capital stock of any class or series shall rank prior to the Series A Preferred Stock as to dividend rights, rights or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of the Company, as the case may be, in preference or priority to the holders of shares of Series A Preferred Stock. No class or series of capital stock that ranks on a parity basis with or junior to the Series A Preferred Stock as to rights on liquidation shall rank or be deemed to rank prior to the Series A Preferred Stock as to dividend rights or rights of redemption, notwithstanding that the dividend rate, dividend payment dates, sinking fund provisions, if any or mandatory redemption provisions thereof are different from those of the Series A Preferred Stock, unless the instrument creating or evidencing such class or series of capital stock otherwise expressly so provides. "Series A Preferred Stock" shall have the meaning set forth in paragraph (1). "Series A TCI Common Stock" shall mean the Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per share, of Parent, which term shall include, where appropriate, in the case of reclassification, recapitalization or other change in the Series A TCI Group Common Stock, or in the case of a consolidation or merger of Parent with or into another Person affecting the Series A TCI Group Common Stock, such capital stock to which a holder of Series A TCI Group Common Stock shall be entitled upon the occurrence of such event. "Series B TCI Group Common Stock" shall mean the Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per share, of Parent, which term shall include, where appropriate, in the case of any reclassification, recapitalization or other change in the Series B TCI Group Common Stock, or in the case of a consolidation or merger of Parent with or into another Person affecting the Series B TCI Group Common Stock, such capital stock to which a holder of Series B TCI Group Common Stock shall be entitled upon the occurrence of such event. "Stated Value" shall have the meaning set forth in paragraph (1). "Stock Dividend Amount" shall have the meaning set forth in subparagraph (3)(c). "Subsidiary" shall mean, with respect to any Person, (i) a corporation a majority of the capital stock of which, having voting power under ordinary circumstances to elect directors, is at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person and (ii) any other entity (other than a corporation) in which such Person and/or one or more Subsidiaries of such Person, directly or indirectly, has (x) a majority ownership interest and (y) the power to elect or direct the election of a majority of the members of the governing body of such entity. "Trading Day" shall mean a day on which the Nasdaq National Market and the New York Stock Exchange are each open for the transaction of business. -8- "Wholly Owned Subsidiary" means (i) a corporation all of the capital stock of which, having voting power under ordinary circumstances to elect directors, is at the time, directly or indirectly, owned by the Company and/or one or more Wholly Owned Subsidiaries and (ii) any other Person, (other than a corporation) in which the Company and/or one or more Wholly Owned Subsidiaries, directly or indirectly, has (x) the entire ownership interest and (y) the power to elect or direct the election of all of the members of the governing body of such Person. (3) Dividends. --------- (a) Payment. The holders of shares of Series A Preferred Stock shall ------- be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative dividends, in preference to dividends on any Junior Stock, from the Issue Date at the rate per annum of 4.25% of the Stated Value per share, rounded to the nearest cent on the basis of the total number of shares of Series A Preferred Stock held by a holder (or a dividend rate per share of $2.125 per annum or $0.53125 per quarter for each share of Series A Preferred Stock). and no more, payable quarterly for each share of Series A Preferred Stock in arrears on each Dividend Payment Date; provided, however, that, with respect to any Dividend Period during which a redemption occurs, the Board of Directors may, at its option, declare accrued dividends to, and pay such dividends on, the related Redemption Date, in which case such dividends would be payable on such Redemption Date to the holders of the shares of Series A Preferred Stock as of a special record date (not to exceed 45 days preceding the payment date) for such dividend payment. Each dividend on the shares of Series A Preferred Stock shall be payable to holders of record as they appear on the stock register of the Company on the Record Date for such dividend and, for purposes of calculating the accrual of dividends, dividends will accrue to, but not including, the date fixed for payment. For purposes of determining the amount of dividends "accrued" (i) as of the first Dividend Payment Date and as of any date that is not a Dividend Payment Date, such amount shall be calculated on the basis of the rate per annum specified above for actual days elapsed from the Issue Date (in the case of the first Dividend Payment Date and any date prior to the first Dividend Payment Date) or the last preceding Dividend Payment Date (in the case of any other date) to but excluding the date as of which such determination is being made, based on a 365-or 366-day year, as the case may be, and (ii) as of any Dividend Payment Date (other than the first Dividend Payment Date), such amount shall be calculated on the basis of the foregoing rate per annum, based on a 360-day year of twelve 30-day months. The first Dividend Period shall be from the Issue Date to but excluding April 15, 1996, and the first dividend (as and if declared by the Board of Directors and payable on the first Dividend Payment Date) will be payable on April 15, 1996 in the amount of $0.53125 per share of Series A Preferred Stock. Dividends on the shares of Series A Preferred Stock will accrue on a daily basis (without interest or compounding) whether or not there are unrestricted funds legally available for the payment of such dividends and whether or not such dividends are declared. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears. Dividends will cease to accrue in respect of shares of Series A Preferred Stock on the date of their redemption or exchange. -9- Accrued and unpaid dividends for any past Dividend Period or Dividend Periods may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. (b) Company's Right to Elect Manner of Payment of Dividends. Any ------------------------------------------------------- dividends may be paid, in the sole discretion of the Board of Directors, (i) out of funds legally available therefor, (ii) through the delivery of shares of Series A TCI Group Common Stock or (iii) through any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. If any dividend declared by the Board of Directors is to be paid, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock, each holder of Series A Preferred Stock shall receive the same proportion of cash and/or shares of Series A TCI Group Common Stock (except for cash paid in lieu of fractional shares) delivered in payment of such dividend to other holders of shares of Series A Preferred Stock. (c) Payment of Dividends by Delivery of Series A TCI Group Common ------------------------------------------------------------- Stock. If the Company elects to pay any dividend payment, in whole or in part, - - ----- by delivery of shares of Series of Series A TCI Group Common Stock, the amount of such dividend payment to be paid per share of Series A Preferred Stock in shares of Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be paid through the delivery to the holders of record of such shares of Series A Preferred Stock on the Record Date for such dividend payment of a number of shares of Series A TCI Group Common Stock determined by dividing the Stock Dividend Amount by the Cash Equivalent Amount. No fractional shares of Series A TCI Group Common Stock shall be delivered to a holder of shares of Series A Preferred Stock, but the Company shall instead pay a cash adjustment determined as provided in paragraph (8). If the Company elects to pay any dividend, in whole in part, through the delivery of shares of Series A TCI Group Common Stock, the Company will give notice of such determination (which shall include the number of shares of Series A TCI Group Common Stock and the amount of cash, if any, to be delivered in respect of each share of Series A Preferred Stock) by publication, on the Record Date or any special record date for such dividend, of such election in a daily newspaper of national circulation. The Company's right to make any dividend payment (or a designated portion thereof) through the delivery of shares of Series A TCI Group Common Stock shall be conditioned upon: (i) the shares of Series A TCI Group Common Stock to be so delivered being fully paid and nonassessable and free from any preemptive rights, liens or adverse claims; (ii) the delivery of such shares of Series A TCI Group Common Stock being exempt from the registration or qualification requirements of the Securities Act and applicable state securities laws or, if no such exemption is available, the delivery of such shares of Series A TCI Group Common Stock having been duly registered or qualified under the Securities Act and applicable state securities laws; and (iii) the shares of Series A TCI Group Common Stock to be so delivered being listed, and upon delivery being eligible for trading on the Nasdaq National Market or on a national securities exchange. If -10- the conditions set forth in this subparagraph (3)(c) have not been satisfied prior to or on the applicable Dividend Payment Date, then such dividend payment shall be paid solely in cash. (d) Credit. Any dividend payment made on the shares of Series A ------ Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to the shares of Series A Preferred Stock. (e) Pro Rata. All dividends paid with respect to the shares of Series -------- A Preferred Stock shall be paid pro rata to the holders entitled thereto. (f) Priority. Payment of dividends to the holders of shares of Series -------- A Preferred Stock shall be subject to the prior preferences and other rights of any Senior Stock and to the provisions of paragraph (5). (4) Redemptions. ----------- (a) Mandatory Redemption by the Company. The Company shall redeem on ----------------------------------- the Mandatory Redemption Date all shares of Series A Preferred Stock remaining outstanding at the Mandatory Redemption Price. If the Company is unable to deliver shares of Series A TCI Group Common Stock in payment of the Mandatory Redemption Price on the Mandatory Redemption Date, and if funds of the Company legally available for redemption of shares of the Series A Preferred Stock and any other class or series of Parity Stock then required to be redeemed are insufficient to redeem the total number of shares of Series A Preferred Stock remaining outstanding, those funds which are legally available shall be used to redeem the maximum possible number of shares of Series A Preferred Stock and each such other class or series of Parity Stock. At any time and from time to time thereafter when the Company is able to deliver shares of Series A TCI Group Common Stock, or additional funds of the Company are legally available for such purpose, such shares of Series A TCI Group Common Stock and/or funds shall immediately be used to redeem the shares of Series A Preferred Stock and of each such other class or series of Parity Stock which were required to be redeemed that the Company failed to redeem until the balance of such shares have been redeemed. The selection of shares to be redeemed pursuant to the two immediately preceding sentences shall be made, as nearly as practicable, on a pro rata basis as among the different classes or series and as among the holders of shares of a particular class or series. (b) Optional Redemption by the Company. Shares of Series A Preferred ----------------------------------- Stock are not redeemable by the Company prior to the Initial Redemption Date. At any time and from time to time on or after the Initial Redemption Date and prior to the Mandatory Redemption Date, the Company shall have the right to redeem, in whole or from time to time in part, the outstanding shares of Series A Preferred Stock at the following per share call prices, together with an amount equal to all dividends accrued but unpaid thereon to the date fixed for redemption (the "Optional Redemption Price"), if redeemed during the twelve-month period beginning January 15 of the year indicated below: -11-
Year Call Price ---- ---------- 2001.............. $50.94 2002.............. 50.71 2003.............. 50.47 2004.............. 50.24 2005 and thereafter 50.00
If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed on any Redemption Date, the shares of Series A Preferred Stock to be redeemed shall be chosen by the Company pro rata (as nearly as may be practicable) among all holders of outstanding shares of Series A Preferred Stock. If shares of Series A Preferred Stock evidenced by a certificate selected for partial redemption are thereafter exchanged in part pursuant to paragraph (6) hereof, the shares so exchanged (as far as may be practicable) will be deemed to be the shares selected for redemption. The Company shall not be required to register a transfer of (i) any shares of Series A Preferred Stock for a period of 5 Business Days next preceding any selection of shares of Series A Preferred Stock to be redeemed or (ii) any shares of Series A Preferred Stock called for redemption. (c) Company's Right to Elect Manner of Payment of Redemption Price. -------------------------------------------------------------- The Company may effect the redemption of shares of Series A Preferred Stock at the Redemption Price pursuant to subparagraph (4)(a) or (b) above, in the sole discretion of the Board of Directors, (i) out of funds legally available therefor, (ii) through the delivery of shares of Series A TCI Group Common Stock or (iii) through any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. Each holder whose shares of Series A Preferred Stock are redeemed shall receive in payment of the Redemption Price the same proportion of cash and/or shares of Series A TCI Group Common Stock (except for cash paid in lieu of fractional shares) paid to other holders of shares of Series A Preferred Stock redeemed on the same Redemption Date. (d) Notice of Redemption. The Company shall provide notice of any -------------------- redemption of shares of Series A Preferred Stock to holders of record of Series A Preferred Stock to be called for redemption not less than 10 nor more than 60 days prior to the date fixed for such redemption. Such notice (a "Redemption Notice") shall be provided by mailing notice of such redemption first class postage prepaid, to each holder of record of shares of Series A Preferred Stock to be redeemed, at such holder's address as it appears on the stock register of the Company; provided, however, that neither failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Series A Preferred Stock to be redeemed except as to the holders to whom the Company has failed to give said notice or whose notice was defective. In addition to any information required by law or by the applicable rules of the Nasdaq National Market or any national securities exchange, each Redemption Notice shall state, as appropriate, the following (and may contain such other information as the Company deems advisable): -12- (A) the Redemption Date; (B) that all outstanding shares of Series A Preferred Stock are to be redeemed or, in the case of a call for redemption of fewer than all outstanding shares of Series A Preferred Stock, the number of shares held by such holder to be redeemed; (C) the applicable Redemption Price and the form or forms of consideration that the Company has elected to pay and/or deliver upon such redemption and, if more than one form of consideration has been elected by the Company, the designated portions of the Redemption Price to be paid in each form of consideration so elected; (D) if the Company has elected to deliver shares of Series A TCI Group Common Stock in payment of the Redemption Price (or a designated portion thereof), the method of determining the number of shares of Series A TCI Group Common Stock so deliverable as provided in subparagraph 4(e) below; (E) the place or places where certificates for Series A Preferred Stock to be redeemed are to be surrendered for redemption; (F) that dividends on the shares of Series A Preferred Stock to be redeemed shall cease to accrue on the Redemption Date (except as otherwise provided herein); and (G) the then current Exchange Rate and the place or places where certificates for Series A Preferred Stock may be surrendered for exchange pursuant to paragraph (6), and shall further state that the exchange privilege will terminate immediately prior to the close of business on the Redemption Date. (e) Redemption by Delivery of Series A TCI Group Common Stock. If the --------------------------------------------------------- Company elects to pay, in whole or in part, the Redemption Price in respect of shares of Series A Preferred Stock through the delivery of shares of Series A TCI Group Common Stock, then the Company shall deliver to each holder of shares of Series A Preferred Stock to be redeemed on the applicable Redemption Date a number of shares of Series A TCI Group Common Stock equal to the aggregate Redemption Price (or designated portion thereof) of such shares of Series A Preferred Stock divided by the Cash Equivalent Amount. No fractional shares of Series A TCI Group Common Stock shall be delivered to a holder of shares of Series A Preferred Stock in payment of the Redemption Price, but the Company shall instead pay a cash adjustment determined as provided in paragraph (8). The Company's right to elect to pay any Redemption Payment (or designated portion thereof) through the delivery of shares of Series A TCI Group Common Stock shall be conditioned upon: (i) the Company's having timely given a Redemption Notice setting forth such election; (ii) -13- the shares of Series A TCI Group Common Stock to be so delivered being fully paid and nonassessable and free from any preemptive rights, liens or adverse claims; (iii) the delivery of such shares of Series A TCI Group Common Stock being exempt from the registration or qualification requirements of the Securities Act and applicable state securities laws or, if no such exemption is available, the delivery of such shares of Series A TCI Group Common Stock having been duly registered or qualified under the Securities Act and applicable state securities laws; and (iv) the shares of Series A TCI Group Common Stock being listed, and upon delivery being eligible for trading, on the Nasdaq National Market or on a national securities exchange. If the conditions set forth in this subparagraph (4)(e) have not been satisfied prior to or on the Redemption Date, the Redemption Price to be paid on such Redemption Date shall be paid solely in cash. (f) Deposit of Funds and/or Shares. If the Redemption Notice with ------------------------------ respect to shares of Series A Preferred Stock to be redeemed pursuant to this paragraph (4) shall have been timely given by the Company, and if on or before the applicable Redemption Date the Company shall have deposited with the redemption agent for the Series A Preferred Stock (or, if there is no redemption agent, shall have set apart so as to be available for such purpose and only such purpose) cash (including cash for any adjustment in lieu of delivering fractional shares) and/or shares of Series A TCI Group Common Stock, as applicable, sufficient to pay in full the aggregate Redemption Price for such shares of Series A Preferred Stock on such Redemption Date, and provided that all conditions set forth in subparagraph (4)(e) to the delivery of shares of Series A TCI Group Common Stock shall have been satisfied (if applicable), then effective as of the close of business on such Redemption Date, such shares of Series A Preferred Stock shall no longer be deemed outstanding (notwithstanding that any certificate therefor shall not have been surrendered for cancellation), dividends with respect to the shares so called for redemption shall cease to accrue on the Redemption Date (except that holders of shares of Series A Preferred Stock at the close of business on a Record Date for any payment of dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares following such Record Date and prior to such Dividend Payment Date) and all rights with respect to the shares so called for redemption shall forthwith after such date cease and terminate, except the right of such holders, upon the surrender of certificates evidencing the shares of Series A Preferred Stock so redeemed, to receive the cash and/or Series A TCI Group Common Stock, as applicable, payable or deliverable in payment of the Redemption Price therefore, and the applicable cash adjustment, if any, in lieu of fractional shares, without interest. Any cash and/or shares of Series A TCI Group Common Stock so deposited or set apart which shall remain unclaimed at the end of one year after the Redemption Date shall be returned or released to the Company, after which time the holders of shares of Series A Preferred Stock called for redemption on such Redemption Date that remain outstanding after such one-year period shall look only to the Company for the payment of the Redemption Price for such shares, without interest, unless an applicable escheat or abandoned property law otherwise requires. If any shares of Series A Preferred Stock so called for redemption are exchanged, pursuant to paragraph (6), between the date such cash and/or shares of Series A TCI Group Common Stock are so deposited or set apart and the close of business on the Redemption Date, then the cash (including cash for any adjustment in lieu of delivering fractional shares) and/or shares of Series A TCI Group Common Stock, as applicable, deposited or set apart for the -14- redemption of such shares so exchanged shall be promptly thereafter returned or released to the Company. At its election, the Company on or prior to any Redemption Date (but no more than ninety (90) days prior to such Redemption Date) may deposit immediately available funds and/or shares of Series A TCI Group Common Stock sufficient to pay the aggregate Redemption Price of the shares of Series A Preferred Stock called for redemption on such date in trust for the holders thereof with any bank or trust company organized under the laws of the United States of America or any state thereof having capital, undivided profits and surplus aggregating at least $50 million (the "Redemption Agent"), with irrevocable instructions and authority to the Redemption Agent, on behalf and at the expense of the Company, to mail the Redemption Notice as soon as practicable after receipt of such irrevocable instructions (or to complete such mailing previously commenced, if it has not already been completed) and to pay, on and after such Redemption Date or prior thereto, the Redemption Price of the shares of Series A Preferred Stock to be redeemed to their respective holders upon the surrender of the certificates therefor. A deposit made in compliance with the immediately preceding sentence shall be deemed to constitute full payment for the shares of Series A Preferred Stock to be redeemed and from and after the later of the close of business on the date of such deposit (although prior to such Redemption Date) or the date the Redemption Notice is mailed, the shares of Series A Preferred Stock to be redeemed shall no longer be deemed outstanding and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect to such shares except (x) the right of the holders thereof to receive the Redemption Price of such shares (calculated through the Redemption Date), without interest, upon surrender of the certificates therefor and (y) the right to exchange such shares in accordance with paragraph (6) prior to the close of business on such Redemption Date. Any interest accrued on funds so deposited shall be paid by the Redemption Agent to the Company from time to time. Any cash and/or shares of Series A TCI Group Common Stock deposited with the Redemption Agent which shall remain unclaimed at the end of one year after the Redemption Date shall be returned by the Redemption Agent to the Company, after which return the holders of shares of Series A Preferred Stock called for redemption on such Redemption Date that remain outstanding after such one-year period shall look only to the Company for the payment of the Redemption Price for such shares, without interest, unless an applicable escheat or abandoned property law otherwise requires. If any shares of Series A Preferred Stock called for redemption on such Redemption Date are exchanged, in accordance with paragraph (6), between the date such cash and/or shares of Series A TCI Group Common Stock are so deposited with the Redemption Agent and the close of business on the Redemption Date, then the cash (including cash for any adjustment in lieu of delivering fractional shares) and/or shares of Series A TCI Group Common Stock, as applicable, so deposited for the redemption of such shares so exchanged shall be promptly thereafter returned by the Redemption Agent to the Company. (g) Surrender of Certificates: Status. Each holder of shares of --------------------------------- Series A Preferred Stock to be redeemed shall surrender the certificates evidencing such shares (properly endorsed or assigned to the Company in blank and with signatures guaranteed, if the Company shall so require and the Redemption Notice shall so state) to the redemption agent (or to the Company if there is no -15- redemption agent) at the place designated in the Redemption Notice for such redemption and shall thereupon be entitled to receive the consideration for such shares specified in the Redemption Notice (subject to subparagraph (4)(e)) in an aggregate amount equal to the Redemption Price for such shares. In case fewer than all the shares of Series A Preferred Stock represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Company representing the unredeemed shares. Holders of shares of Series A Preferred Stock that are redeemed on any Redemption Date shall not be entitled to receive dividends declared and paid on any shares of Series A TCI Group Common Stock deliverable in payment of the Redemption Price (or designated portion thereof) for such shares of Series A Preferred Stock, and such shares of Series A TCI Group Common Stock shall not be entitled to vote, until such shares of Series A TCI Group Common Stock are delivered upon the surrender of the certificates representing such shares of Series A Preferred Stock. Upon such surrender, such holders shall be entitled to receive such dividends declared and paid on such shares of Series A TCI Group Common Stock subsequent to such Redemption Date and prior to such delivery. (h) Priority. The right of the Company to redeem shares of Series A -------- Preferred pursuant to this paragraph (4) shall be subject to the prior preferences and other rights of any Senior Stock and to the provisions of paragraph (5). (5) Limitations on Dividends and Redemptions In Respect of Company -------------------------------------------------------------- Stock. - - ----- (a) Limitations on Junior Stock Dividends. As long as any shares of ------------------------------------- Series A Preferred Stock are outstanding, no dividends shall be paid or declared in cash or otherwise on Junior Stock, not shall any other distribution be made on any Junior Stock, unless: (i) full dividends on all Parity Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such Junior Stock dividend or distribution payment, to the extent such dividends are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Parity Stock; and (iii) the Company is not in default on any of its obligations to redeem any Parity Stock. (b) Limitations on Purchases of Junior Stock. As long as any shares of ----------------------------------------- Series A Preferred Stock are outstanding, no shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by the Company or any of its Subsidiaries (except in connection with a reclassification of any Junior Stock through the issuance of other Junior Stock and/or Convertible Securities for shares of Junior Stock and cash in lieu of fractional shares in connection therewith or the purchase, redemption or other acquisition of any Junior Stock from any Wholly Owned Subsidiary), nor may any funds be set aside or made available for any sinking fund for the purchase, redemption or other acquisition of any Junior Stock, unless: (i) full dividends on all Parity Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such purchase, redemption or acquisition, to the extent such dividends are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required -16- to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Parity Stock; and (iii) the Company is not in default on any of its obligations to redeem any Parity Stock. (c) Junior Stock Dividends Otherwise Permitted. Subject to the ------------------------------------------ provisions of subparagraphs (5)(a) and (b), dividends or distributions (payable in cash, property or securities) may be declared and paid on the shares of any Junior Stock from time to time and any Junior Stock may be purchased, redeemed or otherwise acquired by the Company or any of its Subsidiaries from time to time. In the event of the declaration and payment of any such dividends or distributions, the holders of such Junior Stock will be entitled, to the exclusion of holders of shares of Series A Preferred Stock, to share therein according to their respective interests. (d) Limitations on Parity Stock Dividends and Redemptions. As long as ----------------------------------------------------- any shares of Series A Preferred Stock are outstanding, dividends or other distributions may not be declared or paid on any Parity Stock, and the Company may not purchase, redeem or otherwise acquire any Parity Stock (except (x) from any Wholly Owned Subsidiary or (y) in connection with a mandatory conversion or exchange of such Parity Stock or a conversion or exchange of such Parity Stock at the option of the holder for securities other than Parity Stock or Senior Stock and cash in lieu of fractional shares in connection therewith), unless either: (a)(i) full dividends on all Parity Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such Parity Stock dividend, distribution, purchase, redemption or other acquisition payment, to the extent such dividends are cumulative; (ii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Parity Stock; and (iii) the Company is not in default on any of its obligations to redeem any Parity Stock; or (b) with respect to the payment of dividends only, any such dividends are declared and paid pro rata so that the amounts of any dividends declared and paid per share on shares of Series A Preferred Stock and each other share of such Parity Stock will in all cases bear to each other the same ratio that accrued and unpaid dividends (including any accumulation with respect to unpaid dividends for prior dividend periods, if such dividends are cumulative) per share on shares of Series A Preferred Stock and such other share of Parity Stock bear to each other. (e) Certain Permitted Dividends and Redemptions. Nothing contained in ------------------------------------------- this paragraph (5) shall prevent (i) the payment of dividends or the making of distributions on any Junior Stock solely in shares of Junior Stock and/or Convertible Securities for shares of Junior Stock (together with a cash adjustment for fractional shares, if any) or the redemption, purchase or other acquisition of Junior Stock solely in exchange for (together with a cash adjustment for fractional shares, if any), or through the application of the proceeds from the sale of, shares of Junior Stock and/or Convertible Securities for shares of Junior Stock; (ii) the payment of dividends or the making of distributions on any class or series of Parity Stock solely in (together with a cash adjustment for fractional shares, if any) (x) shares if Junior Stock and/or Convertible Securities for shares of Junior Stock or (y) any securities of Parent (including shares of Series A Group Common Stock), or the redemption, exchange, purchase or other acquisition of any class or series of Parity Stock solely in exchange for (together with a cash adjustment for fractional shares, if any), or through the application of the -17- proceeds from the sale of, (A) shares of Junior Stock and/or Convertible Securities for shares of Junior Stock or (B) and securities of Parent (including shares of Series A TCI Group Common Stock); or (iii) the exchange of Series A Preferred Stock for shares of Series A TCI Group Common Stock (together with a cash adjustment for fractional shares, if any) and Other Property, if any, pursuant to the provisions of paragraph (6). (f) Waiver. The provisions of subparagraphs (5)(a), (b) and (d) are ------ for the sole benefit of the holders of Series A Preferred Stock and any other class or series of Parity Stock having the terms described therein and accordingly, at any time when (i) there are no shares of any such other class or series of Parity Stock outstanding or if the holders of each such other class or series of Parity Stock have, by such vote or consent of the holders thereof as may be provided for in the instrument creating or evidencing such class or series, waived in whole or in part the benefit of such provisions (either generally or in the specific instance), and (ii) the holders of Shares of Series A Preferred Stock shall have waived (as provided in paragraph (12)) in whole or in part the benefit of such provision (either generally or in the specific instance), then the provisions of subparagraphs) (5)(a), (b) and (d) shall not (to the extent waived, in the case of any partial waiver) restrict the payment of dividends or the making of distributions on, or the redemption, purchase or other acquisition of any shares of, Series A Preferred Stock, any other class or series of Parity Stock or any Junior Stock. (6) Exchange at Option of Holder. ---------------------------- (a) Right to and Mechanics of Exchange. Subject to the provisions of ---------------------------------- this paragraph (6), shares of Series A Preferred Stock are exchangeable, in whole or from time to time in part, at the option of the holders thereof, at any time from and after Initial Exchange Date and prior to the close of business on the Mandatory Redemption Rate, unless previously redeemed, into shares of Series A TCI Group Common Stock at the Exchange Rate. An exchange of Series A Preferred Stock pursuant to this paragraph (6) shall be effected directly with Parent, and the Parent has agreed, pursuant to the Guarantee, (x) to issue and deliver shares of Series A TCI Group Common Stock to or upon the order of any holder of shares of Series A Preferred Stock that surrenders such shares for exchange pursuant to this pursuant to this paragraph (6) and (y) to otherwise perform the actions required of it under this paragraph (6). The right to exchange shares of Series A Preferred Stock called for redemption shall terminate immediately prior to the close of business on the related Redemption Date. In order to exchange shares of Series A Preferred Stock, the holder thereof shall surrender the certificates evidencing the shares of Series A Preferred Stock to be exchanged at the office or agency to be maintained by the Parent for that purpose, duly endorsed to the Parent or in blank (or accompanied by duly executed instruments of transfer to the Parent or in blank) with signatures guaranteed (such endorsements or instruments of transfer to be in form satisfactory to the Parent), together with written notice of exchange specifying the number of shares of Series A Preferred Stock to be exchanged and specifying the name or names (with addresses) in which the certificate or certificates representing the Series A TCI Group Common Stock deliverable on such exchange are to be registered, and otherwise in accordance with exchange procedures established -18- by the Parent and the Company. Each notice of exchange shall be irrevocable, and each exchange shall be deemed to have been effected immediately prior to the close of business on the date (the "Exchange Date") on which (i) all of the requirements for such exchange shall have been satisfied and (ii) the Parent is able to deliver a current prospectus relating to the Series A TCI Group Common Stock, if required to satisfy the Prospectus Condition. The exchange shall be at the Exchange Rate in effect immediately prior to the close of business on the Exchange Date. If any transfer is involved in the issuance or delivery of any certificate or certificates for shares of Series A TCI Group Common Stock in a name other than that of the registered holder of the shares of Series A Preferred Stock surrendered for exchange, such holder shall also deliver to the Parent a sum sufficient to pay all taxes, if any, payable in respect of such transfer or evidence satisfactory to the Parent that such taxes have been paid. Except as provided in the immediately preceding sentence, the Parent shall pay any issue, stamp or other similar tax in respect of such issuance or delivery. As promptly as practicable after the Exchange Date, the Parent, in accordance with the provisions of this paragraph (6), shall issue and deliver at said office or agency to the holder of the shares of Series A Preferred Stock so surrendered for exchange, or on his or her written order, a certificate or certificates for the number of full shares of Series A TCI Group Common Stock issuable upon exchange of such shares in accordance with the provisions of this paragraph (6), and any fractional interest shall be settled in accordance with paragraph (8). If required in order to satisfy the Prospectus Condition, the Parent shall also deliver to such holder or its designee, together with the certificate for such shares of Series A TCI Group Common Stock and cash in lieu of any fractional share, a current prospectus (meeting the requirements of Section 10 of the Securities Act) relating to the Series A TCI Group Common Stock; provided, however, that in the event the Parent is unable during any period to deliver a current prospectus, no exchange shall be effected (and no Exchange Date shall occur) during such period and any exchange that could otherwise have been effected during such period shall be deemed to have been effected immediately prior to the close of business (and the Exchange Date shall be deemed to have occurred) on the first Business Day that the Parent is able to deliver a current prospectus relating to the Series A TCI Group Common Stock. The inability of the Parent to deliver a current prospectus at any time shall not be deemed a default under this Certificate of Designations. Under the Guarantee, the Parent has undertaken to use all reasonable efforts to ensure that it will be able to deliver a current prospectus, if required, during any period that the holders of shares of Series A Preferred Stock are entitled to exchange such shares for shares of Series A TCI Group Common Stock. The Person in whose name the certificate for shares of Series A TCI Group Common Stock is issued upon such exchange shall be treated for all purposes as the stockholder of record of such shares of Series A TCI Group Common Stock as of the close of business on the Exchange Date; provided, however, that no surrender of Series A Preferred Stock on any date when the stock transfer books of the Parent are closed for any purpose shall be effective to constitute the Person or Persons entitled to receive the shares of Series A TCI Group Common Stock deliverable upon such exchange as the record holder(s) of such shares of Series A TCI Group Common Stock on such date, but surrender shall be effective (assuming all other requirements for the valid exchange of such shares have been satisfied) to constitute such Person or Persons as the record holder(s) of such shares of -19- Series A TCI Group Common Stock for all purposes as of opening of business on the next succeeding day on which such stock transfer books are open, and such exchange shall be at the Exchange Rate in effect on the date that such shares of Series A Preferred Stock were surrendered for exchange (and such other requirements satisfied) as if the stock transfer books of the Parent had not been closed on such date. Upon exchange of shares of Series A Preferred Stock, the rights of the holder of such shares, as a holder thereof, shall cease. Holders of shares of Series A Preferred Stock at the close of business on a Record Date for any payment of declared dividends shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the effective exchange of such shares following such Record Date and prior to the corresponding Dividend Payment Date. However, shares of Series A Preferred Stock surrendered for exchange after the close of business on a Record Date for any payment of dividends and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the dividend thereon attributable to the current quarterly Dividend Period which is to be paid on such Dividend Payment Date (unless such shares are subject to redemption on a Redemption Date between such Record Date and such Dividend Payment Date). A holder of shares of Series A Preferred Stock called for redemption on any Dividend Payment Date shall (if such holder is the registered holder on the applicable Record Date) receive the dividend on such shares payable on that date and will be able to exchange such shares after the Record Date for such dividend without paying an amount equal to such dividend to the Company upon exchange. Except as provided above, upon any exchange of shares of Series A Preferred Stock pursuant to this paragraph (6), the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on exchanged shares of Series A Preferred Stock and the Parent shall make no payment or allowance for previously declared dividends or distributions on the shares of Series A TCI Group Common Stock issued upon such exchange (or on any Other Property issued upon such exchange pursuant to this paragraph (6)). If the shares of Series A Preferred Stock represented by a certificate surrendered for exchange in part only, the Company shall cause to be issued and delivered to the registered holder, without charge therefor, a new certificate or certificates representing in the aggregate the number of unexchanged shares. (b) Exchange Rate Adjustments. The Exchange Rate shall be subject to adjustment from time to time as provided below in this subparagraph (6)(b). (i) If the Parent shall, after the Issue Date: (A) pay a stock dividend or make a distribution on the outstanding shares of Series A TCI Group Common Stock in shares of Series A TCI Group Common Stock, (B) subdivide or split the outstanding shares of Series A TCI Group Common Stock into a greater number of shares, -20- (C) combine the outstanding shares of Series A TCI Group Common Stock into a smaller number of shares, (D) pays a dividend or make a distribution on the outstanding shares of Series A TCI Group Common Stock in shares of its capital stock (other than Series A TCI Group Common Stock), or (E) issue by reclassification of its outstanding shares of Series A TCI Group Common Stock (other than a reclassification by way of merger or binding share exchange that is subject to subparagraph (6)(d)) any shares of its capital stock, then, in any such event, the Exchange Rate in effect immediately prior to the opening of business on the record date for determination of stockholders entitled to receive such dividend or distribution or the effective date of such subdivision, split, combination or reclassification, as the case may be, shall be adjusted so that the holder of any shares of Series A Preferred Stock shall thereafter be entitled to receive, upon exchange at the option of such holder, the number of shares of Series A TCI Group Common Stock or other capital stock (or both) of the Parent which such holder would have owned or been entitled to receive immediately following such action if such holder had exchanged his shares of Series A Preferred Stock immediately prior to the record date for, or effective date of, as the case may be, such event. Notwithstanding the foregoing, if an event listed in clause (D) or (E) above would result in the shares of Series A Preferred Stock being exchangeable for shares or units (or a fraction thereof) of more than one class or series of capital stock of the Parent and any such class or series of capital stock provides by its terms a right in favor of the Parent to call, redeem, exchange or otherwise acquire all of the outstanding shares or units of such class or series (such class or series of capital stock being herein referred to as "Redeemable Capital Stock") for consideration that may include Redemption Securities, then the Exchange Rate of the Series A Preferred Stock shall not be adjusted pursuant to this subparagraph (6)(b)(i) and in lieu thereof the adjustment to the Exchange Rate contemplated by subparagraph (6)(b)(iii) shall be made with the same effect as if the dividend or distribution of such Redeemable Capital Stock or the issuance of the additional class or series of such Redeemable Capital Stock by reclassification had been a distribution of assets of the Parent. The adjustment contemplated by this subparagraph (6)(b)(i) shall be made successively whenever any event listed above shall occur. For a dividend or distribution, the adjustment shall become effective at the opening of business on the Business Day next following the record date for such dividend or -21- distribution. For a subdivision, split, combination or reclassification, the adjustment shall become effective immediately after the effectiveness of such subdivision, split, combination or reclassification. If after an adjustment pursuant to this subparagraph (6)(b)(i) a holder of Series A Preferred Stock would be entitled to receive upon exchange thereof shares of two or more classes or series of capital stock of the Parent, the Exchange Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class or series of capital stock other than Series A TCI Group Common Stock as is contemplated by this paragraph (6), on terms comparable to those applicable to the Series A TCI Group Common Stock pursuant to this paragraph (6). (ii) If the Parent shall, after the Issue Date, distribute rights, warrants or options to all or substantially all holders of its outstanding shares of Series A TCI Group Common Stock entitling them (for a period not exceeding forty-five days from the record date referred to below) to subscribe for or purchase shares of Series A TCI Group Common Stock (or Convertible Securities for shares of Series A TCI Group Common Stock) at a price per share (or having an exercise, exchange or conversion price per share, after adding thereto an allocable portion of the exercise price of the right, warrant or option to purchase such Convertible Securities, computed on the basis of the maximum number of shares of Series A TCI Group Common Stock issuable upon exercise, exchange or conversion of such Convertible Securities) less than the Current Market Price on the applicable Determination Date, then, in any such event, the Exchange Rate shall be adjusted by multiplying the Exchange Rate in effect immediately prior to the opening of business on the record date for the determination of stockholders entitled to receive such distribution by a fraction, of which the numerator shall be the number of shares of Series A TCI Group Common Stock outstanding on such record date plus the number of additional shares of Series A TCI Group Common Stock so offered pursuant to such rights, warrants or options to the holders of Series A TCI Group Common Stock (and to holders of Convertible Securities for shares of Series A TCI Group Common Stock and to holders of Series B TCI Group Common Stock referred to in the immediately succeeding paragraph of this subparagraph (6)(b)(ii)) for subscription or purchase (or into which the Convertible Securities for shares of Series A TCI Group Common Stock so offered are exercisable, exchangeable or convertible), and of which the denominator shall be the number of shares of Series A TCI Group Common Stock outstanding on such record date plus the number of additional shares of Series A TCI Group Common Stock which the aggregate offering price of the total number of shares of Series A TCI Group Common Stock so offered (or the aggregate exercise, exchange or conversion price of the Convertible -22- Securities for shares of Series A TCI Group Common Stock so offered, after adding thereto the aggregate exercise price of the rights, warrants or options to purchase such Convertible Securities) to the holders of Series A TCI Group Common Stock (and to such holders of Convertible Securities for shares of Series A TCI Group Common Stock and such holders of Series B TCI Group Common Stock) would purchase at such Current Market Price. For purposes of this subparagraph (6)(b)(ii), the number of shares of Series A TCI Group Common Stock outstanding on any applicable record date shall be deemed to include (i) the maximum number of shares of Series A TCI Group Common Stock the issuance of which would be necessary to effect the full exercise, exchange or conversion of all Convertible Securities for shares of Series A TCI Group Common Stock outstanding on such record date which are then exercisable, exchangeable or convertible at a price (before giving effect to any adjustment to such price for the distribution to which this subparagraph (6)(b)(ii) is being applied) equal to or less than the Current Market Price per share of Series A TCI Group Common Stock on the applicable Determination Date, if all of such Convertible Securities were deemed to have been exercised, exchanged or converted immediately prior to the opening of business on such record date and (ii) if the Series B TCI Group Common Stock is then convertible into Series A TCI Group Common Stock, the maximum number of shares of Series A TCI Group Common Stock the issuance of which would be necessary to effect the full conversion of all shares of Series B TCI Group Common Stock outstanding on such record date, if all of such shares of Series B TCI Group Common Stock were deemed to have been converted immediately prior to the opening of business on such record date. The adjustment contemplated by this subparagraph (6)(b)(ii) shall be made successively whenever any such rights, warrants or options are distributed, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. If all of the shares of Series A TCI Group Common Stock (or all of the Convertible Securities for shares of Series A TCI Group Common Stock) subject to such rights, warrants or options have not been issued when such rights, warrants or options expire (or, in the case of rights, warrants or options to purchase Convertible Securities for shares of Series A TCI Group Common Stock which have been exercised, if all of the shares of Series A TCI Group Common Stock issuable upon exercise, exchange or conversion of such Convertible Securities have not been issued prior to the expiration of the exercise, exchange or conversion right thereof), then the Exchange Rate shall promptly be readjusted to the Exchange Rate which would then be in effect -23- had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Series A TCI Group Common Stock (or such Convertible Securities) issued upon the exercise of such rights, warrants or options (or the exercise, exchange or conversion of such Convertible Securities). No adjustment shall be made under this subparagraph (6)(b)(ii) if the adjusted Exchange Rate would be lower than the Exchange Rate in effect immediately prior to such adjustment. (iii) If the Parent shall, after the Issue Date, (x) pay a dividend or make a distribution to all or substantially all holders of its outstanding shares of Series A TCI Group Common Stock of any assets or debt securities or any rights, warrants or options to purchase securities (excluding (A) dividends or distributions referred to in subparagraph (6)(b)(i) (except as otherwise provided in clause (y) of this sentence) and distributions of rights, warrants or options referred to in subparagraph (6)(b)(ii) and (B) cash dividends, unless such cash dividends are Extraordinary Cash Dividends), or (y) pay a dividend or make a distribution to all or substantially all holders of its outstanding shares of Series A TCI Group Common Stock of Redeemable Capital Stock, or issue Redeemable Capital Stock by reclassification of the Series A TCI Group Common Stock, and pursuant to subparagraph (6)(b)(i) such Redeemable Capital Stock is to be treated the same as a distribution of assets of the Parent subject to this subparagraph (6)(b)(iii), then, in any such event, the Exchange Rate shall be adjusted by multiplying the Exchange Rate in effect immediately prior to the opening of business on (I) the record date for the determination of stockholders entitled to receive the dividend or distribution or (II) in the case of a reclassification, the effective date of such reclassification by a fraction, of which the numerator shall be the total number of shares of Series A TCI Group Common Stock outstanding on such record date or immediately prior to such effective date multiplied by the Current Market Price on the applicable Determination Date, and of which the denominator shall be the total number of shares of Series A TCI Group Common Stock outstanding on such record date or immediately prior to such effective date multiplied by such Current Market Price, less the fair market value (as determined in good faith by the Parent Board of Directors) on such record date or effective date of the assets (or Redeemable Capital Stock) or debt securities or rights, warrants or options so distributed to the holders of Series A TCI Group Common Stock (and to the holders of Convertible Securities for shares of Series A TCI Group Common Stock and to the holders of Series B TCI Group Common Stock referred to in the immediately succeeding paragraph of this subparagraph (6)(b)(iii) if the dividend or -24- distribution to which this paragraph (6)(b)(iii) applies is also being made to such holders). For purposes of this subparagraph (6)(b)(iii), the number of shares of Series A TCI Group Common Stock outstanding on any relevant date shall be deemed to include (i) the maximum number of shares of Series A TCI Group Common Stock the issuance of which would be necessary to effect the full exercise, exchange or conversion of all Convertible Securities for Series A TCI Group Common Stock outstanding on such date which are then exercisable, exchangeable or convertible at a price (before giving effect to any adjustment to such price for the dividend or distribution or reclassification to which this subparagraph (6)(b)(iii) is being applied) equal to or less than the Current Market Price on the applicable Determination Date, if all of such Convertible Securities were deemed to have been exercised, exchanged or converted immediately prior to the opening of business on such date and (ii) if the Series B TCI Group Common Stock is then convertible into Series A TCI Group Common Stock, the maximum number of shares of Series A TCI Group Common Stock the issuance of which would be necessary to effect the full conversion of all shares of Series B TCI Group Common Stock outstanding on such date, if all of such shares of Series B TCI Group Common Stock were deemed to have been converted immediately prior to the opening of business on such date. For purposes of this subparagraph (6)(b)(iii), the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the Series A TCI Group Common Stock the amount of which, together with the aggregate amount of cash dividends on the Series A TCI Group Common Stock to be aggregated with such cash dividend in accordance with the following provisions of this paragraph, equals or exceeds the threshold percentage set forth in the following sentence. If, upon the date immediately prior to the Ex- Dividend Date with respect to a cash dividend on Series A TCI Group Common Stock, the aggregate of the amount of such cash dividend together with the amounts of all cash dividends on the Series A TCI Group Common Stock with Ex- Dividend Dates occurring in the 365/366 consecutive day period ending on the date prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied (other than any such other cash dividends with Ex-Dividend Dates occurring in such period for which a prior adjustment in the Exchange Rate was previously made under this subparagraph (6)(b)(iii)) equals or exceeds on a per share basis 10% of the average of the Closing Prices during the period beginning on the date after the first such Ex- Dividend Date in such period and ending on the date prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied (except that if no other cash dividend has had an -25- Ex-Dividend Date occurring in such period, the period for calculating the average of the Closing Prices shall be the period commencing 365/366 days prior to the date immediately prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied), such cash dividend together with each other cash dividend with an Ex-Dividend Date occurring in such 365-/366-day period that is aggregated with such cash dividend in accordance with this paragraph shall be deemed to be an Extraordinary Cash Dividend. The adjustment pursuant to the foregoing provisions of this subparagraph (6)(b)(iii) shall be made successively whenever any dividend or distribution or reclassification to which this subparagraph (6)(b)(iii) applies is made, and shall become effective immediately after (x), in the case of a dividend or distribution, the record date for the determination of stockholders entitled to receive such dividend or distribution or (y), in the case of a reclassification, the effective date of such reclassification. No adjustment shall be made under this subparagraph (6)(b)(iii) if the adjusted Exchange Rate would be lower than the Exchange Rate in effect immediately prior to such adjustment. In the event that, with respect to any distribution to which this subparagraph (6)(b)(iii) would otherwise apply, the denominator of the fraction in the formula set forth in the first paragraph of this subparagraph (6)(b)(iii) is zero or a negative number, then the adjustment provided by this subparagraph (6)(b)(iii) shall not be made. If the Parent makes a distribution to all or substantially all holders of its Series A TCI Group Common Stock of any of its assets or debt securities or any rights, warrants or options to purchase securities of the Parent that, but for the preceding sentence would otherwise result in an adjustment in the Exchange Rate pursuant to the foregoing provisions of this subparagraph (6)(b)(iii), then from and after the record date for determining the holders of Series A TCI Group Common Stock entitled to receive such distribution, a holder of Series A Preferred Stock that exchanges such shares in accordance with the provisions of this paragraph (6) will upon such exchange be entitled to receive, in addition to the shares of Series A TCI Group Common Stock for which such shares of Series A Preferred Stock are exchangeable, the kind and amount of assets or debt securities or rights, warrants or options to purchase securities of the Parent comprising such distribution that such holder would have received if such holder had exchanged such shares of Series A Preferred Stock immediately prior to the record date for determining the holders of Series A TCI Group Common Stock entitled to receive such distribution. Notwithstanding the preceding sentence if any portion of such a distribution consists of shares of Redeemable Capital Stock that pursuant to subparagraph (6)(b)(i) are to be treated the same as a distribution of assets of the Parent subject to this subparagraph (6)(b)(iii), then, from and after the record date referred to in the -26- preceding sentence, a holder of Series A Preferred Stock that exchanges such shares in accordance with the provisions of this paragraph (6) will upon such exchange be entitled to receive, in lieu of such shares of Redeemable Capital Stock, an amount of cash equal to the product of (x) the number of shares of such Redeemable Capital Stock that such holder would have otherwise been entitled to receive (rounded to the nearest whole number) multiplied by (y) one penny. (iv) In the event that a holder of Series A Preferred Stock would be entitled to receive upon exercise of the exchange privilege thereof pursuant to this paragraph (6) any Redeemable Capital Stock and the Parent redeems, exchanges or otherwise acquires all of the outstanding shares or other units of such Redeemable Capital Stock (such event being a "Redemption Event"), then, from and after the effective date of such Redemption Event, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to receive upon the exchange of such shares, in lieu of shares or units of such Redeemable Capital Stock, the kind and amount of securities, cash or other assets receivable upon the Redemption Event by a holder of the number of shares or units of such Redeemable Capital Stock for which such shares of Series A Preferred Stock could have been exchanged immediately prior to the effective date of such Redemption Event (assuming, to the extent applicable, that such holder failed to exercise any rights of election with respect thereto and received per share or unit of such Redeemable Capital Stock the kind and amount of securities, cash or other assets received per share or unit by a plurality of the non-electing shares or units of such Redeemable Capital Stock), and (from and after the effective date of such Redemption Event) the holders of the Series A Preferred Stock shall have no other exchange rights under these provisions with respect to such Redeemable Capital Stock. (v) For purposes of calculating the number of outstanding shares of Series A TCI Group Common Stock under subparagraphs (6)(b)(ii) and (6)(b)(iii), any shares of Series A TCI Group Common Stock (i) issuable as a dividend (including shares that the Company has notified the holders of Series A Preferred Stock will be issued in payment of a dividend (or a designated portion thereof) pursuant to subparagraph (3)) shall be deemed to have been issued immediately prior to the time of the record date for such dividend or (ii) issuable in payment of a Redemption Price (or a designated portion thereof) pursuant to subparagraph (4) shall be deemed to have been issued immediately prior to the related Redemption Date. Shares of Series A TCI Group Common Stock owned by or held for the account of the Parent or any of its Subsidiaries shall not be deemed outstanding for the purposes of this subparagraph (6)(b). -27- (vi) In any case in which this subparagraph (6)(b) shall require that an adjustment be made in the Exchange Rate, the Parent may, in its sole discretion, elect to defer the following until after the occurrence of the event which requires such adjustment: (A) the issuance by the Parent to the holder of any Series A Preferred Stock surrendered for exchange the additional shares of Series A TCI Group Common Stock issuable upon such exchange over the shares of Series A TCI Group Common Stock issuable before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of a fractional share of Series A TCI Group Common Stock; provided, however, that the Parent shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares of Series A TCI Group Common Stock, and such cash, upon the occurrence of the event requiring such adjustment. (vii) All adjustments to the Exchange Rate shall be calculated to the nearest 1/1000th of a share. No adjustment in the Exchange Rate shall be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustment which by reason of this subparagraph is not required to be made shall be carried forward and taken into account in any subsequent adjustment. In addition, no adjustment need be made for rights to purchase shares of Series A TCI Group Common Stock or for sales of shares of Series A TCI Group Common Stock which in either case are made pursuant to a plan providing for reinvestment of dividends or interest or pursuant to a bona fide employee stock option or stock purchase plan (x) of the Parent or any wholly owned subsidiary of the Parent or (y) of the Company or any Wholly Owned Subsidiary. No adjustment need be made for a change in the par value of the Series A TCI Group Common Stock. To the extent the shares of Series A Preferred Stock become exchangeable for cash, no adjustment need be made thereafter as to the cash and no interest shall accrue on such cash. (viii) The Company shall be entitled, at the direction of the Parent and to the extent permitted by law, to make such increases in the Exchange Rate, in addition to those referred to above in this subparagraph (6)(b), as the Parent determines to be advisable in order that any stock dividends, subdivisions of shares, reclassification or combination of shares, distribution of rights, options or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Parent to its stockholders shall not be taxable. (ix) There shall be no adjustment to the Exchange Rate in the event of the issuance of any stock or other securities or assets of the Parent in a reorganization, acquisition or other similar transaction except as specifically -28- provided in this paragraph (6). In the event this subparagraph (6)(b) requires adjustments to the Exchange Rate under more than one of subparagraph (6)(b)(i)(D), (6)(b)(ii) or (6)(b)(iii), and the record dates for the dividends or distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying first, the provisions of subparagraph (6)(b)(i), second, the provisions of subparagraph (6)(b)(iii) and third, the provisions of subparagraph (6)(b)(ii). (x) No adjustment need be made under this subparagraph (6)(b) for a transaction referred to in subparagraph (6)(b)(i), (ii), (iii) or (iv) if holders of the Series A Preferred Stock are to participate in the transaction on a basis and with notice that the Board of Directors in good faith determines to be fair and appropriate in light of the basis and notice on which holders of Series A TCI Group Common Stock participate in the transaction; provided that the basis on which the holders of shares of Series A Preferred Stock are to participate in the transaction shall not be deemed to be fair if it would require the holder to exchange his shares of Series A Preferred Stock in order to participate at any time prior to the expiration of the exchange period for the shares of Series A Preferred Stock specified in subparagraph (6)(a). (c) Fractional Shares of Series A Preferred Stock. No fractional ---------------------------------------------- shares of Series A Preferred Stock may be tendered for exchange pursuant to this paragraph (6). (d) Adjustment for Consolidation or Merger of Parent. In case of ------------------------------------------------- any consolidation or merger to which the Parent is a party, or in the case of any sale or transfer to another corporation of the property of the Parent as an entirely or substantially as an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition)(each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which shares of Series A TCI Group Common Stock shall be reclassified or converted into the right to receive stock, securities or other property (including cash or any combination thereof), proper provision shall be made so that each share of Series A Preferred Stock which is not converted into the right to receive stock, securities or other property in connection with such Transaction shall, after consummation of such Transaction, be subject to exchange at the option of the holder into the kind and amount of stock, securities or other property receivable upon consummation of such Transaction by a holder of the number of shares of Series A TCI Group Common Stock (and/or any Other Property into which the Series A Preferred Stock may be exchangeable in accordance with this paragraph (6)) into which such share of Series A Preferred Stock might have been exchanged immediately prior to consummation of such Transaction (assuming in each case that such holder of Series A TCI Group Common Stock (or such Other Property) failed to exercise rights of election, if any, as to the kind or amount of stock securities or other property receivable upon consummation of such Transaction (provided that if the kind or amount of stock, securities or other property receivable upon consummation of such Transaction is not the same for each non-electing share, then the kind and amount of stock, securities or other property receivable upon consummation of such -29- Transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares)). The kind and amount of stock or securities into which the shares of Series A Preferred Stock shall be exchangeable after consummation of such Transaction shall be subject to adjustment, as nearly as may be practicable, as described in subparagraph (6)(b) following the date of consummation of such Transaction. Pursuant to the Guarantee, the Parent has agreed not to become a party to any Transaction unless the terms thereof are consistent with this subparagraph (6)(d). The provisions of this subparagraph (6)(d) shall similarly apply to successive Transactions. If this subparagraph (6)(d) applies, subparagraphs (6)(b)(i), (ii), (iii) and (iv) shall not apply. (e) Notice of Adjustments. Whenever the Exchange Rate is adjusted as --------------------- herein provided, the Parent shall: (i) forthwith compute the adjusted Exchange Rate in accordance herewith and prepare a certificate signed by an officer of the Parent setting forth the adjusted Exchange Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment (absent manifest error), and file such certificate forthwith with the transfer agent for the shares of Series A Preferred Stock and the Series A TCI Group Common Stock; and (ii) mail a notice to the holders of the outstanding shares of Series A Preferred Stock stating that the Exchange Rate has been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Exchange Rate, such notice to be mailed at or prior to the time the Company mails an interim statement, if any, to its stockholders covering the fiscal quarter during which the facts requiring such adjustment occurred, but in any event within 45 days following the end of such fiscal quarter. (f) Notice of Certain Transactions. In case, at any time while any of ------------------------------ the shares of Series A Preferred Stock are outstanding, (i) the Parent takes any action which would require an adjustment to the Exchange Rate; or (ii) the Parent shall authorize (x) any consolidation, merger or binding share exchange to which the Parent is a party and for which approval of any stockholders of the Parent is required (except for a merger of the Parent into one of its wholly owned subsidiaries solely for the purpose of changing the corporate domicile of the Parent to another state of the United States and in -30- connection with which there is no substantive change in the rights or privileges of any securities of the Parent other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or (y) the sale or transfer of all or substantially all of the assets of the Parent; or (iii) the Parent shall authorize the voluntary dissolution, liquidation or winding up of the Parent or the Parent is the subject of an involuntary dissolution, liquidation or winding up; then the Parent shall cause to be filed at each office or agency maintained for the purpose of exchange of the shares of Series A Preferred Stock, and shall cause to be mailed to the holders of shares of Series A Preferred Stock at their last addresses as they shall appear on the stock register, at least 10 days before the record date (or other date set for definitive action if there shall be no record date), a notice stating the action or event for which such notice is being given and the record date for (or such other date) and the anticipated effective date of such action or event; provided, however, that any notice required hereunder shall in any event be given no later than the time that notice is given to the holders of the Series A TCI Group Common Stock. The failure to give or receive the notice required by this subparagraph (6)(f) or any defect therein shall not affect the legality or validity of any action or any vote thereon. (g) Actions in Respect of Series A TCI Group Common Stock. The Company ----------------------------------------------------- shall take, and the Parent has agreed to take pursuant to the Guarantee, such reasonable action which may, in the opinion of the Company's or the Parent's legal counsel, be necessary in order that (i) the Parent may validly and legally deliver fully paid and nonassessable shares of Series A TCI Group Common Stock upon any surrender of shares of Series A Preferred Stock for exchange pursuant to this paragraph (6), (ii) the delivery of shares of Series A TCI Group Common Stock in accordance with this paragraph (6) is exempt from the registration or qualification requirements of the Securities Act and applicable state securities laws or, if no such exemption is available, that the offer and exchange of such shares of Series A TCI Group Common Stock have been duly registered or qualified under the Securities Act and applicable state securities laws, (iii) the shares of Series A TCI Group Common Stock delivered upon such exchange are listed for trading on the Nasdaq National Market or on a national securities exchange (upon official notice of issuance) and (iv) the shares of Series A TCI Group Common Stock delivered upon such exchange are free of preemptive rights and any liens or adverse claims. Pursuant to the Guarantee, the Parent has agreed to at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Series A TCI Group Common Stock and/or its issued Series A TCI Group Common Stock held in its treasury, for the purpose of effecting any exchange of shares of Series A Preferred Stock at the option of the holder pursuant to this paragraph (6) the full number of shares of Series A TCI Group Common Stock then deliverable upon the exchange of all then outstanding shares of Series A Preferred Stock -31- (assuming for this purpose that all of the outstanding shares of Series A Preferred Stock are held by a single holder). (7) Liquidation Rights. ------------------- (a) Payment of Liquidation Preference. In the event of any ---------------------------------- liquidation, dissolution, or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of Series A Preferred Stock then outstanding, after payment or provision for payment of the debts and other liabilities of the company and the payment or provision for payment of any distribution on any shares of Senior Stock, and before any distribution to the holders of Junior Stock, shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount per share of Series A Preferred Stock in cash equal to the Liquidation Preference. In the event the assets of the Company available for distribution to the holders of the shares of Series A Preferred Stock upon any dissolution, liquidation or winding up of the Company shall be insufficient to pay in full the Liquidation Preference payable to the holders of outstanding shares of Series A Preferred Stock and the liquidation preference payable to all other shares of Parity Stock (as set forth in the instrument or instruments creating such Parity Stock), the holders of shares of Series A Preferred Stock and of all other shares of Parity Stock shall share ratably in such distribution of assets in proportion to the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and the holders of outstanding shares of such other Parity Stock were paid in full. Except as provided in this subparagraph (7)(a), holders of Series A Preferred Stock shall not be entitled to any distribution in the event of the liquidation, dissolution or winding up of the affairs of the Company. (b) Certain Events Not Deemed Liquidation, Etc. For the purposes of ------------------------------------------- this paragraph (7), none of the following shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company: (i) the sale, lease, transfer or exchange of all or substantially all of the assets of the Company; or (ii) the consolidation or merger of the Company with one or more other corporations (whether or not the Company is the corporation surviving such consolidation or merger) or the consummation of a statutory binding share exchange involving the Company. (c) Company's Right to Elect Manner of Payment of Liquidating Payment. ------------------------------------------------------------------ Any Liquidating Payment may be paid, in the sole discretion of the Board of Directors, (i) out of funds legally available therefor, (ii) through the delivery of shares of Series A TCI Group Common Stock or (iii) through any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. Upon the liquidation, dissolution or winding up of the affairs of the Company, each holder of Series A Preferred Stock shall receive the same proportion of cash and/or shares of Series A TCI Group Common Stock (except for cash paid in lieu of fractional shares) -32- delivered in payment of the Liquidating Payment made to other holders of shares of Series A Preferred Stock. (d) Payment of Liquidating Payment by Delivery of Series A TCI Group ---------------------------------------------------------------- Common Stock. The Company may elect to make, in whole or in part, the - - ------------ Liquidating Payment in respect of shares of Series A Preferred Stock by delivery to the holders thereof of a number of shares of Series A TCI Group Common Stock equal to the aggregate Liquidating Payment (or designated portion thereof) payable in respect of such shares divided by the Cash Equivalent Amount. In connection with any Liquidating Payment, no fractional shares of Series A TCI Group Common Stock shall be delivered to a holder of shares of Series A Preferred Stock, but the Company shall instead pay a cash adjustment determined as provided in paragraph (8). The Company's right to elect to make any Liquidating Payment (or designated portion thereof) through the delivery of shares of Series A TCI Group Common Stock shall be conditioned upon: (i) the shares of Series A TCI Group Common Stock to be so delivered being fully paid and nonassessable and free from any preemptive rights, liens or adverse claims; (ii) the delivery of such shares of Series A TCI Group Common Stock being exempt from the registration or qualification requirements of the Securities Act and applicable state securities laws or, if no such exemption is available, the delivery of such shares of Series A TCI Group Common Stock having been duly registered or qualified under the Securities Act and applicable state securities laws; and (iii) the shares of Series A TCI Group Common Stock to be so delivered being listed, and upon delivery being eligible for trading, on the Nasdaq National Market or on a national securities exchange. If the conditions set forth in this subparagraph (6)(d) have not been satisfied prior to or on the date of payment of any Liquidating Payment, such Liquidating Payment shall be paid solely in cash. (8) No Fractional Shares of Series A TCI Group Common Stock. No ------------------------------------------------------- fractional shares of Series A TCI Group Common Stock or scrip shall be issued upon the exchange of Series A Preferred Stock for Series A TCI Group Common Stock or in connection with the delivery of shares of Series A TCI Group Common Stock in payment, in whole or in part, of any dividend, Redemption Price or Liquidating Payment. Whether or not a fractional share would be delivered to a holder of Series A Preferred Stock shall be based upon (i), in the case of an exchange pursuant to paragraph (6), on the total number of shares of Series A Preferred Stock such holder is at the time exchanging into Series A TCI Group Common Stock and the total number of shares of Series A TCI Group Common Stock otherwise deliverable upon such exchange and (ii), in the case of the payment, in whole or in part, of dividends, a Redemption Price or a Liquidating Payment pursuant to paragraphs (3), (4) or (7), respectively, through the delivery of shares of Series A TCI Group Common Stock, on the total number of shares of Series A Preferred Stock at the time held by such holder and the total number of shares of Series A TCI Group Common Stock otherwise deliverable in respect thereof. In lieu of the issuance of a fraction of a share of Series A TCI Group Common Stock or scrip, the Company shall pay instead an amount in cash (rounded to the nearest whole cent) by its check equal to the same fraction of the Closing Price of a share of Series A TCI Group Common Stock on the Trading Day immediately preceding the Exchange Date, the Dividend Payment Date, the Redemption Date or the Liquidating Payment Date, as the case may be. -33- (9) Payment of Taxes. The Parent or Company shall pay any and all ---------------- documentary, stamp or similar transfer taxes payable in respect of the delivery of shares of Series A TCI Group Common Stock pursuant to paragraphs (3), (4), (6) or (7); provided, however, that neither the Parent nor the Company shall be required to pay any tax which may be payable in respect of any registration of transfer involved in the delivery of shares of Series A TCI Group Common Stock upon an exchange of shares of Series A Preferred Stock pursuant to paragraph (6) in a name other than that of the registered holder of such shares of Series A Preferred Stock. (10) No Preemptive Rights. The holders of shares of Series A Preferred -------------------- Stock shall have no preemptive rights, including preemptive rights with respect to any shares of capital stock or other securities of the Company convertible into or carrying rights or options to purchase any such shares. (11) Voting Rights. The holders of shares of Series A Preferred Stock ------------- shall have no voting rights, except as otherwise required by law and except as set forth in this paragraph (11). When and if the holders of Series A Preferred Stock are entitled to vote by law or pursuant to this paragraph (11), each holder will be entitled to one vote per share. Shares of Series A Preferred Stock held by the Parent or any Subsidiary of the Parent shall not be counted for quorum purposes and shall be deemed shares not entitled to vote on any matter presented to the holders of Series A Preferred Stock, except to the extent otherwise required by law. (a) General Election of Directors: Number of Votes. The holders of ---------------------------------------------- shares of Series A Preferred Stock shall have the right to vote, voting as a class with the holders of the Company's common stock (and with the holders of any other class or series of Preferred Stock entitled to vote with such common stock as a class in the general election of directors), in any general election of directors of the Company. (b) Election of Preferred Stock Directors. (i) If at any time accrued ------------------------------------- dividends payable on the shares of Series A Preferred Stock are in arrears and unpaid in an aggregate amount equal to or exceeding the aggregate amount of dividends payable thereon for six quarterly Dividend Periods, the holders of the shares of Series A Preferred Stock, voting separately as a class (with the holders of shares of any other class or series of Parity Stock upon which like voting rights have been conferred and are exercisable), shall have the right to vote for the election of two directors (the "Preferred Stock Directors") to the Board of Directors of the Company, such directors to be in addition to the number of directors constituting the Board of Directors immediately prior to the accrual of such right. Such right of the holders of shares of Series A Preferred Stock to vote for the election of two Preferred Stock Directors shall, when vested, continue until all dividends in arrears on the shares of Series A Preferred Stock shall have been paid in full and, when so paid, such right shall cease, subject always to the same provisions for the vesting of such right of the holders of the shares of Series A Preferred Stock to elect two Preferred Stock Directors in the case of future dividend defaults. The Preferred Stock Directors shall be elected by a plurality of the votes cast by the holders of Series A Preferred Stock and any other class or series of Parity Stock upon which like voting rights have been conferred and are exercisable. -34- (ii) At any time when the holders of shares of the Series A Preferred Stock (with the holders of any other class or series of Parity Stock upon which like voting rights have been conferred and are exercisable) are entitled to elect two Preferred Stock Directors, the Company shall, upon the written request (a "Request") of the holders of record of not less than the greater of (i) 10% of the outstanding shares of Series A Preferred Stock or (ii) 10% of the outstanding shares of all classes and series of Parity Stock (including the Series A Preferred Stock) entitled to vote for such Preferred Stock Directors, call a special meeting of holders of the Series A Preferred Stock (and such other Parity Stock) for the election of the two Preferred Stock Directors. Notice of the special meeting shall be given in accordance with the requirements of Delaware law, and such meeting shall be held not more than 60 days after the Company's receipt of the Request. The Preferred Stock Directors shall be nominated by the Persons who submit the Request, except that at any meeting after the first meeting at which the Preferred Stock Directors are elected, the Preferred Stock Directors shall be nominated, subject to subparagraph 11(b)(ii) below, by the existing Preferred Stock Directors. (iii) The term of office of each Preferred Stock Director shall terminate on the earlier of (i) the next annual meeting of stockholders of the Company at which a successor shall have been elected and qualified (irrespective of whether the Board of Directors is divided into staggered classes) or (ii) the termination of the right of the holders of shares of Series A Preferred Stock and any such other shares of Parity Stock to vote for Preferred Stock Directors pursuant to this subparagraph 11(b). If, prior to the end of the term of any Preferred Stock Director elected as aforesaid, a vacancy in the office of such director shall occur, such vacancy shall be filled for the unexpired term by the appointment by the remaining Preferred Stock Director elected as aforesaid of a new director for the unexpired term of such former Preferred Stock Director. If both Preferred Stock Directors so elected by the holders of shares of Series A Preferred Stock (and such other Parity Stock) shall cease, at the same time, to serve as directors before their terms shall expire, the holders of the shares of Series A Preferred Stock (together with the holders of such other Parity Stock, if any) may, at a special meeting of the holders called as provided in subparagraph (11)(b)(ii) above, nominate and elect successors to hold office for the unexpired terms of such Preferred Stock Directors. (c) Certain Changes to Charter: Reclassifications. For as long as any ---------------------------------------------- shares of Series A Preferred Stock remain outstanding, the affirmative vote of the holders of at least 66 2/3% of such outstanding shares (voting separately as a class), given in Person or by proxy at any annual meeting or special meeting called for such purpose, shall be necessary (i) before the Company may amend, alter or repeal any of the provisions of this Certificate of Designations or the Restated Certificate of Incorporation of the Company which would adversely affect the powers, preferences or rights of the holders of the shares of Series A Preferred Stock then outstanding or reduce the minimum time required for any notice to which holders of shares of Series A Preferred Stock then outstanding may be entitled; provided, however, that (x) any such amendment, alteration or repeal that would authorize, create or increase the authorized amount of any additional shares of Junior Stock or shares of any other class or series of Parity Stock (whether or not already authorized) and (y) any such amendment that would increase the number of authorized shares of Preferred Stock (but not the -35- number of authorized shares of Series A Preferred Stock) or that would decrease (but not below the number of shares then outstanding) the number of authorized shares of Preferred Stock (but not the number of authorized shares of Series A Preferred Stock), shall be deemed not to adversely affect such powers, preferences or rights and shall not be subject to approval by the holders of shares of Series A Preferred Stock; and (ii) before the Company may reclassify the outstanding shares of Series A Preferred Stock into another class or series of capital stock of the Company (unless such reclassification would not adversely affect the powers, preferences or rights of the holders of the shares of Series A Preferred Stock then outstanding or reduce the minimum time required for any notice to which holders of shares of Series A Preferred Stock then outstanding may be entitled); provided, however, that no consent described in clause (i) of this paragraph of the holders of the shares of Series A Preferred Stock shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, provision is made for the redemption of all shares of Series A Preferred Stock at the time outstanding (except that no such provision may be made prior to the Initial Redemption Date). (d) Creation of Senior Stock. For as long as any shares of ------------------------- Series A Preferred Stock remain outstanding, the affirmative vote of the holders of at least 66 2/3% of such outstanding shares (voting separately as a class), given in Person or by proxy at any annual meeting or special meeting called for such purpose, shall be necessary before the Company or the Board of Directors may create or issue any Senior Stock; provided, however, that no such consent shall be necessary if, at or prior to the time of such creation or issue, provision is made for the redemption of all of the outstanding shares of Series A Preferred Stock (except that no such provision may be made prior to the Initial Redemption Date). (e) No Other Vote. Except as otherwise set forth in this -------------- paragraph (11) or as required by law, the holders of Series A Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers and the consent or vote of such holders shall not be required for the taking of any corporate action by the Company or the Board of Directors. The provisions of this paragraph (11) are in lieu of, and not in addition to, any voting rights specified in the Restated Certificate of Incorporation as applicable to all series of Preferred Stock. -36- (12) Waiver. Any provision of this Certificate of Designations ------ which, for the benefit of the holders of Series A Preferred Stock, prohibits, limits or restricts actions by the Company may be waived in whole or in part, or the application of all or any part of such provision in any particular circumstance or generally may be waived, in each case with the consent of the holders of at least 66 2/3% of the number of shares of Series A Preferred Stock then outstanding, either in writing or by vote at a meeting called for such purpose at which the holders of Series A Preferred Stock shall vote as a separate class. (13) Guarantee. Each Holder of shares of Series A Preferred Stock, by --------- acceptance of such shares, agrees to all of the terms and provisions of the Guarantee, including the subordination provisions thereof. (14) Exclusion of Other Rights. Except as may otherwise be required ------------------------- by law, the shares of Series A Preferred Stock shall not have any designations, preferences, limitations or relative rights other than those specifically set forth in this Certificate of Designations. The undersigned has signed this Certificate of Designations on this 11th day of January, 1996. [Signature Appears Here] --------------------------------------------------- Vice President of TCI Communications, Inc. Attest: [Signature Appears Here] ---------------------------------------------- Assistant Secretary of TCI Communications, Inc. -37- State of Delaware PAGE 1 Office of the Secretary of State -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CORRECTION OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH DAY OF FEBRUARY A.D. 1996, AT 11 O'CLOCK P.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [SEAL OF THE STATE OF DELAWARE APPEARS HERE] [STAMP OF THE /s/ Edward J. Freel SECRETARY'S OFFICE ----------------------------------- APPEARS HERE] Edward J. Freel, Secretary of State AUTHENTICATION: 7818211 0685208 8100 DATE: 02-07-96 960034708 CERTIFICATE OF CORRECTION Filed pursuant to Section 103(f) of the Delaware General Corporation Law with respect to the RESTATED CERTIFICATE OF INCORPORATION of TCI COMMUNICATIONS, INC. WHEREAS, on January 11, 1996, TCI Communications, Inc. (the "Corporation") filed with the Delaware Secretary of State a Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"); WHEREAS, such Certificate of Incorporation inaccurately stated that the total number of shares of common stock designated as Class A Common Stock which the Corporation shall have authority to issue is 905,553, when in fact the correct total number of shares of common stock designated as Class A Common Stock is 910,553; NOW, THEREFORE, the Certificate of Incorporation is hereby corrected in accordance with the provisions of Section 103(f) of the Delaware General Corporation Law as follows: The number "905,553" shall be deleted from the fourth line of the first paragraph of Article IV of the Certificate of Incorporation and the number "910,553" shall be substituted in its place. Executed on the date set forth below by the undersigned duly authorized officer of the Corporation. TCI COMMUNICATIONS, INC. Date: January 17, 1996 By: /s/ Stephen M. Brett --------------------------------- Name: Stephen M. Brett Title: Senior Vice President Attest: By: /s/ Mary S. Willis ------------------------------ Name: Title: EX-21 3 SUBSIDIARIES OF TCI COMMUNICATIONS, INC. EXHIBIT 21 ---------- A table of the subsidiaries of the TCI Communication, Inc. as of March 1, 1996, is set forth below, indicating as to each the state or the jurisdiction of incorporation or organization and the names under which such subsidiarties do business ("Trade Names"). Subsidiaries not included in the table are inactive and, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- ALABAMA T.V. CABLE, INC. AL AMERICAN CABLE TV INVESTORS 4, LTD. CO SUN CABLEVISION AMERICAN CABLE TV INVESTORS 5, LTD. CO AMERICAN CABLE TV OF LOWER DELAWARE AMERICAN CABLE TV OF ST. MARY'S COUNTY AMERICAN MICROWAVE & COMMUNICATIONS, INC MI AMERICAN MOVIE CLASSICS INVESTMENT, INC CO AMERICAN TELEVENTURE OF MINERSVILLE, INC CO AMES CABLEVISION, INC IA TCI OF CENTRAL IOWA TCI OF EASTERN IOWA ANTARES SATELLITE CORPORATION CO ARP PARTNERSHIP DE ATHENA CABLEVISION CORPORATION OF KNOXVILLE TN ATHENA CABLEVISION OF TENNESSEE AND KENTUCKY, INC. TN ATHENA REALTY, INC. NV ATLANTIC AMERICAN CABLEVISION OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY ATLANTIC AMERICAN CALEVISION, INC. DE ATLANTIC AMERICAN HOLDENGS, INC. FL ATLANTIC CABLEVISION OF FLORIDA, INC. FL BAY AREA INTERCONNECT CA BAY CABLE ADVERTISING BCA BEATRICE CABLE TV COMPANY NE TCI CABLE OF BEATRICE BELLEVUE CABLEVISION, INC DE BILLINGS TELE-COMMUNICATIONS, INC. OR BOB MAGNESS, INC. WY BRESNAN COMMUNICATIONS COMPANY LIMITED PARTNERSHIP MI BRIGAND PICTURES, INC. NY
-1- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- BROOKHAVEN CABLE TV, INC. NY TCI CABLE OF BROOKHAVEN BROOKINGS CABLEVISION CO BROOKSIDE ANTENNA COMPANY OH CABLE ACCOUNTING, INC. CO CABLE ADNET PARTNERS DE CABLE ADNET HUDSON VALLEY CABLE GROUP CABLE ADVERTISING PARTNERS CA ADLINK CABLE NETWORK TELEVISION, INC. NV CABLE SHOPPING INVESTMENT, INC. CO CABLE TELEVISION ADVERTISING GROUP, INC. WY CABLE TELEVISION OF GARY, INC. IN CABLETIME, INC. CO CABLEVISION ASSOCIATES OF GARY JOINT VENTURE IN CABLEVISION IV, LTD IA CABLEVISION OF ARCADIA/SIERRA MADRE, INC. DE CABLEVISION V, INC. IA CABLEVISION VI, INC. IA TCI CABLEVISION OF THE ROCKIES, INC. CABLEVISION VII, INC. IA TCI CABLEVISION OF THE ROCKIES, INC. CAT PARTNERSHIP DE CATV FACILITY CO., INC. CO CHANNEL 64 ACQUISITION, INC. DE CHICAGO CABLE NETWORK JOINT VENTURE IL CLINTON CABLEVISION IA CLINTON TV CABLE COMPANY, INC. IA COCONUT CREEK CABLE T.V., INC. FL TCI OF NORTH BROWARD COLORADO CABLEVISION COMPANY CO TCI OF COLORADO COLORADO TERRACE TOWER II CORPORATION CO COLUMBIA CABLE OF OREGON DE COMMAND CABLE OF EASTERN ILLINOIS LIMITED PARTNERSHIP NJ COMMUNICATION INVESTMENT CORPORATION VA
-2- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- COMMUNICATIONS & CABLE CHICAGO, INC. IL CHICAGO CABLE TV COMMUNICATIONS SERVICES, INC. KS TCI CABLEVISION OF CENTRAL TEXAS TCI CABLEVISION OF EAST OKLAHOMA TCI CABLEVISION OF NORTH TEXAS TCI CABLEVISION OF NORTHEAST TEXAS TCI CABLEVISION OF OKLAHOMA (CSI), INC. TCI COMMUNICATIONS SERVICES, INC. TCI OF ARKASAS TCI OF KANSAS (CSI), INC. TCI OF LOUISIANA (CSI), INC. TCI OF LOUISIANA COMMUNITY CABLE TELEVISION WY TCI CABLEVISION OF SOUTHWEST TEXAS TCI CABLEVISION OF WEST OAKLAND COUNTY COMMUNITY REALTY, INC. NV NEVADA COMMUNITY REALTY, INC. COMMUNITY TELEVISION SYSTEM, INC. DE TCI CABLEVISION OF SOUTH CENTRAL CONNECTICUT CONSUMER ENTERTAINMENT SERVICES, INC. WY CORSAIR PICTURES, INC. DE BRIGAND PICTURES, INC. DANIELS-HAUSER HOLDINGS CO DAVIS COUNTY CABLEVISION, INC. UT DIGITAL DIRECT OF OREGON, INC. CO DIGITAL DIRECT OF UTAH, INC. CO DIGITAL DIRECT, INC. CO TCI TELEPHONY, INC. DIRECT BROADCAST SATELLITE SERVICES, INC. DE DISCOVERY PROGRAMMING INVESTMENT, INC. CO DISTRICT CABLEVISION LIMITED PARTNERSHIP DC EAST ARKANSAS CABLEVISION, INC. AR TCI OF ARKASAS EAST ARKANSAS INVESTMENTS, INC. CO EASTEX MICROWAVE, INC. TX ECP HOLDINGS, INC. OK
-3- EXHIBIT 21 ----------
- - ----------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ----------------------------------------------------------------------------------------------------------------------- ELBERT COUNTY CABLE PARTNERS, L.P. CO TCI OF COLORADO FAB COMMUNICATIONS, INC. OK FOUR FLAGS CABLE TV MI FOUR FLAGS CABLEVISION MI GENERAL COMMUNICATIONS AND ENTERTAINMENT COMPANY INC DE GILL BAY INTERCONNECT, INC. CA GREATER BIRMINGHAM INTERCONNECT AL GBI GREATER PORTLAND INTERCONNECT OR HALCYON COMMUNICATIONS LIMITED PARTNERSHIP OK TCI CABLEVISION OF EAST OKLAHOMA TCI OF ARKANSAS HALCYON COMMUNICATIONS PARTNERS OK HARBOR COMMUNICATIONS JOINT VENTURE WA HARRIS COUNTY CABLE TV, INC. VA HAWKEYE COMMUNICATIONS OF CLINTON, INC. IA HERITAGE CABLE PARTNERS, INC. IA HERITAGE CABLEVISION ASSOCIATES, A LIMITED PARTNERSHIP IA TCI CABLE ADVERTISING TCI OF BEDFORD TCI OF MICHIGAN HERITAGE CABLEVISION OF CALIFORNIA, INC. DE TCI CABLEVISION OF SAN JOSE HERITAGE CABLEVISION OF COLORADO, INC. CO TCI CABLEVISION OF SOUTHERN COLORADO, INC. HERITAGE CABLEVISION OF DALLAS, INC. IA HERITAGE CABLEVISION OF DELAWARE, INC. DE TCI CABLEVISION OF NEW CASTLE COUNTY TCI OF FORT COLLINS HERITAGE CABLEVISION OF MAINE II, INC. ME HERITAGE CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF ANDOVER HERITAGE CABLEVISION OF SOUTH EAST MASSACHUSETTS, INC. MA HERITAGE CABLEVISION OF TENNESSEE, INC. TN TCI OF COLORADO HERITAGE CABLEVISION OF TEXAS, INC. IA TCI CABLEVISION OF SOUTH TEXAS HERITAGE CABLEVISION, INC. (IA) IA TCI OF THE HEARTLANDS HERITAGE CABLEVISION, INC. (TX) TX -4-
EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- HERITAGE CABLEVUE, INC. DE TCI CABLEVISION OF NEW ENGLAND HERITAGE COMMUNICATIONS PRODUCTS CORP. IA HERITAGE COMMUNICATIONS, INC. IA HERITAGE INVESTMENTS, INC. IA HERITAGE ROC HOLDINGS CORP. IA HERITAGE/INDIANA CABLEVISION, INC. IA HILLCREST CABLEVISION COMPANY OH HOME SPORTS NETWORK, INC. CO INDEPENDENCE CABLE TV COMPANY MI TCI CABLEVISION OF OAKLAND COUNTY, INC. INTERMEDIA PARTNERS CA INTERNATIONAL TELEMETER CORPORATION (NV) NV IR-TCI PARTNERS II, L.P. CA IR-TCI PARTNERS III, L.P. CA IR-TCI PARTNERS IV, L.P. CO IR-TCI PARTNERS V, L.P. CO KANSAS CITY FIBER NETWORK, L.P. DE KAUAI CABLEVISION KNOX CABLE T.V., INC. TN KTMA-TV INC. TX LASALLE TELECOMMUNICATIONS, INC. IL CHICAGO CABLE TV-IV LAWRENCE COUNTY CABLE PARTNERS CO LIBERTY COMMAND II, INC. CO LIBERTY COMMAND, INC. CO LIBERTY OF NORTHERN INDIANA, INC. DE LIBERTY-CSI, INC. CO LVO CABLE PROPERTIES, INC. OK LVOC MANAGEMENT, INC. OK MAJORCO SUB, L.P. DE MAJORCO, L.P. DE MARGATE VIDEO SYSTEMS, INC. FL TCI OF NORTH BROWARD
-5- EXHIBIT 21 ----------
- - --------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- MATERIALS HANDLING SERVICES, INC. CO WESTERN COMMUNICATIONS MATERIALS HANDLING SERVICE MELANIE CABLE PARTNERS, L.P. FL MIAMI TELE-COMMUNICATIONS, INC. MD MICRO-RELAY, INC. KS MID-KANSAS, INC. CO TCI OF COLORADO MILE HI CABLE PARTNERS, L.P. DE MINORCO, L.P. MS TCI OF NORTH MISSISSIPPI MISSISSIPPI CABLEVISION, INC. NV MOUNTAIN CABLE ADVERTISING MOUNTAIN CABLE NETWORK, INC. CO MOUNTAIN STATES GENERAL PARTNER CO. CO MOUNTAIN STATES LIMITED PARTNER CO. CO TCI OF COLORADO MOUNTAIN STATES VIDEO CO TCI OF COLORADO MOUNTAIN STATES VIDEO COMMUNICATIONS CO., INC. CO TCI OF COLORADO MOUNTAIN STATES VIDEO, INC. CO MSV SUBSIDIARY, INC. MI TCI CABLEVISION OF GREATER MICHIGAN, INC. MUSKEGON CABLE TV CO. RI HERITAGE CABLEVISION OF NARRAGANSETT NARRAGANSETT CABLEVISION CORPORATION CO NEWPORT NEWS CABLEVISION ASSOCIATES, L.P. CO NEWPORT NEWS CABLEVISION, LTD. CO UNITED ARTISTS CABLE OF NEWPORT NEWS NEWTELCO, L.P. DE NHT PARTNERSHIP NY NORTHERN VIDEO, INC. MN TCI OF CENTRAL MINNESOTA NORTHWEST CABLE ADVERTISING NY TV MART NORTHWEST ILLINOIS CABLE CORPORATION DE NORTHWEST ILLINOIS TV CABLE CO. DE TCI CABLEVISION OF GALESBURG/MONMOUTH NORTHWEST ILLINOIS TV CABLE COMPANY IL OHIO CABLEVISION NETWORK, INC. IA TCI CABLEVISION OF NORTHWESTERN OHIO OTTUMWA CABLEVISION, INC. IA TCI OF SOUTHERN IOWA PACIFIC MICROWAVE JOINT VENTURE CA
-6- EXHIBIT 21 ----------
- - ----------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ----------------------------------------------------------------------------------------------------------------------- PARKLAND CABLEVISION, INC. FL TCI OF NORTH BROWARD PHILLIECO, L.P. DE PITTSBURG CABLE TV, INC. KS TCI OF PITTSBURG PREVIEW MAGAZINE CORPORATION NY PRIMESTAR PARTNERS L.P. DE ROBERT FULK, LTD. DE ROBIN CABLE SYSTEMS OF SIERRA VISTA, L.P. CA TCI OF SOUTHERN ARIZONA ROBIN CABLE SYSTEMS OF TUCSON, AN ARIZONA LIMITED PARTNER AZ TCI OF TUCSON S/D CABLE PARTNERS, LTD. CO TCI CABLEVISION OF PRINCETON, L.P. TCI CABLEVISION OF ROCK FALLS, L.P. SAN LEANDRO CABLE TELEVISION, INC. CA TCI CABLEVISION OF HAYWARD SANTA FE CABLEVISION CO. NM SANTA FE CABLEVISION COMPANY NM TCI CABLEVISION OF SANTA FE SATELLITE SERVICES OF PUERTO RICO, INC. DE SATELLITE SERVICES, INC. DE SCC PROGRAMS, INC. IL SEMAPHORE PARTNERS CO SILVER SPUR LAND AND CATTLE CO. WY SILVER SPUR RANCH SONIC COMMUNICATIONS SAN LUIS OBISPO AND SANTA CRUZ SONIC PARTNERS, L.P. SOUTH CHICAGO CABLE, INC. IL CHICAGO CABLE TV-V SOUTH FLORIDA CABLE ADVERTISING FL SOUTHWEST TELECABLE, INC. TX SOUTHWEST WASHINGTON CABLE, INC. WA SSI 2, INC. NV ST. LOUIS TELE-COMMUNICATIONS, INC. MO TCI CABLEVISION OF ST. LOUIS TAMPA BAY INTERCONNECT FL TBI TCG CHICAGO NY TCG CONNECTICUT NY TCG DALLAS NY
-7- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCG DALLAS SYSTEMS NY TCG DETROIT NY TCG ILLINOIS NY TCG LOS ANGELES NY TCG PARTNERS NY TCG PHOENIX NY TCG PITTSBURGH NY TCG SAN FRANCISCO NY TCG SEATTLE NY TCG SOUTH FLORIDA NY TCG ST. LOUIS NY TCI AOL, INC. CO TCI BATON ROUGE VENTURES, INC. CO TCI CABLE ADNET, INC. CO TCI CABLE MANAGEMENT CORPORATION CO TCI CABLEPCS, INC. CO TCI CABLEPHONE, INC. CO TCI CABLEVISION ASSOCIATES, INC. DE TCI CABLEVISION OF ALABAMA, INC. AL TCI CABLEVISION OF ARIZONA, INC. AZ TCI CABLEVISION OF BAKER/ZACHARY, INC. DE TCI OF LOUISIANA TCI CABLEVISION OF CALIFORNIA, INC. CA TCI CABLEVISION OF CANON CITY, LTD. CO TCI CABLEVISION OF COLORADO INC. CO TCI OF COLORADO TCI CABLEVISION OF EAST SAN FERNANDO VALLEY, L.P. CO TCI CABLEVISION OF DALLAS, INC. TX TCI CABLEVISION OF FLORIDA, INC. FL TCI OF COLORADO TCI SOUTHEAST - SOUTH REGION TCI CABLEVISION OF GEORGIA, INC. GA TCI OF LOUISIANA TCI CABLEVISION OF GREAT FALLS, INC. DE
-8- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------- TCI CABLEVISION OF IDAHO, INC. ID TCI CABLEVISION OF KENTUCKY, INC. KY TCI CABLE ADVERTISING TCI CABLEVISION OF KIOWA, INC. CO TCI CABLEVISION OF LEESVILLE, INC. DE TCI CABLEVISION OF MARYLAND, INC. MD TCI CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF MICHIGAN, INC. MI TCI CABLE ADVERTISING TCI CABLEVISION OF MINNESOTA, INC. MN TCI OF MINNESOTA TCI CABLEVISION OF MISSOURI, INC. MO TCI CABLEVISION OF MONTANA, INC. MT TCI CABLE ADVERTISING TCI CABLEVISION OF NEBRASKA, INC. NE TCI CABLEVISION OF NEVADA, INC. NV TCI CABLEVISION OF NEW HAMPSHIRE, INC. NH TCI CABLEVISION OF NEW MEXICO, INC. NM TCI CABLEVISION OF NORTH CAROLINA, INC. NC TCI CABLEVISION OF NORTH CENTRAL KENTUCKY, INC. KY TCI CABLEVISION OF OHIO, INC. OH TCI CABLE ADVERTISING TCI CABLEVISION OF OKANOGAN VALLEY, INC. WA TCI CABLEVISION OF OKLAHOMA, INC. OK TCI CABLEVISION OF OREGON, INC. OR TCI CABLEVISION OF PASCO COUNTY FL TCI CABLEVISION OF PINELLAS COUNTY FL TCI CABLEVISION OF SIERRA VISTA II, INC. CO TCI CABLEVISION OF SIERRA VISTA, INC. CO TCI CABLEVISION OF SOUTH DAKOTA, INC. SD TCI CABLEVISION OF SOUTHWEST WASHINGTON, INC. WA TCI CABLEVISION OF ST. BERNARD, INC. LA TCI OF LOUISIANA TCI CABLEVISION OF TEXAS, INC. TX TCI CABLEVISION OF TUCSON II, INC. CO TCI CABLEVISION OF TUCSON, INC. CO
-9- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI CABLEVISION OF TWIN CITIES, INC. WA TCI CABLEVISION OF UTAH, INC. UT TCI CABLEVISION OF VERMONT, INC. DE TCI CABLEVISION OF WASHINGTON, INC. WA PACCOM TCI CABLEVISION OF WISCONSIN, INC. WI TCI CABLEVISION OF WYOMING, INC. WY TCI CABLEVISION OF YAKIMA VALLEY, INC. WA TCI CABLEVISION OF YAKIMA, INC. WA TCI CENTRAL, INC. DE TCI COMMUNICATIONS, INC. DE TCI CABLEVISION OF DURANGO, INC. TCI DEVELOPMENT CORPORATION CO TCI EAST, INC. DE TCI FLEET SERVICES, INC. CO TCI GREAT LAKES, INC. DE TCI HITS, INC. CO TCI HOLDINGS II, INC. CO TCI INVESTMENTS, INC. CO TCI IP, INC. DE TCI IP-1, INC. CO TCI K-1, INC. CO TCI LIBERTY, INC. DE TCI MATERIALS MANAGEMENT, INC. CO TCI MICROWAVE, INC. DE TCI NETWORK SERVICES DE TCI NEWS, INC. CO TCI NEWS-DAMN RIGHT, INC. CO TCI NEWS-PRESIDENTIAL, INC. CO TCI NORTH CENTRAL REGION TCI NORTH CENTRAL, INC. DE TCI NORTHEAST, INC. DE
-10- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI OF ARKANSAS, INC. AR TCI OF ARLINGTON, INC. TX TCI OF AUBURN, INC. DE TCI OF BECKLEY, INC. WV TCI OF BLOOMINGTON/NORMAL, INC. VA TCI OF CLEVELAND, INC. TN TCI OF CONNECTICUT, INC. CT TCI OF COUNCIL BLUFFS, INC. IA TCI OF D.C., INC. DC TCI OF DECATUR, INC. AL TCI OF DELAWARE, INC. DE TCI OF GREENSBURG CO TCI OF GREENVILLE, INC. SC TCI OF HAWAII, INC. CO TCI OF HOUSTON, INC. CO TCI OF ILLINOIS, INC. IL TCI CABLE ADVERTISING TCI CABLEVISION OF DUBUQUE, INC. TCI OF INDIANA, INC. IN TCI CABLE ADVERTISING TCI MIDWEST REGION TCI OF IOWA, INC. IA TCI CABLEVISION OF DUBUQUE, INC. TCI SOUTHEAST-NORTHWEST REGION TCI OF KANSAS, INC. KS TCI CABLEVISION OF STILLWATER TCI CABLEVISION OF TULSA TCI OF KOKOMO, INC. CO TCI OF LEE COUNTY, INC. AL TCI OF LEXINGTON, INC. KY TCI OF MAINE, INC. ME TCI OF MISSISSIPPI, INC. MS TCI OF NEW JERSEY, INC. NV
-11- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI OF NEW YORK, INC. NY TCI NORTHEAST REGION TCI OF NORTH BROWARD, INC. FL TCI OF NORTH CENTRAL KENTUCKY, INC. KY TCI OF NORTH DAKOTA, INC. ND TCI OF NORTHERN NEW JERSEY, INC. WA TCI CABLEVISION OF CENTRAL COLORADO TCI CABLEVISION OF NORTHEASTERN OREGON TCI CABLEVISIOIN OF SOUTHEAST WASHINGTON TCI CABLEVISION OF THE TREASURE COAST TCI OF OVERLAND PARK, INC. KS TCI OF PENNSYLVANIA, INC. PA TCI CABLE ADVERTISING TCI EAST REGIOIN TCI OF CALIFORNIA TCI OF PIEDMONT, INC. SC TCI OF PLANO, INC. TX TCI OF PRINCETON, INC. WV TCI OF RACINE, INC. WI TCI OF RADCLIFF, INC. KY TCI OF RHODE ISLAND, INC. RI TCI OF RICHARDSON, INC. TX TCI OF ROANOKE RAPIDS, INC. VA TCI OF SEATTLE, INC DE TCI OF SELMA, INC. AL TCI OF SOUTH CAROLINA, INC. SC TCI OF SOUTHERN MAINE, INC. ME TCI OF SOUTHERN MINNESOTA, INC. DE TCI OF SOUTHERN MINNESOTA TCI OF SOUTHERN WASHINGTON WA TCI OF SPARTANBURG, INC. SC TCI OF SPRINGFIELD, INC. MO TCI OF TACOMA, INC. DE TCI OF TENNESSEE, INC. TN
-12- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI OF THE BLUFFLANDS, INC. DE TCI CABLE OF LA CROSSE TCI OF SOUTHERN MINNESOTA TCI OF TUALATIN VALLEY, INC. OR TCI OF VANCOUVER, INC. CO TCI OF VIRGINIA, INC. VA TCI OF WATERTOWN, INC. IA TCI OF WEST VIRGINIA, INC. WV TCI CABLE ADVERTISING TCI OF WYTHEVILLE, INC. VA TCI OSCAR I, INC. CO TCI PACIFIC COMMUNICATIONS, INC. TCI PACIFIC HOLDINGS, INC. TCI PACIFIC MICROWAVE, INC. CO PACIFIC MICROWAVE TCI PACIFIC, INC. DE TCI PRIVATE VENTURES, INC. CO TCI REALTY INVESTMENTS COMPANY DE TCI SOUTHEAST DIVISIONAL HEADQUARTERS, INC. AL TCI SOUTHEAST, INC. DE TCI STS, INC. CO TCI STS-MTVI, INC. TX TCI TELEPHONY SERVICES, INC. CO TCI TELEPHONY SERVICES OF CALIFORNIA, INC. CO TCI TELEPHONY SERVICES OF CONNECTICUT, INC. CO TCI TELEPHONY SERVICES OF ILLINOIS, INC. CO TCI TELEPHONY SERVICES OF MINNESOTA, INC. CO TCI TELEPHONY SERVICES OF WISCONSIN, INC. CO TCI TELEPORT OF BALTIMORE, INC. MD TCI TELEPORT OF BOSTON, INC. MA TCI TELEPORT OF CHICAGO, INC. IL TCI TELEPORT OF CHICAGO-SWITCH, INC. IL TCI TELEPORT OF DALLAS, INC. TX
-13- EXHIBIT 21 ----------
- - ----------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ----------------------------------------------------------------------------------------------------------------------- TCI TELEPORT OF DALLAS-SWITCH, INC. TX TCI TELEPORT OF DENVER, INC. CO TCI TELEPORT OF DETROIT, INC. MI TCI TELEPORT OF HARTFORD, INC. CT TCI TELEPORT OF HOUSTON, INC. TX TCI TELEPORT OF INDIANAPOLIS, INC. CO TCI TELEPORT OF LOS ANGELES, INC. CA TCI TELEPORT OF MIAMI, INC. FL TCI TELEPORT OF PHOENIX, INC. AZ TCI TELEPORT OF PITTSBURGH, INC. PA PENN ACCESS CORPORATION TCI TELEPORT OF PROVIDENCE, INC. CO TCI TELEPORT OF SAN FRANCISCO, INC. CA TCI TELEPORT OF SEATTLE, INC. WA TCI TELEPORT OF ST. LOUIS, INC. MO TCI TELEPORT PARTNERS, INC. CO TCI TELEPORT, INC. CO TCI TKR CABLE I, INC. DE TCI TKR CABLE II, INC. DE TCI TKR LIMITED PARTNERSHIP CO TCI TKR OF ALABAMA, INC. DE TCI OF ALABAMA TCI TKR OF CENTRAL FLORIDA, INC. FL TCI OF CENTRAL FLORIDA TCI TKR OF DALLAS, INC. DE TCI TKR OF FLORIDA, INC. DE TCI TKR OF GEORGIA, INC. DE TCI OF GEORGIA TCI TKR OF HOLLYWOOD, INC. DE TCI OF HOLLYWOOD TCI TKR OF HOUSTON, INC. TX TCI CABLEVISION OF HOUSTON TCI TKR OF JEFFERSON COUNTY, INC. KY TRK CABLE OF GREATER LOUISVILLE, INC. TCI TKR OF KENTUCKY, INC. DE TCI TKR OF METRO DADE, INC. DE TCI TKR OF NORTHERN KENTUCKY, INC. KY MADISON AVENUE VIDEO PRODUCTIONS
-14- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TKR CABLE OF NORTHERN KENTUCKY, INC. TCI TKR OF SOUTH DADE, INC. FL TCI OF SOUTH DADE TCI TKR OF SOUTH FLORIDA, INC. DE TCI OF SOUTH FLORIDA TCI TKR OF SOUTHEAST TEXAS, INC. DE TCI TKR OF SOUTHERN KENTUCKY, INC. DE TKR CABLE OF SOUTHERN KENTUCKY, INC. TCI TKR OF THE GULF PLAINS, INC. DE TCI OF THE GULF PLAINS TCI TKR OF THE METROPLEX, INC. TX TCI CABLEVISION OF THE METROPLEX TCI TKR OF WYOMING, INC. WY TCI TKR, INC. DE TCI UA I, INC. CO TCI UA, INC. DE TCI VENTURES FIVE, INC. CO TCI VENTURES FOUR, INC. CO TCI VENTURES INC. CO TCI WASHINGTON ASSOCIATES, L.P. DE TCI WEST, INC. DE TCI WOODLANDS VENTURES, INC. CO TCI-UC, INC. DE TCI/CA ACQUISITION SUB CORP. CO TCI/CI MERGER SUB CORP. DE TCID DATA TRANSPORT, INC. CO TCID KHC, INC. CO TCID NEA, INC. CO TCID NETWORKS, INC. DE TCID OF CARSON, INC. CA TCID OF CHICAGO, INC. IL TCID OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY TCID OF MICHIGAN, INC. NV TCID OF SOUTH CHICAGO, INC. IL TCID PARTNERS II, INC. CO
-15- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCID PARTNERS, INC. CO TCID VFC, INC. CO TCID VIDEO ENTERPRISES, INC. CO TCID X*PRESS, INC. CO TCID-COMMERCIAL MUSIC, INC. CO TCID-ICP III, INC. CO TCID-IP III, INC. CO TCID-IP IV, INC. CO TCID-IP V, INC. CO TCID-SVHH, INC. DE TCIP, INC. CO TELECOMMUNICATIONS OF COLORADO, INC. CO TCI COLORADO COMMUNITY CABLE TELEVISION, INC. TELE-COMMUNICATIONS OF SOUTH SUBURBIA, INC. IL TELECABLE KCFN HOLDING CORP. VA TELECABLE OF COLUMBUS, INC. GA TELECOMMUNICATIONS CABLE SYSTEMS, INC. LA TCI OF LOUISIANA TCI SOUTHEAST-SOUTHWEST REGION TELENOIS, INC. IL TELEVENTS GROUP JOINT VENTURE CO TCI OF CENTRAL IOWA TELEVENTS GROUP, INC. NV TELEVENTS OF COLORADO, INC. CO TELEVENTS OF EAST COUNTY, INC. WY TCI CABLEVISION OF EAST COUNTY TELEVENTS OF FLORIDA, INC. WY TELEVENTS OF POWDER RIVER, INC. WY TELEVENTS OF SAN JOAQUIN, INC. WY TCI CABLEVISION OF SAN JOAQUIN TELEVENTS OF WYOMING, INC. WY TELEVENTS, INC. NV TCI CABLEVISION OF CONTRA COSTA COUNTY TELEVESTER, INC. DE TELEVISION CABLE SERVICE, INC. TX TCI CABLEVISION OF ABILENE
-16- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI CABLEVISION OF EAST TEXAS TCI CABLEVISION OF PERRYTON TCI CABLEVISION OF WEST TEXAS TEMPO CABLE, INC OK TCI CABLEVISION OF CENTRAL OKLAHOMA, INC. TCI CABLEVISION OF NOCONA TCI CABLEVISION OF OKLAHOMA (TEMPO), INC. TCI OF ARKANSAS (TEMPO), INC. TEMPO DEVELOPMENT CORPORATION OK TEMPO ENTERPRISES, INC. OK TEMPO ENTERPRISES, INC. (OF OKLAHOMA) TEMPO SATELLITE, INC. OK TEMPO TELEVISION, INC. OK THE CHICAGO CABLE INTERCONNECT IL GCCI THE DETROIT CABLE INTERCONNECT L.P. DE THE DETROIT CABLE INTERCONNECT LIMITED PARTNERSHIP THE GREATER PHILADELPHIA CABLE INTERCONNECT PA PCA PHILADELPHIA CABLE ADVERTISING TRANS-MUSKINGUM, INCORPORATED WV TRIBUNE COMPANY CABLE OF MICHIGAN, INC. DE TRIBUNE/UNITED CABLE OF OAKLAND COUNTY TRIBUNE-UNITED CABLE OF OAKLAND COUNTY MI TCI CABLEVISION OF OAKLAND COUNTY, INC. TULSA CABLE TELEVISION, INC. OK TCI CABLEVISION OF TULSA TV MART UA THINK, INC. CO UA-COLUMBIA ALPINE TOWER, INC. NJ UA-COLUMBIA CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF NORTH ATTLEBORO/TAUNTON UA-COLUMBIA CABLEVISION OF NEW JERSEY, INC. NJ UA-COLUMBIA CABLEVISION OF WESTCHESTER, INC. NY TCI OF NORTHERN NEW JERSEY UACC MIDWEST, INC. DE TCI CABLE ADVERTISING TCI CABLEVISION OF ASHEVILLE
-17- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- TCI CABLEVISION OF CENTRAL ILLINOIS TCI CABLEVISION OF DECATUR TCI CABLEVISION OF MERCED COUNTY TCI CABLEVISION OF NORTHSHORE TCI CABLEVISION OF SANTA CRUZ COUNTY TCI CABLEVISION OF TRACY TCI CABLEVISION OF VACAVILLE TCI CABLEVISION OF WALNUT CREEK TCI CABLEVISION OF WEST MICHIGAN, INC. TCI OF EVANSVILLE TCI OF SOUTH MISSISSIPPI UAII MERGER CORP. DE UAII SUB NO. 24, INC. DE UATC MERGER CORP. NY UCT AIRCRAFT, INC. CO UCT VIDEO, INC. CO UCTC LP COMPANY DE UCTC OF BALTIMORE, INC. DE UCTC OF LOS ANGELES COUNTY, INC. DE TCI CABLEVISION OF LOS ANGELES COUNTY UNITED ADVERTISING NETWORK, INC. CO UNITED ARTISTS BROADCAST PROPERTIES, INC. DE UNITED ARTISTS CABLE HOLDINGS, INC. CO UNITED ARTISTS CABLE INVESTMENTS, INC. DE UNITED ARTISTS CABLESYSTEMS CORPORATION DE UNITED ARTISTS ENTERTAINMENT COMPANY DE UNITED ARTISTS HOLDINGS, INC. DE UNITED ARTISTS INVESTMENTS, INC. CO UNITED ARTISTS K-1 INVESTMENTS, INC. CO UNITED ARTISTS OPERATOR SERVICES CORPORATION CO UNITED ARTISTS PAYPHONE CORPORATION CO
-18- EXHIBIT 21 ----------
- - ------------------------------------------------------------------------------------------------------------------------------------ STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ------------------------------------------------------------------------------------------------------------------------------------ UNITED ARTISTS PREFERRED INVESTMENT, INC. CO UNITED ARTISTS REPUBLIC INVESTMENTS, INC. CO UNITED ARTISTS SATELLITE, INC. CO UNITED ARTISTS TELECOMMUNICATIONS, INC. DE UNITED CABLE AD-LINK, INC. CO UNITED CABLE ADVERTISING, INC. CO UNITED CABLE INVESTMENT OF BALTIMORE, INC. MD UNITED CABLE PRODUCTIONS, INC. CO UNITED CABLE REALTY CO. OF CALIFORNIA, INC. CO UNITED CABLE SHOPPING CHANNEL, INC. CO UNITED CABLE T.V. OF OAKLAND COUNTY, INC. MI TCI CABLEVISION OF OAKLAND COUNTY, INC. UNITED CABLE TELEVISION ACQUISITION CORPORATION CO TCI OF COLORADO UNITED CABLE TELEVISION CORP. OF EASTERN CONNECTICUT CT TCI CABLEVISION OF CENTRAL CONNECTICUT UNITED CABLE TELEVISION CORPORATION DE TCI CABLE OF THE MIDLANDS TCI CABLEVISION OF TREASURE VALLEY UNITED CABLE TELEVISION CORPORATION OF MICHIGAN MI TCI CABLEVISION OF WOODHAVEN, INC. UNITED CABLE TELEVISION CORPORATION OF NORTHERN ILLINOIS IL TCI CABLEVISION OF NORTHERN ILLINOIS UNITED CABLE TELEVISION FINANCING CORPORATION CO UNITED CABLE TELEVISION INVESTMENTS, LTD. CO UNITED CABLE TELEVISION OF ALAMEDA, INC. CA TCI CABLEVISION OF ALAMEDA UCT OF ALAMEDA, INC. #2 UNITED CABLE TELEVISION OF BALDWIN PARK, INC. CO TCI CABLEVISION OF LOS ANGELES COUNTY UNITED CABLE TELEVISION OF BALTIMORE LIMITED PARTNERSHIP CO TCI COMMUNICATIONS OF BALTIMORE UNITED CABLE TELEVISION OF BOSSIER CITY, INC. DE TCI OF LOUISIANA UNITED CABLE TELEVISION OF CALIFORNIA, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS TCI CABLEVISION OF DAVIS UNITED CABLE TELEVISION OF CHASKA, INC. CO UNITED CABLE TELEVISION OF COLORADO, INC. CO TCI OF COLORADO UNITED CABLE TELEVISION OF CUPERTINO, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS UNITED CABLE TELEVISION OF EASTERN SHORE, INC DE TCI CABLEVISION OF EASTERN SHORE
-19- EXHIBIT 21 ----------
- - ------------------------------------------------------------------------------------------------------------------------------------ STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ------------------------------------------------------------------------------------------------------------------------------------ UNITED CABLE TELEVISION OF HILLSBOROUGH, INC. CO TCI CABLEVISION OF HAYWARD UNITED CABLE TELEVISION OF ILLINOIS VALLEY, INC. IL TCI CABLEVISION OF ILLINOIS VALLEY UNITED CABLE TELEVISION OF LOS ANGELES, INC. CA TCI CABLEVISION OF LOS ANGELES COUNTY UNITED CABLE TELEVISION OF MID-MICHIGAN, INC. DE TCI CABLEVISION OF MID-MICHIGAN, INC. UNITED CABLE TELEVISION OF NORTHERN INDIANA, INC. DE TCI OF NORTHERN INDIANA UNITED CABLE TELEVISION OF OAKLAND COUNTY, LTD. CO UNITED CABLE TELEVISION OF PICO RIVERA, INC. CO UNITED CABLE TELEVISION OF SANTA CRUZ, INC. CO TCI CABLEVISION OF SANTA CRUZ COUNTY UNITED CABLE TELEVISION OF SARPY COUNTY, INC. NE TCI CABLE OF THE MIDLANDS UNITED CABLE TELEVISION OF SCOTTSDALE, INC. AZ TCI CABLE OF SCOTTSDALE UNITED CABLE TELEVISION OF SOUTHERN ILLINOIS, INC. DE TCI CABLEVISION OF SOUTHERN ILLINOIS UNITED CABLE TELEVISION OF WESTERN COLORADO, INC. CO TCI CABLEVISION OF WESTERN COLORADO, INC. UNITED CABLE TELEVISION REAL ESTATE CORPORATION CO UNITED CABLE TELEVISION SERVICES CORPORATION OK TCI CABLEVISION OF CENTRAL CONNECTICUT UNITED CABLE TELEVISION SERVICES OF COLORADO, INC. CO UNITED CABLE VIDEO INVESTMENT, INC. CO UNITED CARPHONE CORPORATION CO UNITED CATV, INC. MD TCI CABLEVISION OF ANNAPOLIS UNITED CORPORATE COMMUNICATIONS COMPANY CO UNITED ENTERTAINMENT CORPORATION CO UNITED HOCKEY, INC. CO UNITED MICROWAVE CORPORATION DE UNITED OF OAKLAND, INC DE TCI CABLEVISION OF OAKLAND COUNTY, INC. UNITED PAGING CORPORATION CO UNITED TRIBUNE PAGING CORPORATION CO UNITED'S HOME VIDEO CENTERS, INC. CO UNIVERSAL TELECOM, INC. MD UPPER VALLEY TELECABLE COMPANY, INC. ID TCI CABLEVISION OF IDAHO (UVTC), INC. UTI PURCHASE COMPANY CO VACATIONLAND CABLEVISION, INC. WI TCI OF SOUTH CENTRAL WISCONSIN
-20- EXHIBIT 21 ----------
- - ---------------------------------------------------------------------------------------------------------------------------------- STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ---------------------------------------------------------------------------------------------------------------------------------- VALLEY CABLE TV, INC. TX WALTHAM TELE-COMMUNICATIONS MA TCI CABLEVISION OF WALTHAM WALTHAM TELE-COMMUNICATIONS, INC. CO WASATCH COMMUNITY T.V., INCORPORATED UT WENTRONICS, INC. NM TCI CABLEVISION OF CASPER TCI CABLEVISION OF GALLUP TCI CABLEVISION OF MOAB TCI CABLEVISION OF WESTERN COLORADO, INC. WESTARK CABLE WESTERN COMMUNITY TV, INC. MT WESTERN INFORMATION SYSTEMS, INC. CO WIS WESTERN NEW YORK CABLE ADVERTISING L.P. NY WESTERN SATELLITE 2, INC. CO WESTERN TELE-COMMUNICATIONS, INC. DE NATIONAL DIGITAL TELEVISION CENTER WESTERN TELE-COMMUNICATIONS, INC./RETAIL SALES GROUP CO WESTMARC CABLE GROUP, INC. DE WESTMARC CABLE HOLDING, INC. DE TCI OF CENTRAL MINNESOTA TCI OF NORTHERN IOWA TCI OF NORTHERN MINNESOTA WESTMARC COMMUNICATIONS OF MINNESOTA, INC. DE TCI OF CENTRAL MINNESOTA WESTMARC COMMUNICATIONS, INC. NV WESTMARC DEVELOPMENT II, INC. CO WESTMARC DEVELOPMENT III, INC. CO WESTMARC DEVELOPMENT IV, INC. CO WESTMARC DEVELOPMENT JOINT VENTURE CO TCI CABLE ADVERTISING TCI CABLEVISION OF CAPE COD TCI CABLEVISION OF GREATER MICHIGAN, INC. TCI CABLEVISION OF NANTUCKET TCI CABLEVISION OF NORTHWESTERN CONNECTICUT
-21- EXHIBIT 21 ----------
- - ------------------------------------------------------------------------------------------------------------------------------------ STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARY ORGANIZATION TRADE NAMES - - ------------------------------------------------------------------------------------------------------------------------------------ TCI TWIN STATE CABLE TV TCI/TWIN VALLEY CABLE WESTMARC DEVELOPMENT, INC. CO WESTMARC REALTY, INC. CO WIRELESSCO, L.P. DE WTCI OF MONTANA, INC. CO WTCI UPLINK, INC. PA
-22- EX-23 4 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 ---------- Consent of Independent Auditors ------------------------------- The Board of Directors and Stockholders TCI Communications, Inc.: We consent to the incorporation by reference in the Registration Statements (Nos. 33-60982, 33-63139, 33-64127, 33-64329 and 33-64525) on Form S-3 of TCI Communications, Inc. of our reports dated March 18, 1996, relating to the consolidated balance sheets of TCI Communications, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholder's(s') equity, and cash flows for each of the years in the three-year period ended December 31, 1995, and all related schedules, which reports appear in the December 31, 1995 annual report of Form 10-K of TCI Communications, Inc. KPMG Peat Marwick LLP Denver, Colorado March 26, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC.'S ANNUAL REPORT ON FORM 10-K OR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000096903 TCI COMMUNICATIONS, INC. 1,000,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 0 0 286 24 0 0 10,152 3,547 19,981 0 12,635 0 0 1 1,728 19,981 0 5,118 0 4,315 972 76 962 (169) (49) (120) 0 0 0 (120) 0 0
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