-----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, IgMFVndZJlz456blHabs9wRG425tKrDkjEaoxQfKv24pvqV0HmZPZEt9aVMoElsU fZPgWl7pdBoSDPJuQLe0rg== 0000950123-96-000012.txt : 19960104 0000950123-96-000012.hdr.sgml : 19960104 ACCESSION NUMBER: 0000950123-96-000012 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19960103 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCI COMMUNICATIONS INC CENTRAL INDEX KEY: 0000096903 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840588868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-64127 FILM NUMBER: 96500682 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELE COMMUNICATIONS INC /CO/ CENTRAL INDEX KEY: 0000925692 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841260157 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-64127-01 FILM NUMBER: 96500683 BUSINESS ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 90111 FORMER COMPANY: FORMER CONFORMED NAME: TCI LIBERTY HOLDING CO DATE OF NAME CHANGE: 19940620 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1996 REGISTRATION NO. 33-64127 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- TCI COMMUNICATIONS, INC. DELAWARE TELE-COMMUNICATIONS, INC. DELAWARE 84-0588868 (Exact name of registrant (State or other jurisdiction 84-1260157 as specified in its of (I.R.S. Employer charter) incorporation or organization) Identification No.) STEPHEN M. BRETT, ESQ. TCI COMMUNICATIONS, INC. TERRACE TOWER II TERRACE TOWER II 5619 DTC PARKWAY 5619 DTC PARKWAY ENGLEWOOD, COLORADO 80111-3000 ENGLEWOOD, COLORADO 80111-3000 (303) 267-5500 (303) 267-5500 (Address, including zip code, and telephone (Name, address, including zip code, and number, including telephone number, area code, of each registrant's principal including area code, of agent for service for executive offices) each registrant)
--------------------- COPIES TO: ROBERT W. MURRAY JR., ESQ. NORMAN D. SLONAKER, ESQ. BAKER & BOTTS, L.L.P. BROWN & WOOD 885 THIRD AVENUE ONE WORLD TRADE CENTER NEW YORK, NEW YORK 10022-4834 NEW YORK, NEW YORK 10048-0557
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. /X/ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JANUARY 3, 1996 PROSPECTUS 2,000,000 SHARES TCI COMMUNICATIONS, INC. CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A (LIQUIDATION PREFERENCE OF $50 PER SHARE) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND EXCHANGEABLE FOR SERIES A TCI GROUP COMMON STOCK OF, TELE-COMMUNICATIONS, INC. ------------------------ Each of the 2,000,000 shares of Cumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred Stock"), is exchangeable (unless previously redeemed), at the option of the holder commencing January , 2001, for shares of Series A TCI Group Common Stock (the "Series A TCI Group Common Stock") of Tele-Communications, Inc. (the "Parent"), subject to adjustment in certain events. As of the date hereof, all of the outstanding capital stock of TCI Communications, Inc. (the "Company") is owned by the Parent. The Series A TCI Group Common Stock is traded in the Nasdaq National Market under the symbol "TCOMA." On January 2, 1996, the last reported sale price of the Series A TCI Group Common Stock on the Nasdaq National Market was $21 per share. Dividends on the Series A Preferred Stock will accrue and be cumulative from the original date of issue and will be payable quarterly in arrears on January , April , July and October of each year, commencing April , 1996, in an amount equal to $ per share, when, as and if declared by the Board of Directors of the Company. (Continued on next page) Application has been made to list the Series A Preferred Stock on the Nasdaq National Market under the symbol "TCICP." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(3) - ----------------------------------------------------------------------------------------------------------- Per share of Series A Preferred Stock....... $50.00 $ $ - ----------------------------------------------------------------------------------------------------------- Total(4).................................... $100,000,000 $ $ - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Plus accrued dividends, if any, from the date of original issue. (2) The Company and the Parent have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $ . (4) The Company has granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Series A Preferred Stock to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $115,000,000, $ and $ , respectively. See "Underwriting." ------------------------ The shares of Series A Preferred Stock are offered by the Underwriters, subject to prior sale, when, as and if issued to and accepted by them, and subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Series A Preferred Stock offered hereby will be made in New York, New York on or about January , 1996. ------------------------ MERRILL LYNCH & CO. CS FIRST BOSTON LEHMAN BROTHERS MORGAN STANLEY & CO. INCORPORATED ------------------------ The date of this Prospectus is January , 1996. 3 (Continued from previous page) The Series A Preferred Stock is not redeemable prior to January , 2001. The Series A Preferred Stock will thereafter be redeemable at the option of the Company at any time, in whole or in part, initially at a redemption price of $ per share and thereafter at prices declining ratably annually to $50 per share on and after January , 2005, plus accrued and unpaid dividends to the date of redemption. The Series A Preferred Stock will be subject to mandatory redemption by the Company on January , 2006. The liquidation preference of the Series A Preferred Stock is $50 per share, plus accrued and unpaid dividends. The Company may elect to make any dividend, redemption or liquidation payment in cash, by the delivery of shares of Series A TCI Group Common Stock or by any combination of the foregoing forms of consideration elected by the Board of Directors of the Company. If the Company elects to make any such payment, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock (such portion paid through the delivery of shares being referred to herein as the "Stock Portion"), each holder will receive a number of shares of Series A TCI Group Common Stock equal to the dollar amount of the Stock Portion divided by the Cash Equivalent Amount (which is equal to 95% of the Average Market Price (defined generally as the average of the daily closing sale prices of the Series A TCI Group Common Stock on the Nasdaq National Market over the ten-trading day period ending on the third trading day preceding the date as of which the Cash Equivalent Amount is to be determined)). The Cash Equivalent Amount will be determined (i), in the case of a dividend payment, as of the record date for the payment of such dividend and (ii), in the case of any redemption or liquidation payment, as of the date such payment is made. Any portion of a dividend, redemption or liquidation payment that is not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. The number of shares of Series A TCI Group Common Stock that a holder of a share of Series A Preferred Stock receives in payment of a dividend on, or in redemption or liquidation of, such share (if such payment is made, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock) will vary depending upon the Average Market Price of the Series A TCI Group Common Stock as of the relevant date of determination of the Cash Equivalent Amount. In the case of a dividend or redemption payment that is made through delivery of shares of Series A TCI Group Common Stock, if the market value of such shares on the dividend payment date or the redemption date is more than 5% lower than the Average Market Price upon which the Cash Equivalent Amount is determined and the holder sells such shares of Series A TCI Group Common Stock at such lower price, (x) in the case of such dividend, the holder's actual dividend yield for the dividend period in respect of which such dividend was paid would be lower than the stated dividend yield on the Series A Preferred Stock and (y) in the case of such redemption, the actual sales proceeds received by such holder would be lower than the stated redemption price for the Series A Preferred Stock. In addition, in connection with any such sale the holder is likely to incur commissions and other transaction costs. The Parent will irrevocably and unconditionally guarantee, on a subordinated basis (the "Guarantee"), the payment of dividends by the Company on the Series A Preferred Stock (but only if and to the extent declared by the Company's Board of Directors), the redemption price (including accumulated and unpaid dividends) payable with respect to the Series A Preferred Stock and payment of the liquidation preference of the Series A Preferred Stock upon any dissolution, liquidation or winding up of the Company. The Guarantee will be unsecured and will be subordinate to all liabilities of the Parent and will rank pari passu with the most senior preferred stock now or hereafter issued by the Parent. The Parent may elect to satisfy its obligations under the Guarantee with a cash payment, with shares of Series A TCI Group Common Stock or with any combination of the foregoing. As of September 30, 1995, the Parent had liabilities to third parties of approximately $80 million to which payments under the Guarantee would have been subordinated had the Guarantee been outstanding at that date. For a discussion of certain federal income tax consequences to holders of Series A Preferred Stock, see "Certain Federal Income Tax Considerations." ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A PREFERRED STOCK OFFERED HEREBY OR THE SERIES A TCI GROUP COMMON STOCK, OR BOTH, AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE SERIES A PREFERRED STOCK OFFERED HEREBY OR THE SERIES A TCI GROUP COMMON STOCK, OR BOTH, PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. 2 4 AVAILABLE INFORMATION The Company and the Parent have filed with the Securities and Exchange Commission (the "Commission") a combined registration statement on Form S-3 (Registration No. 33-64127)(herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. Statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. Each of the Company and the Parent is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Commission. Reports and other information filed under the Exchange Act by the Company and/or the Parent can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents have been filed with the Commission by the Company (File No. 0-5550) and by the Parent (File No. 0-20421) and are hereby incorporated into this Prospectus by reference and made a part hereof: (i) the Annual Report on Form 10-K of both the Parent and the Company for the year ended December 31, 1994 (as amended by Form 10-K/A (Amendment No. 1)); (ii) Quarterly Reports on Form 10-Q of both the Parent and the Company for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995 (as amended by Form 10-Q/A (Amendment No. 1)); (iii) the Current Reports on Form 8-K of both the Parent and the Company dated January 23, 1995, February 3, 1995 (as amended by Form 8-K/A (Amendment No. 1)), April 6, 1995, April 20, 1995 (as amended by Form 8-K/A (Amendment No. 1)), May 4, 1995 (as amended by Form 8-K/A (Amendment No. 1)), July 26, 1995 and December 18, 1995; (iv) the Current Reports on Form 8-K of the Company dated August 1, 1995, September 13, 1995 and December 21, 1995; (v) the Current Reports on Form 8-K of the Parent dated February 13, 1995, February 15, 1995 and August 10, 1995; and (vi) the financial statements and notes thereto of TeleCable Corporation as of December 31, 1993 and 1992 and for each of the years in the two-year period ended December 31, 1993, included in the combined Current Report on Form 8-K of the Parent and the Company dated August 26, 1994. All documents filed by the Company or the Parent (or both) with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated herein by reference and to be a part hereof from the respective dates of the filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such previous statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company and the Parent will provide without charge to each person to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated by reference herein, other than certain exhibits to such documents. Such requests should be addressed to Stephen M. Brett, Esq. Senior Vice President, TCI Communications, Inc., Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5500. 3 5 SUMMARY The following summary information should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements, including the notes thereto, appearing in the documents incorporated herein by reference or appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes that the over-allotment option granted to the Underwriters will not be exercised. THE COMPANY The Company, through its subsidiaries and affiliates, is principally engaged in the construction, acquisition, ownership and operation of cable television systems. The Company believes that it is the largest provider of cable television services in the United States, based on the number of basic subscribers served by cable television systems owned by the Company, its subsidiaries and affiliates at September 30, 1995. At that date, the Company and its subsidiaries owned cable television systems serving approximately 12.0 million basic subscribers throughout the continental United States. As of the date of this Prospectus, the Parent owns all of the outstanding shares of capital stock of the Company. Immediately following this offering, the Parent will continue to hold all of the outstanding shares of common stock of the Company. No other shares of capital stock of the Company will be outstanding other than the shares of Series A Preferred Stock offered hereby. The executive offices of the Company are located at Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5500. Unless the context indicates otherwise and except as used in the discussion under the caption "Description of the Series A Preferred Stock," the "Company" means TCI Communications, Inc. and its consolidated subsidiaries. THE PARENT The Parent, through its subsidiaries (including the Company) and affiliates, is principally engaged in the construction, acquisition, ownership and operation of cable television systems and in the provision of satellite delivered programming services to various distribution media, principally cable television systems. The Parent also has interests in cable and telecommunications operations and television programming in certain international markets as well as investments in companies and joint ventures involved in developing and providing programming for new television and telecommunications technologies. The Parent is organized into four principal business groups: Domestic Cable and Communications; Domestic Programming; International Cable and Programming; and Technology/Venture Capital. The business operations of the Company constitute the Parent's Domestic Cable and Communications group. See "The Parent." The executive offices of the Parent are located at Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5000. Unless the context indicates otherwise and except as used in the discussion under the caption "Description of the Guarantee," the "Parent" means Tele-Communications, Inc. and its consolidated subsidiaries (including the Company). 4 6 THE OFFERING Securities................. 2,000,000 shares of Cumulative Exchangeable Preferred Stock, Series A, excluding the Underwriters' option to purchase up to 300,000 additional shares of Series A Preferred Stock to cover over-allotments. The liquidation preference of the Series A Preferred Stock is $50 per share, plus accrued and unpaid dividends (the "Liquidation Preference"). Dividends.................. Dividends will accrue and be cumulative from the original date of issue and will be payable quarterly in arrears on each January , April , July and October or, if any such date is not a business day, on the next succeeding business day, commencing April , 1996, in an amount equal to $ per share, when, as and if declared by the Board of Directors. The Company may elect to make dividend payments (i) in cash, (ii) by delivery of Series A TCI Group Common Stock or (iii) by any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. See "Description of the Series A Preferred Stock -- Dividends." Exchange at the Option of the Holder................. Each of the 2,000,000 shares of Series A Preferred Stock is exchangeable, commencing January , 2001, at the option of the holder (unless previously redeemed), in whole or in part, for shares of Series A TCI Group Common Stock, subject to adjustment in certain events. The value of the shares of Series A TCI Group Common Stock received upon any exchange will vary depending upon the market price of the Series A TCI Group Common Stock at the time of such exchange. See "Description of the Series A Preferred Stock -- Exchange at Option of Holder." Optional Redemption by Company.................. The Series A Preferred Stock is not redeemable prior to January , 2001. At any time and from time to time on or after that date, the Company may redeem any or all of the outstanding shares of Series A Preferred Stock, initially at a redemption price of $ per share and thereafter at prices declining ratably on each January to $50 per share on and after January , 2005, plus accrued and unpaid dividends to the date of redemption. The Company may elect to make any optional redemption payment (i) in cash, (ii) by delivery of Series A TCI Group Common Stock or (iii) by any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. See "Description of the Series A Preferred Stock -- Redemption -- Optional Redemption." Mandatory Redemption by Company.................. The Series A Preferred Stock is subject to mandatory redemption by the Company on January , 2006, at a redemption price of $50 per share, plus accrued and unpaid dividends to the date of redemption. The Company may elect to make any mandatory redemption payment (i) in cash, (ii) by delivery of Series A TCI Group Common Stock or (iii) by any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. See "Description of the Series A Preferred Stock -- Redemption -- Mandatory Redemption." 5 7 Company May Pay Dividend, Redemption and Liquidation Payments with Series A TCI Group Common Stock....... The Company may elect to make dividend payments, redemption payments (optional or mandatory) or payments on any dissolution, liquidation or winding up of the Company to holders of Series A Preferred Stock (i) in cash, (ii) by delivery of Series A TCI Group Common Stock or (iii) by any combination of the foregoing forms of consideration elected by the Board of Directors in its sole discretion. If the Company elects to make any such payment, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock (the portion paid through the delivery of shares being referred to herein as the "Stock Portion"), each holder will receive a number of shares of Series A TCI Group Common Stock determined by dividing the dollar amount of such Stock Portion by the Cash Equivalent Amount. Any portion of a dividend, redemption or liquidation payment that is not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. The "Cash Equivalent Amount" means an amount equal to 95% of the Average Market Price of a share of Series A TCI Group Common Stock. The "Average Market Price" is defined as the average of the closing sale prices for a share of Series A TCI Group Common Stock on the Nasdaq National Market for the 10 consecutive trading days ending on the third business day prior to (i) in the case of dividends, the relevant record date and (ii) in the case of a redemption or the dissolution, liquidation or winding up of the Company, the date of the redemption or liquidation payment. The market price of the Series A TCI Group Common Stock may vary between the date of determination of the Cash Equivalent Amount and the subsequent delivery of shares. If the Company elects to make a dividend, redemption or liquidation payment with shares of Series A TCI Group Common Stock, the number of such shares that a holder of Series A Preferred Stock will receive in connection with such dividend, redemption of liquidation payment will vary depending on the Average Market Price of the Series A TCI Group Common Stock at the time of the record date for such dividend or at the time of such redemption or liquidation payment, as the case may be. In the case of a dividend or redemption payment that is made through delivery of shares of Series A TCI Group Common Stock, if the market value of such shares on the dividend payment date or the redemption date is more than 5% lower than the Average Market Price upon which the Cash Equivalent Amount is determined and the holder sells such shares of Series A TCI Group Common Stock at such lower price, (x) in the case of such dividend, the holder's actual dividend yield for the dividend period in respect of which such dividend was paid would be lower than the stated dividend yield on the Series A Preferred Stock and (y) in the case of such redemption, the actual sales proceeds received by such holder would be lower than the stated redemption price for the Series A Preferred Stock. In addition, in connection with any such sale the holder is likely to incur commissions and other transaction costs. Guarantee.................. The Parent will irrevocably and unconditionally agree, on a subordinated basis, to pay in full to the extent not paid by the Company: (i) any 6 8 dividends on the Series A Preferred Stock, to the extent declared by the Company's Board of Directors; (ii) the redemption price (both optional and mandatory); and (iii) upon any dissolution, liquidation or winding up of the Company, the aggregate Liquidation Preference. The Guarantee will be unsecured and subordinated to all liabilities of the Parent and will rank pari passu with the most senior preferred stock now or hereafter issued by the Parent. The Parent may elect to satisfy its obligations under the Guarantee with a cash payment, with shares of Series A TCI Group Common Stock or with any combination of the foregoing forms of consideration elected by the Parent. If the Parent elects to make any guarantee payment, in whole or in part, to the holders of Series A Preferred Stock through the delivery of shares of Series A TCI Group Common Stock (the portion paid through the delivery of shares being referred to herein as the "Guarantee Stock Portion"), each such holder will receive the greater of (i) the same number of shares of Series A TCI Group Common Stock as such holder would have received from the Company, had the Company made such payment when originally due through the delivery of shares of Series A TCI Group Common Stock (and had selected the same Guarantee Stock Portion as that selected by the Parent) or (ii) a number of shares of Series A TCI Group Common Stock equal to the dollar amount of the Guarantee Stock Portion divided by the Guarantee Cash Equivalent Amount (defined as 95% of the average of the closing sale prices of the Series A TCI Group Common Stock on the Nasdaq National Market for the 10 consecutive trading days ending on the third trading day prior to the date such guarantee payment is made by the Parent). Any portion of a guarantee payment that is not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. See "Description of the Guarantee." As of September 30, 1995, the Parent had liabilities to third parties of approximately $80 million to which payments under the Guarantee would have been subordinated had the Guarantee been outstanding at that date. Voting Rights.............. The Series A Preferred Stock and the Company's common stock will vote as a single class in any general election of directors of the Company. Immediately following this offering, the Series A Preferred Stock will have 1.1% of the combined voting power of all outstanding classes of capital stock of the Company entitled to vote in any general election of directors of the Company. If at any time accrued dividends on the Series A Preferred Stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive), holders of the Series A Preferred Stock will have the right to elect two additional directors to the Company's Board of Directors, voting as a separate class with the holders of any Parity Stock (as defined herein) upon which like voting rights have been conferred and are vested, until such dividend arrearage is eliminated. The holders of Series A Preferred Stock will have no other voting rights, except that the affirmative vote of at least 66 2/3% of the Series A Preferred Stock (voting separately as a class) will be required before (i) the Company may amend, alter or repeal any provision of the Company's Restated Certificate of Incorporation which would adversely affect the powers, preferences or rights of the holders of the shares of Series A Preferred Stock, (ii) the Company or the Board of Directors may authorize the creation of or issue any class or series of preferred stock of the Company (the "Preferred Stock") that ranks 7 9 senior to the Series A Preferred Stock as to dividend payments, payments on redemption or payments of amounts distributable upon the dissolution, liquidation or winding up of the Company ("Senior Stock") or (iii) the Company may effect a reclassification of the Series A Preferred Stock, in each case subject to certain exceptions. See "Description of the Series A Preferred Stock -- Voting Rights." However, the Company may create additional classes and series of Preferred Stock, ranking pari passu with the Series A Preferred Stock as to dividend payments, payments on redemption or payments of amounts distributable upon the dissolution, liquidation or winding up of the Company ("Parity Stock") and additional classes and series of junior stock, increase the number of authorized shares of Preferred Stock (other than Series A Preferred Stock) or decrease (but not below the number of authorized shares then outstanding) the number of authorized shares of Preferred Stock (other than Series A Preferred Stock) without the consent of any holder of Series A Preferred Stock. Immediately following this offering the Parent will own all of the outstanding common stock of the Company, which will have 98.9% of the combined voting power of all outstanding classes of capital stock of the Company entitled to vote in any general election of directors of the Company. Accordingly, except when dividends are in arrears on the Series A Preferred Stock for six or more quarterly dividend periods, the Parent will be able to elect all of the members of the Board of Directors of the Company. Listing.................... Application has been made to list the Series A Preferred Stock on the Nasdaq National Market under the symbol "TCICP." The Series A TCI Group Common Stock is listed on the Nasdaq National Market under the symbol "TCOMA." Use of Proceeds............ The net proceeds from the sale of the shares of Series A Preferred Stock offered hereby will be used to retire maturing over-night commercial paper of the Company. See "Use of Proceeds." 8 10 USE OF PROCEEDS The net proceeds from the sale of the shares of Series A Preferred Stock offered hereby, after deducting expenses, will be approximately $ (approximately $ if the Underwriters' over-allotment option is exercised in full). The net proceeds from this offering will be used by the Company to retire maturing over-night commercial paper issued pursuant to its Commercial Paper Program. The over-night commercial paper sold by the Company on January 2, 1996 was issued with an average weighted interest rate of 6.10% per annum. SELECTED FINANCIAL DATA The following tables set forth selected historical financial data for the Company and the Parent for each of the five years in the period ended December 31, 1994 and for the nine months ended September 30, 1994 and 1995. The selected financial data for each of the five years in the period ended December 31, 1994 are derived from the consolidated financial statements of the Company and the Parent, respectively. The selected financial data for the interim periods are derived from unaudited consolidated financial statements which have been prepared on the same basis as the Company's and the Parent's respective audited consolidated financial statements and, in the opinion of management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the respective financial position and results of operations of the Company and the Parent for those periods. The following information is qualified in its entirety by, and should be read in conjunction with, the respective consolidated financial statements and notes thereto of the Company and the Parent incorporated by reference herein. See "Incorporation of Documents by Reference." The following information concerning the Parent also should be read in conjunction with the description of the Parent's common stock set forth under "Description of Parent Common Stock." Capitalized terms used below that have not been previously defined have the meanings specified under "Description of Parent Common Stock." THE COMPANY
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- ------------------------------------------ 1995 1994 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS) SUMMARY OF OPERATING DATA: Revenue...................................................... $3,741 $3,213 $4,318 $4,153 $3,574 $3,214 $2,940 Operating income............................................. 660 620 818 916 864 674 546 Earnings (loss) from continuing operations................... (50) 61 92 (7) 7 (78) (191) Dividend requirement on redeemable preferred stocks.......... -- -- -- (2) (15) -- -- ------ ------ ------ ------ ------ ------ ------ Net earnings (loss) attributable to common stockholders....................................... $ (50) $ 61 $ 92 $ (9) $ (23) $ (97) $ (254) ====== ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges and preferred stock dividends(a)............................................... (a) 1.23x 1.21x 1.22x 1.02x (a) (a) OTHER DATA: Operating income before depreciation, amortization and non-cash operating expenses(b)............................. $1,541 $1,325 $1,801 $1,858 $1,637 $1,430 $1,262 Consolidated basic cable subscribers......................... 12.0 10.7 11.0 10.7 10.2 8.9 8.5
DECEMBER 31, SEPTEMBER 30, ----------------------------------------------- 1995 1994 1993 1992 1991 1990 ------------- ------- ------- ------- ------- ------- (IN MILLIONS) SUMMARY BALANCE SHEET DATA: Property and equipment, net................................ $ 6,707 $ 5,579 $ 4,935 $ 4,562 $ 4,081 $ 4,156 Franchise costs, net....................................... 11,086 9,297 9,197 9,300 8,104 7,348 Net assets of discontinued operations...................... -- -- -- -- 242 54 Total assets............................................... 19,529 15,880 16,520 16,310 15,166 14,106 Debt....................................................... 12,143 10,712 9,900 10,285 9,455 8,922 Stockholders' equity....................................... 1,913 646 2,112 1,726 1,570 748 Shares outstanding (net of treasury shares)(c): Class A Common Stock..................................... 1 1 403 382 370 310 Class B Common Stock..................................... -- -- 47 48 49 48
(footnotes on following page) 9 11 (footnotes to preceding page) (a) The ratio of earnings to combined fixed charges and preferred stock dividends of the Company was less than 1.00 for the years ended December 31, 1990 and 1991 and for the nine months ended September 30, 1995; thus, earnings available for combined fixed charges and preferred stock dividends were inadequate to cover combined fixed charges and preferred stock dividends for such periods. The amounts of the coverage deficiencies were $399 million and $177 million for the years ended December 31, 1990 and 1991, respectively, and $63 million for the nine months ended September 30, 1995. For the ratio calculations, earnings available for combined fixed charges and preferred stock dividends consists of earnings (losses) before income taxes plus combined fixed charges and preferred stock dividends (minus capitalized interest), distributions from and (earnings) loss of less than 50%-owned affiliates with debt not guaranteed by the Company (net of earnings not distributed of less than 50%-owned affiliates), and minority interest in earnings (losses) of consolidated subsidiaries (including an amount representing the pretax earnings which would be required to cover preferred stock dividend requirements of consolidated subsidiaries). Combined fixed charges and preferred stock dividends consist of (i) interest (including capitalized interest) on debt, excluding interest to 50%-owned affiliates, (ii) the Company's proportionate share of interest of 50%-owned affiliates, (iii) that portion of rental expense the Company believes to be representative of interest (one-third of rental expense), (iv) amortization of debt expense, (v) that portion of minority interests in earnings of consolidated subsidiaries that represent the amount of pretax earnings that would be required to cover preferred stock dividend requirements excluding similarly adjusted preferred stock dividend requirements of consolidated subsidiaries to 50%-owned affiliates and (vi) the amount representing the pretax earnings which would be required to cover preferred stock dividend requirements of 50%-owned affiliates, other than amounts payable to the Company. The Company has guaranteed the debt of certain less than 50%-owned affiliates and certain other entities in which it has an interest. Combined fixed charges and preferred stock dividends of $710,000, $506,000, $2,517,000, $13,833,000 and $5,346,000 relating to such guarantees for the years ended December 31, 1990, 1991, 1992, 1993 and 1994, respectively, and combined fixed charges and preferred stock dividends of $7,403,000 and $3,053,000 relating to such guarantees for the nine months ended September 30, 1994 and 1995, respectively, have not been included in combined fixed charges and preferred stock dividends. (b) Operating income before depreciation, amortization and non-cash operating expenses should not be considered as an alternative to net income or to cash flows provided by operating activities or to any other measure of performance or liquidity as an indicator of an entity's operating performance. (c) On August 4, 1995 each 500.3735 shares of Class A Common Stock and 550.3735 shares of Class B Common Stock of the Company issued and outstanding on that date were reclassified and changed into one share of Class A Common Stock and one share of Class B Common Stock, respectively. 10 12 THE PARENT
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------ ------------------------------------------ 1995 1994 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS) SUMMARY OF OPERATING DATA: Revenue....................................... $4,945 $3,427 $4,936 $4,153 $3,574 $3,214 $2,940 Operating income.............................. 513 625 788 916 864 674 546 Earnings (loss) from continuing operations.... (92) 63 60 (7) 7 (78) (191) Dividend requirement on redeemable preferred stocks...................................... (26) (3) (8) (2) (15) -- -- ------ ------ ------ ------ ------ ------ ------ Net earnings (loss) from continuing operations attributable to common stockholders: TCI Class A and Class B Common Stock........ (a) 60 52 (9) (23) (97) (254) TCI Group Common Stock...................... (a) N/A N/A N/A N/A N/A N/A Liberty Media Group Common Stock............ (a) N/A N/A N/A N/A N/A N/A ------ ------ ------ ------ ------ ------ ------ $(a) $ 60 $ 52 $ (9) $ (23) $ (97) $ (254) ====== ====== ====== ====== ====== ====== ====== Earnings (loss) from continuing operations attributable to common stockholders per common share: TCI Class A and Class B Common Stock........ $(a) $ .12 $ .10 $ (.02) $ (.01) $ (.22) $ (.54) TCI Group Common Stock...................... (a) N/A N/A N/A N/A N/A N/A Liberty Media Group Common Stock............ (a) N/A N/A N/A N/A N/A N/A Cash dividends declared per common share...... -- -- -- -- -- -- -- Weighted average common shares outstanding.... (a) 517 541 433 424 360 355 Ratio of earnings to combined fixed charges and preferred stock dividends(b)............ (b) 1.04 1.19 1.22 1.02 (b) (b) OTHER DATA: Operating income before depreciation, amortization and non-cash operating expenses(c)................................. 1,503 1,339 1,798 1,858 1,637 1,430 1,262 Consolidated domestic basic cable and satellite subscribers....................... 13.0 11.3 11.7 10.7 10.2 8.9 8.5
DECEMBER 31, SEPTEMBER 30, ----------------------------------------------- 1995 1994 1993 1992 1991 1990 ------------- ------- ------- ------- ------- ------- SUMMARY BALANCE SHEET DATA: Property and equipment, net.................... $ 7,153 $ 5,876 $ 4,935 $ 4,562 $ 4,081 $ 4,156 Franchise costs, net........................... 11,778 9,444 9,197 9,300 8,104 7,348 Net assets of discontinued operations.......... -- -- -- -- 242 54 Total assets................................... 24,601 19,317 16,520 16,310 15,166 14,106 Debt........................................... 12,660 11,162 9,900 10,285 9,455 8,922 Stockholders' equity........................... 4,669 2,681 2,112 1,726 1,570 748 Shares of common stock outstanding (net of treasury shares): TCI Class A and Class B Common Stock......... -- 576 450 430 419 358 TCI Group Common Stock....................... 656 N/A N/A N/A N/A N/A Liberty Media Group Common Stock............. 164 N/A N/A N/A N/A N/A Book value per common share: TCI Class A and Class B Common Stock......... $ -- $ 4.65 $ 4.69 $ 4.01 $ 3.75 $ 2.09 TCI Group Common Stock(d).................... 4.49 N/A N/A N/A N/A N/A Liberty Media Group Common Stock(d).......... 10.51 N/A N/A N/A N/A N/A
- --------------- (a) The calculations of net loss from continuing operations attributable to common stockholders and loss per share for the period ended September 30, 1995 is (i) in the case of the TCI Class A and Class B common stock, $0.09 per share, based upon the net loss attributable to common stockholders from January 1, 1995 through August 10, 1995 (the date of the distribution of one fourth of one share of Series A and Series B Liberty Media Group Common Stock, respectively, to holders of Series A TCI Group Common Stock of (footnotes continued on following page) 11 13 (footnotes continued from preceding page) record on August 4, 1995 (the "Distribution")) of $59 million and upon 648,161,994 weighted average shares of TCI Class A and Class B common stock from January 1, 1995 through the date of the Distribution and (ii) in the case of the TCI Group Common Stock and Liberty Media Group Common Stock, $0.09 and $0.02 per share, respectively, based upon (x) the net loss attributable to the TCI Group and the Liberty Media Group from the date of the Distribution through September 30, 1995 of $56 million and $3 million, respectively, and (y) the weighted average shares of TCI Group Common Stock and Liberty Media Group Common Stock outstanding from the date of the Distribution through September 30, 1995 of 656,376,044 and 164,092,594 respectively. (b) The ratio of earnings to fixed charges of the Parent was less than 1.00 for the years ended December 31, 1990 and 1991 and for the nine months ended September 30, 1995; thus, earnings available for fixed charges were inadequate to cover fixed charges for such periods. The amounts of the coverage deficiencies were $399 million and $177 million for the years ended December 31, 1990 and 1991, respectively, and $171 million for the nine months ended September 30, 1995. For the ratio calculations, earnings available for fixed charges consists of earnings (losses) before income taxes plus fixed charges (minus capitalized interest), distributions from and (earnings) loss of less than 50%-owned affiliates with debt not guaranteed by the Parent (net of earnings not distributed of less than 50%-owned affiliates), and minority interest in earnings (losses) of consolidated subsidiaries (including an amount representing the pretax earnings which would be required to cover preferred stock dividend requirements of consolidated subsidiaries). Fixed charges consist of (i) interest (including capitalized interest) on debt, excluding interest to 50%-owned affiliates, (ii) the Parent's proportionate share of interest of 50%-owned affiliates, (iii) that portion of rental expense the Parent believes to be representative of interest (one-third of rental expense), (iv) amortization of debt expense, (v) that portion of minority interests in earnings of consolidated subsidiaries that represent the amount of pretax earnings that would be required to cover preferred stock dividend requirements excluding similarly adjusted preferred stock dividend requirements of consolidated subsidiaries to 50%-owned affiliates and (vi) the amount representing the pretax earnings which would be required to cover preferred stock dividend requirements of 50%-owned affiliates, other than amounts payable to the Parent. The Parent has guaranteed the debt of certain less than 50%-owned affiliates and certain other entities in which it has an interest. Fixed charges of $710,000, $506,000, $2,517,000, $13,833,000 and $5,777,000 relating to such guarantees for the years ended December 31, 1990, 1991, 1992, 1993 and 1994, respectively, and fixed charges of $10,676,000 and $4,866,000 relating to such guarantees for the nine months ended September 30, 1994 and 1995, respectively, have not been included in fixed charges. (c) Operating income before depreciation, amortization and non-cash operating expenses should not be considered as an alternative to net income or to cash flows provided by operating activities or to any other measure of performance or liquidity as an indicator of an entity's operating performance. (d) The computations of the historical book value per share of the TCI Group Common Stock and the Liberty Media Group Common Stock are based upon 656,378,199 shares of TCI Group Common Stock and 164,093,132 shares of Liberty Media Group Common Stock outstanding on such date and upon the attribution of the Parent's net assets as of September 30, 1995 to each of the TCI Group and Liberty Media Group. Shares of TCI Group Common Stock and Liberty Media Group Common Stock represent ownership interests in the Parent and the attributed net assets of the TCI Group and the Liberty Media Group are not necessarily indicative of the allocation of any proceeds remaining upon any liquidation of the Parent. In this regard, any such liquidation proceeds remaining for distribution to holders of Parent Common Stock would be allocated based upon the respective aggregate Market Capitalization of the outstanding TCI Group Common Stock and Liberty Media Group Common Stock. 12 14 PRICE RANGE OF SERIES A TCI GROUP COMMON STOCK AND DIVIDENDS The Series A TCI Group Common Stock is traded on the Nasdaq National Market under the symbol "TCOMA." The following table sets forth the high and low sales prices of (i) the Tele-Communications, Inc. Class A Common Stock (the "Parent Class A Common Stock") for each of the periods indicated through August 10, 1995 and (ii) the Series A TCI Group Common Stock from August 11, 1995 through the end of the fourth quarter of 1995, in each case as reported by the Nasdaq National Market. The prices have been rounded up to the nearest eighth and do not include retail markups, markdowns or commissions. On August 3, 1995, the Parent Class A Common Stock was reclassified into Series A TCI Group Common Stock, and on August 10, 1995 one-fourth of one share of Series A Liberty Media Group Common Stock was distributed on each share of Series A TCI Group Common Stock to holders of record on August 4, 1995. See "Description of Parent Common Stock."
HIGH LOW ---- ---- YEAR ENDED DECEMBER 31, 1993 First Quarter.................................................................. $25 1/2 $20 3/4 Second Quarter................................................................. 24 17 1/2 Third Quarter.................................................................. 26 3/4 21 5/8 Fourth Quarter................................................................. 33 1/4 24 7/8 YEAR ENDED DECEMBER 31, 1994 First Quarter.................................................................. 30 1/4 20 3/4 Second Quarter................................................................. 23 3/8 18 1/4 Third Quarter.................................................................. 23 7/8 19 3/4 Fourth Quarter................................................................. 25 20 1/4 YEAR ENDED DECEMBER 31, 1995 First Quarter.................................................................. 23 3/4 19 7/8 Second Quarter................................................................. 24 1/2 17 1/4 Third Quarter (through August 10).............................................. 26 1/4 22 5/8 Third Quarter (from August 11)................................................. 20 16 7/8 Fourth Quarter................................................................. 21 1/4 16 5/8
The Parent has historically not paid cash dividends on the Series A TCI Group Common Stock or on any other series of common stock of the Parent and has no present intention of doing so. Payment of cash dividends, if any, in the future will be determined by the Parent's Board of Directors in light of the Parent's earnings, financial condition and other relevant considerations. As a holding company, the Parent's ability to pay cash dividends is dependent upon its ability to receive cash dividends and advances from its subsidiaries. Certain loan agreements to which certain subsidiaries of the Parent are parties or are subject contain restricted payment provisions that limit the amount of dividends, other than stock dividends, that those companies may pay. Future loan agreements of the Parent may contain similar provisions. 13 15 THE COMPANY The Company believes that it is the largest provider of cable television services in the United States, based on the number of basic subscribers served by cable television systems owned by the Company, its subsidiaries and affiliates at September 30, 1995. At that date, the Company and its subsidiaries owned cable television systems serving approximately 12.0 million basic subscribers throughout the continental United States. The Company also has an investment in PrimeStar Partners, a partnership which operates a direct-to-home broadcast service, and at September 30, 1995, the Company had approximately 367,000 PrimeStar Partners subscribers. As of the date of this Prospectus, the Parent owns all of the outstanding shares of capital stock of the Company. Immediately following this offering, the Parent will continue to hold all of the outstanding shares of common stock of the Company. No other shares of capital stock of the Company will be outstanding other than the shares of Series A Preferred Stock offered hereby. THE PARENT The Parent, through its subsidiaries and affiliates (including the Company), is principally engaged in the construction, acquisition, ownership and operation of cable television systems and the provision of satellite-delivered video entertainment, information and electronic retailing programming services to various video distribution media, principally cable television systems. The Parent also has interests in cable and telecommunications operations and television programming in certain international markets as well as investments in companies and joint ventures involved in developing and providing programming for new television and telecommunications technologies. The Parent is organized into four principal business groups: Domestic Cable and Communications; Domestic Programming; International Cable and Programming; and Technology/Venture Capital. The business operations of the Company constitute the Parent's Domestic Cable and Communications group. See "The Company." The remaining business groups of the Parent are described below. Domestic Programming. The Parent's domestic programming business is conducted through the Liberty Media Group ("Liberty Media Group") and is primarily engaged in two principal lines of business: (i) production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software including multimedia products and (ii) electronic retailing, direct marketing, advertising sales relating to programming services, infomercials and transaction processing. The Liberty Media Group has ownership interests in several domestic programming businesses, including Turner Broadcasting System, Inc.; Discovery Communications, Inc.; Home Shopping Network, Inc.; QVC, Inc.; Encore Media Corporation; BET Holdings, Inc.; International Family Entertainment, Inc.; E! Entertainment Television, Inc.; and five national and 15 regional sports networks. The Liberty Media Group, through its wholly owned subsidiary Netlink USA, is also a provider of programming packages to home satellite dish owners. International Cable and Programming. The Parent, through its subsidiary Tele-Communications International, Inc. ("International"), has significant interests in cable and telecommunications operations and television programming in international markets. The activities of International are currently concentrated in Europe, Latin America and Asia, with particular focus on the United Kingdom, Argentina and Japan. International seeks to invest in markets with favorable regulatory environments and attractive growth opportunities. Among its overseas investments, International has an indirect 26.8% interest in TeleWest plc, the largest provider of cable television and residential and business cable telephony in the United Kingdom. International also has a majority voting interest in Flextech plc, which provides television programming in the United Kingdom through its interests in Bravo, TCC, UK Gold, UK Living, The Family Channel UK and certain other programming services. Through certain other joint ventures, International has interests in cable television systems and television programming in Hungary, Norway, Sweden, Israel, Ireland, Malta, France, Chile, Puerto Rico, the Dominican Republic, New Zealand, Australia, Singapore and Japan. In Argentina, International has a majority interest in Cablevision, S.A., the largest cable operator in Buenos Aires, and a 14 16 minority interest in Torneos y Competencias S.A., a sports programming company. In Japan, International has formed a joint venture with Sumitomo Corporation named "Jupiter Telecommunications Co., Ltd.," which was the first multiple system cable operator in Japan. On July 18, 1995, International completed an initial public offering of its Series A Common Stock. The Parent currently owns 82% of the outstanding shares of common stock of International, which represent approximately 91% of the combined voting power of all of the outstanding shares of common stock of International. International's Series A Common Stock is listed on the Nasdaq National Market under the symbol "TINTA." Technology/Venture Capital. The Parent's technology/venture capital business is conducted through its subsidiary TCI Technology Ventures, Inc. ("TCI Technology") and TCI Technology's subsidiaries and affiliates. TCI Technology is an investor in companies and joint ventures involved in developing and providing services for new television and telecommunications technologies. Current investments and technologies under development include interactive and set-top box technology, entertainment software and other services for wireline and wireless switched broadband interactive networks. TCI Technology, Sega of America and Time Warner Entertainment Company, L.P. have entered into a joint venture which produces and markets the first video game channel distributed on cable television systems, "The Sega Channel." In addition, TCI Technology has investments in TSX Corporation, a producer of communications equipment, Acclaim Entertainment, Inc. ("Acclaim"), a publisher of interactive entertainment software, the Microsoft Network, a partnership controlled by Microsoft Corporation ("Microsoft") which operates Microsoft's on-line service, and Netscape Communications Corporation, which develops and markets software used to access the Internet. TCI Technology and Acclaim have formed a joint venture to develop, acquire and distribute games and other interactive entertainment software over various telecommunications networks. TCI Technology also owns the National Digital Television Center, an entity formed by the Parent to provide digital compression and authorization services to programming suppliers and to cable television systems and other video distribution outlets. In addition to its technological investments, TCI Technology operates Western Tele-Communications, Inc., a wholesale provider of long-distance video, voice, data and other telecommunications services. 15 17 DESCRIPTION OF THE SERIES A PREFERRED STOCK The following summary of the terms of the Series A Preferred Stock does not purport to be complete and is subject to and qualified in its entirety by the provisions of the Company's Restated Certificate of Incorporation and the Certificate of Designations (the "Certificate of Designations") relating to the Series A Preferred Stock (including the definitions in the Certificate of Designations of certain terms), copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. The Company's Restated Certificate of Incorporation authorizes the issuance from time to time of one or more series of preferred stock, par value $.01 per share ("Preferred Stock"), with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, as shall be stated and expressed in resolutions providing for the issuance thereof adopted by the Board of Directors. The Company's Board of Directors has adopted resolutions authorizing the issuance of up to 2,300,000 shares of Cumulative Exchangeable Preferred Stock, Series A, with a stated value of $50 per share (the "Stated Value"). The Board of Directors has not authorized any other series of Preferred Stock, and immediately following this offering the only outstanding series of Preferred Stock of the Company will be the Series A Preferred Stock. The Series A Preferred Stock will rank senior to the Company's common stock with respect to the payment of dividends, payments on redemption and payments of amounts distributable upon dissolution, liquidation or winding up of the Company. While any shares of Series A Preferred Stock are outstanding, the Company may not create, and the Board of Directors may not authorize, any class or series of Senior Stock without the prior affirmative vote of at least 66 2/3% of the then outstanding shares of the Series A Preferred Stock, voting as a separate class. See "Voting Rights" below. DIVIDENDS Payments of Dividends; Method of Payment. Holders of shares of Series A Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative accrued dividends from the date (the "Issue Date") of initial issuance of the shares of Series A Preferred Stock at the rate per annum of $ per share. Dividends on the Series A Preferred Stock will be payable quarterly in arrears on each January , April , July and October (or, if any such date is not a business day, on the next succeeding business day (each a "Dividend Payment Date")), commencing April , 1996. Dividends payable on any Dividend Payment Date will be paid to holders of record as they appear on the stock register of the Company on the day of the month in which such Dividend Payment Date shall occur, as and if designated by the Board of Directors (the "Record Date"). Dividends on 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. For purposes of calculating the amount of dividends "accrued" (i) as of the first Dividend Payment Date and any other date that is not a Dividend Payment Date, such amount shall be calculated on the basis of % of the Stated Value 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 will be from the Issue Date to but excluding April , 1996, and the first dividend will be payable on April , 1996. Whenever a Redemption Date (as defined below) occurs during a dividend period, the Board of Directors may, at its option, declare accrued dividends to, and pay such dividends on, such Redemption Date, in which case such dividends will be payable on such Redemption Date to the holders of shares of Series A Preferred Stock as of a special record date to be designated by the Board of Directors for such dividend payment. Any dividends may be paid, at the election of the Company, (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 16 18 the foregoing forms of consideration elected by the Board of Directors in its sole discretion. If the Company elects to pay any dividend payment, in whole or in part, by delivery of shares of Series A TCI Group Common Stock, the amount of such dividend payment to be paid per share of Series A Preferred Stock in shares of Series A TCI Group Common Stock (the "Stock Dividend Amount") will 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 dollar amount of the Stock Dividend Amount by an amount (the "Cash Equivalent Amount") equal to 95% of the Average Market Price (as defined below). No fractional shares of Series A TCI Group Common Stock will be delivered to a holder of shares of Series A Preferred Stock, but the Company shall instead pay a cash adjustment determined as described under "-- Adjustment for Fractional Shares." Any portion of a dividend that is declared and not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. The "Average Market Price" per share of Series A TCI Group Common Stock on any date of determination means the average of the daily closing sale prices of the Series A TCI Group Common Stock on the Nasdaq National Market (or, if the New York Stock Exchange or another exchange becomes the principal trading market for such stock, on such exchange) for the ten consecutive days on which the Nasdaq National Market and the New York Stock Exchange are open for the transaction of business (each a "Trading Day") ending on the third Trading Day preceding the date of determination (appropriately adjusted in such manner as the Board of Directors in good faith deems appropriate to take into account any stock dividend on the Series A TCI Group Common Stock, or any subdivision, split, combination or reclassification of the Series A TCI Group Common Stock that occurs, or the Ex-Dividend Date for which occurs, during the period following the first Trading Day in such ten-Trading Day period and ending on the last full Trading Day immediately preceding the payment of any dividend, redemption or liquidation payment with respect to which Average Market Price is being determined). The date of determination of Average Market Price (i) for any dividend will be as of the related Record Date and (ii) for any redemption or liquidation payment will be as of the related Redemption Date or Liquidating Payment Date, respectively. See "-- Redemption -- Manner of Payment of Redemption Price" and "-- Liquidation Rights." The market price of the Series A TCI Group Common Stock may vary from the Average Market Price between the date of determination of such Average Market Price and the subsequent delivery of shares of Series A TCI Group Common Stock, in payment of a dividend, to holders of Series A Preferred Stock. If the market value on the Dividend Payment Date of the shares of Series A TCI Group Common Stock delivered in payment of a dividend is more than 5% lower than the Average Market Price as of the related Record Date and the holder sells such shares of Series A TCI Group Common Stock at such lower price, the holder's actual dividend yield for the dividend period in respect of which such dividend was paid would be lower than the stated dividend yield on the Series A Preferred Stock. In addition, in connection with any such sale the holder is likely to incur commissions and other transaction costs. If the Company elects to make any dividend payment, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock, it will give notice of such determination (which shall include the number of shares of Series A TCI Group Common Stock and cash, if any, to be delivered in respect of each share of Series A Preferred Stock) by publication, on the Record Date for such dividend payment, of such election in a daily newspaper of national circulation. CERTAIN RESTRICTIONS ON CAPITAL STOCK OF THE COMPANY Certain Limitations. As long as any shares of Series A Preferred Stock are outstanding, (i) no dividends shall be paid or declared in cash or otherwise, nor will any other distribution be made, on any shares of Junior Stock (as defined below) and (ii) no shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by the Company or any majority owned subsidiary of the Company (except in connection with a reclassification or exchange of any Junior Stock through the issuance of other Junior Stock and/or warrants, rights or options exercisable for or convertible into 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 of the Company), 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: (a) full dividends on the 17 19 Series A Preferred Stock and any 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; (b) 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 (c) the Company is not in default on any of its obligations to redeem any Series A Preferred Stock or any Parity Stock. "Junior Stock" means (i) the common stock of the Company, (ii) each other class or series of capital stock of the Company hereafter created (other than any class or series of Senior Stock or Parity 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. As of the date of this Prospectus, the Company does not have issued or outstanding any Senior Stock or Parity Stock and the Company's common stock represents the only Junior Stock of the Company. Subject to the foregoing, 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 majority owned subsidiaries from time to time. In the event of the declaration and payment of any such dividends or distributions to the holders of Junior Stock, 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. As long as any shares of Series A Preferred Stock are outstanding, dividends or other distributions may not be declared or paid on the Series A Preferred Stock or on any Parity Stock, and the Company may not purchase, redeem or otherwise acquire any Series A Preferred Stock or Parity Stock (except (x) from any wholly owned subsidiary of the Company or (y) in connection with a mandatory conversion or exchange of such Parity Stock or a conversion or exchange of Series A Preferred Stock or 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 the Series A Preferred Stock and any 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 Series A Preferred Stock or 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 Series A Preferred Stock or 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 shares of any 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 shares of Parity Stock bear to each other. Notwithstanding the foregoing, nothing will prevent (i) the payment of dividends or the making of distributions on any Junior Stock solely in shares of Junior Stock and/or warrants, rights or options exercisable for or convertible into 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 warrants, rights or options exercisable for or convertible into Junior Stock; (ii) the payment of dividends on the Series A Preferred Stock or any class or series of Parity Stock solely in (together with a cash adjustment for fractional shares, if any) (x) shares of Junior Stock and/or warrants, rights or options exercisable for or convertible into Junior Stock or (y) securities of the Parent (including shares of Series A TCI Group Common Stock) or the redemption, exchange, purchase or other acquisition of Series A Preferred Stock or any class or series of Parity Stock solely in exchange for (together with a cash adjustment for fractional shares, if any), or through the application of the proceeds from the sale of, (A) shares of Junior Stock and/or warrants, rights or options exercisable for or convertible into Junior Stock or (B) securities of the 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 18 20 fractional shares, if any) pursuant to an exchange at the option of the holder as described under "-- Exchange at Option of Holder". Payment of dividends to the holders of Series A Preferred Stock shall be subject to the prior preferences and other rights of any future class or series of Senior Stock. EXCHANGE AT OPTION OF HOLDER Exchange Privilege. Each share of Series A Preferred Stock is exchangeable, in whole or in part, at the option of the holder thereof, at any time on and after January , 2001, unless previously redeemed, for shares of Series A TCI Group Common Stock (the "Exchange Rate"), subject to adjustment as described below. An exchange of shares of Series A Preferred Stock shall be effected directly with the Parent, and the Parent has agreed, pursuant to the Guarantee, (x) to issue and deliver the requisite number of 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 in accordance with the terms of the Series A Preferred Stock and (y) to otherwise perform the actions required of it under the exchange provisions of the Series A Preferred Stock. The right to exchange shares of Series A Preferred Stock called for redemption will terminate immediately before the close of business on the related Redemption Date. See "-- Redemption." In order to exchange shares of Series A Preferred Stock, the holder thereof must 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 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 all of the requirements for such exchange shall have been satisfied. The exchange shall be at the Exchange Rate in effect immediately prior to the close of business on the Exchange Date. Holders of shares of Series A Preferred Stock at the close of business on a Record Date for any payment of declared dividends will be entitled to receive the dividend payable on such shares of Series A Preferred Stock 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 of Series A Preferred Stock are subject to redemption on a Redemption Date falling 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 will (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 for shares of Series A TCI Group Common Stock the Company will not make any payment or allowance for unpaid dividends, whether or not in arrears, on exchanged shares of Series A Preferred Stock and the Parent will not make any payment or allowance for previously declared dividends or distributions on the shares of Series A TCI Group Common Stock issued upon such exchange. If the shares of Preferred Stock represented by a certificate surrendered for exchange are exchanged in part only, the Company will cause to be issued and delivered to the holder, without charge therefor, a new certificate or certificates representing in the aggregate the number of unexchanged shares. In connection with 19 21 any exchange, no fractional shares of Series A TCI Group Common Stock will be delivered, but the Parent shall instead pay a cash adjustment determined as described under "-- Adjustment for Fractional Shares". Exchange Adjustments. The Exchange Rate is subject to adjustment upon the occurrence of certain events involving the Parent including, without limitation: (i) the payment by the Parent of dividends (and other distributions) on outstanding shares of Series A TCI Group Common Stock in shares of Series A TCI Group Common Stock; (ii) subdivisions or combinations of Series A TCI Group Common Stock; (iii) the payment by the Parent of dividends (and other distributions) on outstanding shares of Series A TCI Group Common Stock in shares of the Parent's capital stock (other than Series A TCI Group Common Stock); (iv) the issuance by Parent, in reclassification of its outstanding shares of Series A TCI Group Common Stock, of any other shares of capital stock of Parent; (v) the distribution by Parent to all or substantially all holders of Series A TCI Group Common Stock of rights, warrants or options entitling holders of such rights, warrants or options (for a period not exceeding forty-five days after the record date for the determination of stockholders entitled to receive such distribution) to purchase shares of Series A TCI Group Common Stock (or securities exercisable for or convertible into shares of Series A TCI Group Common Stock) at a price per share (or, in the case of securities convertible into or exercisable for shares of Series A TCI Group Common Stock, having a conversion or exercise price per share, after adding thereto an allocable portion of the exercise price of the rights, warrants or options to purchase such securities) less than the Current Market Price on the applicable Determination Date and (vi) the distribution by Parent to all or substantially all holders of Series A TCI Group Common Stock of any assets or debt securities or any rights, warrants or options to purchase securities (other than those dividends, distributions, rights, warrants and options referred to above and excluding cash dividends other than Extraordinary Cash Dividends (as defined below)) to all or substantially all holders of Series A TCI Group Common Stock. "Extraordinary Cash Dividends" means cash dividends on the Series A TCI Group Common Stock that, when aggregated with all other cash dividends made on the Series A TCI Group Common Stock having an Ex-Dividend Date occurring in the 365/366 consecutive day period ending on the Ex-Dividend Date for the cash dividend in question (other than those dividends or distributions for which a prior adjustment to the Exchange Rate was made), equals or exceeds on a per share basis 10% of the average of the Closing Prices of the Series A Common Stock during the shorter of (i) such 365/366 day period or (ii) the period beginning after the first Ex-Dividend Date in such period and ending on the date prior to the Ex-Dividend Date for the cash dividend in question. In the case of any such dividend or distribution on the TCI Group Series A Common Stock of shares of capital stock, subdivision, combination or reclassification, the holder of each outstanding share of Series A Preferred Stock will have the right to exchange such share of Series A Preferred Stock into the kind and amount of securities which such holder would have owned immediately after such event if such share of Series A Preferred Stock had been exchanged immediately before the record date for or effective date of, as the case may be, such event. However, in the case of any dividend, distribution or reclassification in which the Series A Preferred Stock becomes exchangeable for shares of more than one class or series of Parent capital stock, any one of which is redeemable or exchangeable at the election of the Parent ("Redeemable Capital Stock"), and such Redeemable Capital Stock may be redeemed or exchanged by the Parent for consideration that includes securities of an issuer other than the Parent ("Redemption Securities"), then such dividend, distribution or reclassification shall be treated in the manner described in the next sentence as though it were a distribution of assets by the Parent. In the case of any such issuance of rights, warrants or options which expire within 45 days after the record date for the determination of stockholders entitled to receive such rights, warrants or options, or any such distribution of assets, debt securities or certain rights, warrants or options to purchase securities, the Exchange Rate will be adjusted pursuant to formulas contained in the Certificate of Designations. In certain cases of distributions of assets, debt securities or certain rights, warrants or options to purchase securities to holders of Series A TCI Group Common Stock, rather than being entitled to an adjustment in the Exchange Rate, the holder of a share of Series A Preferred Stock upon exchange thereof will be entitled to receive, in addition to the shares of Series A TCI Group Common Stock into which such share of Series A Preferred Stock is exchangeable, the kind and amount of assets, debt securities, rights, warrants or options comprising the distribution that such holder would have received if such holder had exchanged such share 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 the distribution. 20 22 If the holders of Series A Preferred Stock would be entitled to receive upon exchange thereof any Redeemable Capital Stock (other than Redeemable Capital Stock that may be redeemed or exchanged for consideration that includes Redemption Securities), and such Redeemable Capital Stock is redeemed, exchanged or otherwise acquired in full, then, from and after such event (a "Redemption Event"), the holders of Series A Preferred Stock then outstanding shall be entitled to receive upon exchange of such shares, in lieu of shares of such Redeemable Capital Stock, the kind and amount of securities, cash or other assets receivable upon such Redemption Event by a holder of the number of shares of Redeemable Capital Stock for which such shares of Series A Preferred Stock could have been exchanged immediately prior to the effectiveness of such Redemption Event (assuming that such holder failed to exercise any applicable right of election with respect thereto and received per share of such Redeemable Capital Stock the kind and amount of securities, cash or other assets received per share by the holders of a plurality of the non-electing shares thereof) and, thereafter, the holders of the Series A Preferred Stock shall have no other exchange rights with respect to such Redeemable Capital Stock. All adjustments to the Exchange Rate will be calculated to the nearest 1/1000th of a share of Series A TCI Group Common Stock. No adjustment in the Exchange Rate will be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustment which is not required to be made will be carried forward and taken into account in any subsequent adjustment. In addition to the foregoing adjustments, the Parent may direct the Company to make increases in the Exchange Rate that the Parent considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of Series A TCI Group Common Stock. If an adjustment is required to 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 requiring such adjustment: (i) delivering to the holder of any Series A Preferred Stock surrendered for exchange the additional shares of Series A TCI Group Common Stock deliverable upon such exchange over the shares of Series A TCI Group Common Stock deliverable before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of a fractional share of Series A TCI Group Common Stock. 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 of the Parent or any of its wholly owned subsidiaries (including the Company). Whenever the Exchange Rate is required to be adjusted, the Parent will forthwith compute such adjusted Exchange Rate and file with the transfer agent(s) for the shares of Series A Preferred Stock and the Series A TCI Group Common Stock a certificate with respect to such adjustment, and mail a notice to holders of the Series A Preferred Stock providing information with respect to such adjustment. At least 10 days before the record date or other date set for definitive action, the Parent will notify holders of Series A Preferred Stock of (i) any action which would require an adjustment to the Exchange Rate, (ii) certain mergers or combinations involving the Parent or (iii) the dissolution, liquidation or winding up of the Parent. Adjustment for Consolidation or Merger of Parent. In case of (i) any consolidation or merger to which the Parent is a party, (ii) any sale or transfer to another corporation of the property of the Parent as an entirety or substantially as an entirety or (iii) any statutory exchange of securities by the Parent with another corporation (other than in connection with a merger or acquisition), in each case as a result of which shares of Series A TCI Group Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), 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 will, after consummation of such transaction, be subject to exchange at the option of the holder into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Series A TCI Group Common Stock into which such share of Series A Preferred Stock might have been exchanged immediately prior to consummation of such transaction and assuming in each case that such holder of Series A TCI Group Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such 21 23 transaction (provided that if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each non-electing share will 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 securities into which shares of Series A Preferred Stock will be exchangeable after consummation of such transaction will be subject to adjustment, as nearly as may be practicable, as described above under "Exchange Adjustments" following the date of consummation of such transaction. Pursuant to the Guarantee, the Parent has agreed not to become a party to any such transaction unless the terms thereof are consistent with the foregoing. REDEMPTION Mandatory Redemption. Each share of Series A Preferred Stock (if not earlier exchanged or redeemed) will be subject to mandatory redemption by the Company on January , 2006 (the "Mandatory Redemption Date"), at a redemption price (the "Mandatory Redemption Price") equal to the Liquidation Preference. Optional Redemption. Shares of Series A Preferred Stock will also be subject to optional redemption by the Company on or after January , 2001 (the "Initial Redemption Date"). At any time and from time to time on or after the Initial Redemption Date and until the Mandatory Redemption Date, the Company will have the right to redeem, in whole or in part, the outstanding shares of Series A Preferred Stock at the following per share call prices, together with accrued but unpaid dividends (whether or not declared) to the date fixed for redemption (each an "Optional Redemption Price;" such price and the Mandatory Redemption Price being sometimes referred to collectively herein as a "Redemption Price"), if redeemed during the twelve-month periods beginning on January in the years shown below.
YEAR CALL PRICE - ---------------------------------------------------------------- ---------- 2001............................................................ $ 2002............................................................ 2003............................................................ 2004............................................................ 2005 and thereafter............................................. 50.00
If fewer than all the outstanding shares of Series A Preferred Stock are to be redeemed as of any date (an "Optional Redemption Date," such date and the Mandatory Redemption Date being sometimes referred to collectively herein as a "Redemption Date"), the shares of Series A Preferred Stock to be redeemed will be selected by the Company from outstanding shares of Series A Preferred Stock pro rata (as nearly as may be practicable) among all holders of outstanding shares of Series A Preferred Stock. Manner of Payment of Redemption Price. The Company may effect the redemption of shares of Series A Preferred Stock upon the mandatory or optional redemption thereof, at the election of the Company, (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 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 amount determined by dividing (i) the aggregate Redemption Price (or designated portion thereof to be paid through delivery of shares of Series A TCI Group Common Stock) of such shares of Series A Preferred Stock by (ii) the Cash Equivalent Amount. Any portion of a Redemption Price that is not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. The number of shares of Series A TCI Group Common Stock that a holder of Series A Preferred Stock will receive upon mandatory or optional redemption, if the Redemption Price is to be paid in whole or in part through the delivery of shares of Series A TCI Group Common Stock, will vary depending upon the Average Market Price (as defined in "-- Dividends -- Payments of Dividends; Method of Payment") used in determining the Cash Equivalent Amount for purposes 22 24 of such redemption. The market price of the Series A TCI Group Common Stock may vary from such Average Market Price between the date of determination of such Average Market Price and the subsequent delivery of shares of Series A TCI Group Common Stock, in payment of the Redemption Price, to holders in respect of shares of Series A Preferred Stock called for redemption. If the market value of the Series A TCI Group Common Stock on the Redemption Date is more than 5% lower than the Average Market Price as of such Redemption Date and the holder sells such shares of Series A TCI Group Common Stock at such lower price, the holder's actual proceeds from the sale of such shares would be lower that the stated Redemption Price for the Series A Preferred Stock. In addition, in connection with any such sale the holder is likely to incur commissions and other transaction costs. No fractional shares of Series A TCI Group Common Stock will be delivered to a holder upon redemption of his shares of Series A Preferred Stock, but the Company will instead pay a cash adjustment determined as described under "-- Adjustment for Fractional Shares." Dividends on shares of Series A Preferred Stock selected for redemption will cease to accrue, and the right of the holders of such shares to exercise their right to exchange such shares for Series A TCI Group Common Stock will terminate immediately prior to the close of business on the related Redemption Date. Notice of Redemption. The Company will provide notice (a "Redemption 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 15 nor more than 60 days prior to the applicable Redemption Date. The Redemption Notice will be provided by mail sent 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 will 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. Each Redemption Notice sent to a holder will include, without limitation, the following information: (i) the Redemption Date; (ii) if less than all outstanding shares of Series A Preferred Stock are to be redeemed, the number of shares held by such holder to be redeemed; (iii) the 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; (iv) 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; (v) the place or places where certificates for Series A Preferred Stock to be redeemed are to be surrendered for payment of the Redemption Price; (vi) that dividends on the shares of Series A Preferred Stock to be redeemed shall cease to accrue on the Redemption Date; and (vii) the then current Exchange Rate and that the exchange privilege will terminate immediately prior to the close of the business day on the Redemption Date. On or after the Redemption Date, each holder of shares of Series A Preferred Stock to be redeemed must present and surrender his certificate or certificates for such shares to the Company at the place designated in the Redemption Notice and thereupon the Redemption Price of such shares will paid to or on the order of the person whose name appears on such certificate or certificates as the record owner thereof, and each surrendered certificate will be cancelled. Should fewer than all the shares represented by a certificate be redeemed, a new certificate will be issued representing the unredeemed shares. If a Redemption Notice with respect to shares of Series A Preferred Stock to be redeemed pursuant to a mandatory or optional redemption has been timely given by the Company, and if on or before the applicable Redemption Date the Company has 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 securities) 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, then effective as of the close of business on such Redemption Date the shares of Series A Preferred Stock to be so redeemed will no longer be 23 25 deemed outstanding (notwithstanding that any certificate therefor may 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 will 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 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 and unclaimed at the end of one year from such Redemption Date will be repaid and released to the Company, after which the holder or holders of such shares of Series A Preferred Stock so called for redemption will look only to the Company for delivery of such cash and/or shares of Series A TCI Group Common Stock. The ability of the Company to redeem the Series A Preferred Stock shall be subject to the prior preferences and rights of any future class or series of Senior Stock. LIQUIDATION RIGHTS In the event of any voluntary or involuntary dissolution, liquidation or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding will be entitled to receive, after payment or provision for payment of the debts and other liabilities of the Company and payment or provision for payment of any distribution on shares of any Senior Stock, an amount per share equal to the Liquidation Preference, before any distribution of assets is made to the holders of Junior Stock or any Parity Stock of the Company ranking junior to the Series A Preferred Stock upon liquidation, dissolution or winding up. After payment of the Liquidation Preference, holders of shares of Series A Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. If, upon any dissolution, liquidation or winding up of the Company, the assets of the Company available for distribution to the holders of the shares of Series A Preferred Stock shall be insufficient to pay in full (i) the aggregate Liquidation Preference payable to holders of Series A Preferred Stock and (ii) the liquidation preference payable to holders of shares of all outstanding classes and series of Parity Stock that rank pari passu with the Series A Preferred Stock upon liquidation, dissolution or winding up (as set forth in the instrument or instruments creating such Parity Stock), the holders of shares of Series A Preferred Stock and such Parity Stock shall share ratably in such distribution of assets in proportion to the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and the holders of outstanding shares of such Parity Stock were paid in full. The sale, lease, transfer or exchange of all or substantially all of the assets of the Company, 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), and the consummation of a statutory binding share exchange involving the Company will not be deemed a liquidation, dissolution or winding up of the Company. Upon any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company may pay any Liquidating Payment (as defined below), at the election of the Company, (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 the Company elects to make, in whole or in part, a Liquidating Payment by delivery of shares of Series A TCI Group Common Stock, the number of shares so deliverable to any holder of Series A Preferred Stock shall be equal to the aggregate Liquidating Payment (or designated portion thereof to be paid through the delivery of shares of Series A TCI Group Common Stock) 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, but the Company shall instead pay a cash adjustment determined as described under "-- Adjustment for Fractional Shares." Any portion of a Liquidating Payment that is not paid through the delivery of shares of Series A TCI Group Common Stock will be paid in cash. "Liquidating 24 26 Payment," as used herein, means the Liquidation Preference payable to the holders or Series A Preferred Stock upon the liquidation, dissolution or winding up of the Company or, if less, the amount available for distribution to holders of Series A Preferred Stock in liquidation of the Company. Under the Guarantee, the Parent will be obligated to pay to the holders of the Series A Preferred Stock any difference between the Liquidating Payment and the Liquidation Preference. See "Description of the Guarantee -- Guarantee Payments." CONDITIONS TO DELIVERY OF SHARES OF SERIES A TCI GROUP COMMON STOCK FOR DIVIDEND, REDEMPTION OR LIQUIDATION PAYMENTS. The Company's right to elect to make any dividend, redemption or liquidation payment, in whole or in part, through the delivery of shares of Series A TCI Group Common Stock will 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 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 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 such conditions have not been satisfied prior to or on the date of any such dividend, redemption or liquidation payment, such payment shall be made solely in cash. ADJUSTMENT FOR FRACTIONAL SHARES No fractional shares or scrip representing fractional shares of Series A TCI Group Common stock will be delivered upon the redemption or exchange of any shares of Series A Preferred Stock or in connection with any dividend payment or any liquidation, dissolution or winding up of the Company. 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, 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 a dividend, redemption or liquidation payment 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 Common Stock on the Trading Day immediately preceding the Exchange Date or the date of payment of the dividend, redemption or liquidation payment, as the case may be, in respect of which such cash adjustment is being determined. VOTING RIGHTS The holders of shares of Series A Preferred Stock will have no voting rights, except as otherwise required by law and except as set forth below. When and if the holders of Series A Preferred Stock are entitled to vote, each holder will be entitled to one vote per share. The holders of shares of Series A Preferred Stock will 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 in the general election of directors), in any general election of directors of the Company. Immediately following this offering, the shares of Series A Preferred Stock will have 1.1% of the combined voting power of all outstanding classes of capital stock of the Company entitled to vote in any general election of directors of the Company. The only other class of capital stock that is entitled to vote in the general election of directors is the Company's common stock, all of the shares of which are owned by the Parent. Accordingly, immediately following this offering (except under the circumstances described in the next paragraph) the Parent will be able to elect all of the members of the Board of Directors. 25 27 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 all other shares of Parity Stock upon which like voting rights have been conferred and are exercisable), will 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 will continue until all dividends in arrears on the shares of Series A Preferred Stock have been paid in full. 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 of the Company 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 and Senior Stock) to vote for Preferred Stock Directors. 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, will be necessary: (i) before the Company may amend, alter or repeal any of the provisions of the Company's Restated Certificate of Incorporation which would adversely affect the powers, preferences or rights of the holders of the shares of Series A Preferred Stock then outstanding; 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 and (y) any such amendment that would increase the number of authorized shares of Preferred Stock (other than Series A Preferred Stock) or that would decrease (but not below the number of authorized shares then outstanding) the number of authorized shares of Preferred Stock (other than Series A Preferred Stock), will 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; (ii) before the Company or the Board or Directors may create or issue any class or series of Senior Stock; or (iii) before the Company may effect any reclassification of the Series A Preferred Stock (other than a reclassification that does not adversely affect the powers, preferences or rights of the holders of shares of Series A Preferred Stock outstanding immediately prior to such reclassification). No vote of the holders of Series A Preferred Stock in respect of an amendment, alteration or repeal of any provision of the Company's Restated Certificate of Incorporation or the creation or issue of any class or series of Senior Stock will be required if, at or prior to the time when such amendment, alteration or repeal or creation or issue is to take effect, as the case may be, 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). Except as required by law, the holders of Series A Preferred Stock will not be entitled to vote on any merger or consolidation involving the Company or a sale of all or substantially all of the assets of the Company. TRANSFER AGENT AND REGISTRAR The Bank of New York, 101 Barclay Street, New York, New York 10286, will act as paying, exchange and redemption agent and registrar for the shares of Series A Preferred Stock. MISCELLANEOUS Upon issuance, the shares of Series A Preferred Stock will be fully paid and nonassessable. Holders of shares of Series A Preferred Stock will have no preemptive rights. The Parent has agreed to at all times reserve and keep available out of its authorized and unissued Series A TCI Group Common Stock and/or issued shares of Series A TCI Group Common Stock held in its treasury, solely for issuance upon the exchange of shares of Series A Preferred Stock, such number of shares of Series A TCI Group Common Stock as will from time to time be deliverable upon the exchange of all shares of Series A Preferred Stock then outstanding. Shares of Series A Preferred Stock redeemed by the Company will be retired and resume 26 28 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. DESCRIPTION OF THE GUARANTEE The following is a summary of the principal terms of the Guarantee Agreement (the "Guarantee"), executed and delivered by the Parent for the benefit of the holders from time to time of the Series A Preferred Stock. The summary does not purport to be complete and is subject to and qualified in its entirety by the text of the Guarantee Agreement (including the definition therein of certain terms), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is part. GUARANTEE PAYMENTS Pursuant to the Guarantee, the Parent will irrevocably and unconditionally agree to pay in full to the holders of the Series A Preferred Stock the Guarantee Payments (except to the extent paid by the Company), as and when due, regardless of any defense, right of set-off or counterclaim which the Company may have or assert. The following payments (the "Guarantee Payments"), to the extent not paid by the Company, will be subject to the Guarantee (without duplication): (i) any accrued and unpaid dividends on the Series A Preferred Stock which have theretofore been declared by the Board of Directors; (ii) the Mandatory Redemption Price payable for shares of Series A Preferred Stock outstanding on the Mandatory Redemption Date; (iii) the Optional Redemption Price payable for shares of Series A Preferred Stock called for redemption on an Optional Redemption Date that are outstanding on such Optional Redemption Date; and (iv) upon a voluntary or involuntary dissolution, liquidation or winding up of the Company, the Liquidation Preference payable in respect of the outstanding shares of Series A Preferred Stock. MANNER OF MAKING GUARANTEE PAYMENTS The Parent may satisfy its obligation to make a Guarantee Payment, at the election of the Parent, (i) in cash, (ii) through the issuance and delivery of shares of Series A TCI Group Common Stock or (iii) through any combination of the foregoing forms of consideration elected by the Parent in its sole discretion. If the Parent elects to pay a Guarantee Payment, in whole or in part, to the holders of Series A Preferred Stock through the delivery of shares of Series A TCI Group Common Stock, each such holder will receive the greater of (i) the same number of shares of Series A TCI Group Common Stock as such Holder would have received from the Company (x) had the Company made the dividend, redemption or liquidation payment in respect of which such Guarantee Payment is being made when originally due through the delivery of shares of Series A TCI Group Common Stock and (y) had the Company elected to pay an amount of such payment equal to the Guarantee Stock Portion with shares of Series A TCI Group Common Stock or (ii) the number of shares of Series A TCI Group Common Stock determined by dividing the dollar amount of the Guarantee Stock Portion by the Guarantee Cash Equivalent Amount. "Guarantee Cash Equivalent Amount" means an amount equal to 95% of the average of the Closing Prices of the Series A TCI Group Common Stock for the 10 consecutive Trading Days ending on the third Trading Day prior to the date such Guarantee Payment is paid by or on behalf of the Parent. No fractional shares of Series A TCI Group Common Stock will be issued and delivered to a holder, but the Parent will instead pay a cash adjustment determined in the manner described under "Description of the Series A Preferred Stock -- Adjustment for Fractional Shares." Any portion of a Guarantee Payment that is not paid through the delivery of shares of Series A TCI Group Common Stock shall be paid in cash. The Parent's right to elect to make any Guarantee Payment, in whole or in part, through the issuance and delivery of shares of Series A TCI Group Common Stock will be conditioned upon: (i) the shares of Series A TCI Group Common Stock to be so issued and delivered being fully paid and nonassessable and free from any preemptive rights, liens or adverse claims; (ii) the delivery of such shares 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 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 issued and delivered being listed, and upon delivery being eligible for trading, on the Nasdaq National Market or on a 27 29 national securities exchange. If such conditions have not been satisfied prior to or on the date of any Guarantee Payment paid by or on behalf of the Parent, such payment shall be made solely in cash. CERTAIN COVENANTS OF THE PARENT In the Guarantee, the Parent will covenant that, so long as any shares of Series A Preferred Stock remain outstanding, if there shall have occurred and be continuing any event that would constitute an Event of Default (as defined below) under the Guarantee, then the Parent shall not declare or pay any cash dividend on, make any cash distributions with respect to, or redeem, purchase or otherwise acquire, any of its capital stock; provided, however that the Parent may (a) declare cash dividends or cash distributions on, or redeem, purchase or otherwise acquire, shares of preferred stock of the Parent where, under the terms of the instrument creating such preferred stock, the failure to do so would constitute a default or event of default under such instrument and (b) redeem, purchase or otherwise acquire shares of preferred stock of the Parent (x) with shares of common stock of the Parent (plus a cash adjustment for fractional shares) or (y) upon the exercise by the holders thereof of conversion, exchange or redemption rights. The foregoing covenant may be waived, in whole or in part, or the application of all or any part of such covenant in any particular circumstance or generally may be waived, with the prior written consent of the holders of at least 66 2/3% of the shares of Series A Preferred Stock then outstanding. In the Guarantee, the Parent will covenant, for so long as the holders of shares of Series A Preferred Stock have the right to exchange such shares for shares of Series A TCI Group Common Stock, to take any and all actions required of it under the exchange provisions of the Certificate of Designations, including, without limitation: (i) promptly after the Exchange Date for an exchange of shares of Series A Preferred Stock, to issue and deliver to the holder of such shares, or on his or her written order, a certificate or certificates for the requisite number of full shares of Series A TCI Group Common Stock issuable upon such exchange; (ii) to treat the Person in whose name any certificate for shares of Series A TCI Group Common Stock is issued upon an exchange 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 any shares of Series A Preferred Stock surrendered for exchange on any date when the stock transfer books of the Parent are closed for any purpose shall be effective to constitute the Person entitled to receive the shares of Series A TCI Group Common Stock deliverable upon such exchange as the record holder of such shares of Series A TCI Group Common Stock as of the opening of business on the next succeeding day on which such stock transfer books are open; (iii) whenever the Exchange Rate is required to be adjusted under the Certificate of Designations, to forthwith compute the adjusted Exchange Rate and (x) prepare and file a certificate setting forth certain information concerning the adjusted Exchange Rate with the transfer agent for the Series A TCI Group Common Stock and the Series A Preferred Stock and (y) mail to the holders of the outstanding shares of Series A Preferred Stock a notice setting forth such adjusted Exchange Rate and certain related information; and (iv) whenever the Parent shall take any action which would require an adjustment to the Exchange Rate or shall authorize certain other actions or events, to cause to be filed at each office or agency maintained for the purpose of exchange of the shares of Series A Preferred Stock, and cause to be mailed to the holders of shares of Series A Preferred Stock, at least 10 days before the record date (or other date set for definitive action if there shall be no record date), a notice of such action or event. The Parent has further agreed in the Guarantee to at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of 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 in accordance with the Certificate of Designations, 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. MODIFICATION OF THE GUARANTEE; ASSIGNMENT Except with respect to any changes which do not adversely affect the rights of holders of Series A Preferred Stock (in which case no vote will be required), the Guarantee may be amended only with the prior approval of the holders of not less than 66 2/3% of the outstanding shares of Series A Preferred Stock. All 28 30 covenants and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Parent and inure to the benefit of the holders from time to time of the Series A Preferred Stock. Except in the manner described under "Consolidation, Merger or Sale of Assets" below, the Parent may not assign its rights or delegate its obligations under the Guarantee without the consent of the holders of at least 66 2/3% of the outstanding shares of Series A Preferred Stock. CONSOLIDATION, MERGER OR SALE OF ASSETS The Guarantee provides that the Parent may merge or consolidate with or into another entity (whether or not the Parent is the surviving corporation), enter into a binding share exchange with another entity, or sell, transfer or lease all or substantially all of its assets to another entity only if (i) at such time no Event of Default shall have occurred and be continuing and (ii) the survivor of such merger, consolidation or share exchange (if other than the Parent) or the entity to which Parent's assets are sold, transferred or leased is an entity organized under the laws of the United States or any state thereof and assumes all of the obligations of the Parent under the Guarantee. TERMINATION The Parent's obligation to make Guarantee Payments under the Guarantee will terminate as to each holder of Series A Preferred Stock, and be of no further force or effect, upon the earliest to occur of (i) the full payment of the Mandatory Redemption Price for all of the shares of Series A Preferred Stock held by such holder, (ii) the full payment of the Optional Redemption Price for all shares of Series A Preferred Stock held by such holder that are called for redemption on an Optional Redemption Date, if after such Optional Redemption Date such holder no longer holds any outstanding shares of Series A Preferred Stock, (iii) the payment of the full Liquidation Preference of the shares of Series A Preferred Stock held by such holder upon any liquidation, dissolution or winding up of the Company, (iv) the exchange by such holder of shares of Series A Preferred Stock held by it for the requisite number of shares of Series A TCI Group Common Stock (and cash in lieu of any fractional share, if any) in accordance with the Certificate of Designations, and following such exchange such holder no longer holds any shares of Series A Preferred Stock; or (v) at such time as such holder shall otherwise dispose of all of its shares of Series A Preferred Stock. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Series A Preferred Stock must restore payment of any amount paid by the Company under the Certificate of Designations or by the Parent under the Guarantee in respect of such shares for any reason whatsoever. EVENTS OF DEFAULT An "Event of Default" under the Guarantee will occur upon the failure of the Company: (i) to pay any portion of a dividend payment, if the payment of such dividend was declared by the Board of Directors of the Company; (ii) to pay the aggregate Mandatory Redemption Price in full on the Mandatory Redemption Date; (iii) to pay the Optional Redemption Price in full on any Optional Redemption Date in respect of shares of Series A Preferred Stock called for redemption on such date by the Company; and (iv), in the event of the dissolution, liquidation or winding up of the Company, the failure of the Company to pay the aggregate Liquidation Preference payable to the holders of outstanding shares of Series A Preferred Stock (irrespective of whether the Company has unrestricted or legally available funds therefor). Upon the occurrence and during the continuance of an Event of Default, the Parent will be subject to the limitations described in the first paragraph under " -- Certain Covenants of the Parent" and holders of Series A Preferred Stock will have a contractual right to enforce payment by the Parent of the Guarantee Payments under the Guarantee (subject to the subordination provisions of the Guarantee described below). SUBORDINATION The Guarantee provides that the Parent's obligation to make Guarantee Payments are subordinated and junior in right of payment to all liabilities of the Parent (other than those in respect of its capital stock) ("Senior Liabilities"). No payment may be made under the Guarantee if any Senior Liability of the Parent is not paid when due, any applicable grace period with respect to such default has ended, and such default has 29 31 not been cured or waived or ceased to exist. Upon any distribution of assets of the Parent to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due on all Senior Liabilities of the Parent must be paid in full before the holders of Series A Preferred Stock are entitled to receive or retain any payments under the Guarantee. The rights of the holders of the Series A Preferred Stock in respect of payments under the Guarantee will be subrogated to the rights of the holder of all Senior Liabilities to receive payments or distributions applicable to such liabilities until all amounts owing on the Guarantee are paid in full. STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of the Parent and will rank (i) subordinate and junior in right of payment to all other liabilities of the Parent, (ii) pari passu with the most senior preferred stock now or hereafter issued by the Parent and (iii) senior to the Parent's common stock. The terms of the Certificate of Designations provide that each holder of Series A Preferred Stock, by acceptance thereof, agrees to the subordination and other provisions of the Guarantee. The Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under the guarantee without instituting a legal proceeding against any other person or entity). As of September 30, 1995, the Parent had (i) liabilities to third parties of approximately $80 million, to which payments under the Guarantee would have been subordinated, and (ii) outstanding shares of preferred stock with an aggregate liquidation preference of approximately $474 million, with which payments under the Guarantee would have ranked pari passu, had the Guarantee been outstanding at that date. The Parent is a holding company and its assets consist almost entirely of investments in its subsidiaries. Therefore, the Parent's rights and the rights of its creditors, including holders of the Series A Preferred Stock with respect to the Parent's obligations under the Guarantee, to participate in the distribution of assets of any subsidiary upon the latter's liquidation or reorganization will be subject to prior claims of the subsidiary's creditors, including trade creditors, except to the extent that the Company may itself be a creditor with recognized claims against the subsidiary (in which case the claims of the Parent would still be subject to the prior claims of any secured creditor of such subsidiary and of any holder of indebtedness of such subsidiary that is senior to that held by the Parent). At September 30, 1995, the Parent's subsidiaries had total debt of approximately $13.1 billion (including guarantees of indebtedness of others and the unaccreted portion of indebtedness issued at a discount, but excluding indebtedness owed to the Parent). The Parent's ability to service its indebtedness and pay its other liabilities, including its liability under the Guarantee, is dependent upon the earnings of the Parent's subsidiaries and the distribution or other payment of such earnings to the Parent in the form of dividends, loans or advances, payment or reimbursement for management fees and expenses, and repayment of loans and advances from the Parent. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Guarantee or to make any funds available therefor, whether by dividends, loans or other payments. The payment of dividends or the making of loans and advances to the Parent by its subsidiaries may be subject to statutory or regulatory restrictions, are contingent upon the earnings of those subsidiaries and are subject to various business considerations. Further, certain of the Parent's subsidiaries are subject to loan agreements that prohibit or limit the transfer of funds by such subsidiaries to the Parent in the form of loans, advances or dividends and require that such subsidiaries' indebtedness to the Parent be subordinate to the indebtedness under such loan agreements. The amount of net assets of subsidiaries subject to such restrictions exceeds the Parent's consolidated net assets. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of New York. 30 32 DESCRIPTION OF PARENT COMMON STOCK Each share of Series A Preferred Stock is exchangeable, at the option of the holder commencing January , 2001, for shares of Series A TCI Group Common Stock at the Exchange Rate. See "Description of the Series A Preferred Stock -- Exchange at Option of Holder." The Series A TCI Group Common Stock is one of four series of common stock, par value $1.00 per share ("Parent Common Stock"), of the Parent. The other three series of the Parent Common Stock consist of the following: (i) the Tele-Communications, Inc. Series B TCI Group Common Stock (the "Series B TCI Group Common Stock," and, together with the Series A TCI Group Common Stock, the "TCI Group Common Stock"), (ii) the Tele- Communications, Inc. Series A Liberty Media Group Common Stock (the "Series A LMG Common Stock") and (iii) the Tele-Communications, Inc. Series B Liberty Media Group Common Stock (the "Series B LMG Common Stock," and, together with the Series A LMG Common Stock, the "Liberty Media Group Common Stock"). Each series of Parent Common Stock has powers and rights that may affect the powers and rights of each other series of Parent Common Stock. Accordingly, a description of all four series of Parent Common Stock is set forth below. However, the only series of Parent Common Stock for which the Series A Preferred Stock is exchangeable is the Series A TCI Group Common Stock. The following description of the Parent Common Stock does not purport to be complete and is qualified in its entirety be reference to the Restated Certificate of Incorporation, as amended, of the Parent (the "Parent Charter"), which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL The Parent Charter provides that the Parent is authorized to issue 2,725,000,000 shares of Parent Common Stock, of which 1,750,000,000 shares are designated Tele-Communications, Inc. Series A TCI Group Common Stock, 150,000,000 shares are designated Tele-Communications, Inc. Series B TCI Group Common Stock, 750,000,000 shares are designated TeleCommunications, Inc. Series A Liberty Media Group Common Stock, and 75,000,000 shares are designated Tele-Communications, Inc. Series B Liberty Media Group Common Stock. As of November 1, 1995, 571,576,645 shares of Series A TCI Group Common Stock, 84,801,554 shares of Series B TCI Group Common Stock, 142,892,796 shares of Series A LMG Common Stock and 21,200,336 shares of Series B LMG Common Stock (in each case net of shares held in treasury) had been issued and were outstanding. The Parent Charter also provides for the issuance of 52,375,096 shares of preferred stock (the "Parent Preferred Stock"), of which 700,000 shares are designated Class A Preferred Stock, par value $0.01 per share (the "Class A Preferred Stock"), 1,675,096 shares are designated Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share (the "Class B Preferred Stock"), and 50,000,000 shares are designated Series Preferred Stock, par value $.01 per share (the "Series Preferred Stock"), issuable in series. Of the Series Preferred Stock, 80,000 shares are designated Convertible Preferred Stock, Series C (the "Series C Preferred Stock"), 1,000,000 shares are designated Convertible Preferred Stock, Series D (the "Series D Preferred Stock"), 400,000 shares are designated Redeemable Convertible Preferred Stock, Series E (the "Series E Preferred Stock"), and 500,000 shares are designated Convertible Redeemable Participating Preferred Stock, Series F (the "Series F Preferred Stock"). As of November 1, 1995, 1,620,026 shares of Class B Preferred Stock, 70,575 shares of Series C Preferred Stock, 999,569 shares of Series D Preferred Stock and 277,064 shares of Series F Preferred Stock had been issued and were outstanding. All of the shares of Class A Preferred Stock have previously been redeemed and retired and may not be reissued, thereby reducing the number of authorized shares of Parent Preferred Stock. All of the shares of Series E Preferred Stock have previously been redeemed and retired with the effect that such shares have been restored to the status of authorized and unissued shares of Series Preferred Stock, may be reissued as shares of another series of Series Preferred Stock, but such shares may not be reissued as Series E Preferred Stock. All of the outstanding shares of Series F Preferred Stock are held by subsidiaries of the Parent. The Parent has authorized, in connection with a pending transaction, the issuance of an additional 18,350,918 shares of Series Preferred Stock in two series, of which 9,175,459 shares will be designated Redeemable Convertible TCI Group Preferred Stock, Series G (the "Series G Preferred Stock"), and 31 33 9,175,459 shares will be designated Redeemable Convertible Liberty Media Group Preferred Stock, Series F (the "Series F Preferred Stock"). After giving effect to the designations of the Series G Preferred Stock and the Series F Preferred Stock, at least 30,069,082 shares of Series Preferred Stock shall remain available for designation pursuant to the Parent Charter. The rights evidenced by the Parent Common Stock (including the Series A TCI Group Common Stock) are subject to the prior preferences and rights of the Parent Preferred Stock. In general, under the provisions of the Class B Preferred Stock and each outstanding series of Series Preferred Stock, no dividends may be paid on, and neither the Parent nor any subsidiary of the Parent may purchase or otherwise acquire any shares of, the Parent Common Stock for so long as (i) dividends are in arrears on the Class B Preferred Stock or on any such series of Series Preferred Stock or (ii) the Parent is in default under its obligation to redeem (or otherwise acquire or exchange in accordance with the terms of the Parent Charter or the instrument creating such Parent Preferred Stock) shares of the Class B Preferred Stock or any such series of Series Preferred Stock on a date fixed for such redemption (or other acquisition or exchange). The Series G Preferred Stock and the Series F Preferred Stock will contain similar provisions that may restrict the payment of dividends on, or the purchase or other acquisition by the Parent of any of its subsidiaries of, shares of Parent Common Stock. TCI GROUP COMMON STOCK AND LIBERTY MEDIA GROUP COMMON STOCK Certain Definitions As used herein, the following terms have the meanings specified below: "Committed Acquisition Shares" means (a) the shares of Series A LMG Common Stock that the Parent had, prior to the record date for the Distribution, agreed to issue, but as of such record date had not issued, and (b) the shares of Series A LMG Common Stock that are issuable upon conversion, exercise or exchange of Convertible Securities that the Parent had, prior to the record date for the Distribution, agreed to issue, but as of such record date had not issued, in each case including obligations of the Parent to issue shares of the Parent's Class A Common Stock, par value $1.00 per share (which has been redesignated Series A TCI Group Common Stock), which as a result of the Distribution constitute obligations to issue, among other securities, Series A LMG Common Stock or Convertible Securities which are convertible into or exercisable or exchangeable for Series A LMG Common Stock; provided, however that Committed Acquisition Shares will not include any shares of Liberty Media Group Common Stock issuable upon conversion, exercise or exchange of Pre-Distribution Convertible Securities. The type and amount of Committed Acquisition Shares issuable will be appropriately adjusted to reflect subdivisions and combinations of the Series A LMG Common Stock and dividends or distributions of shares of Series A LMG Common Stock or Series B LMG Common Stock to holders of Series A LMG Common Stock and other reclassifications of the Series A LMG Common Stock, in each case occurring (or the record date for which occurs) after the Distribution. "Convertible Securities" means any securities of the Parent (other than any series of Parent Common Stock) that are convertible into, exchangeable for or evidence the right to purchase any shares of any series of Parent Common Stock, whether upon conversion, exercise, exchange, pursuant to antidilution provisions of such securities or otherwise. The "Distribution" means the distribution paid by the Parent on August 10, 1995 of one-fourth of one share of Series A LMG Common Stock on each outstanding share of Series A TCI Group Common Stock and one-fourth of one share of Series B LMG Common Stock on each outstanding share of Series B TCI Group Common Stock to holders of record on August 4, 1995. The "Inter-Group Interest" means any equity value of the Parent attributable to the Liberty Media Group that is not represented by outstanding shares of Liberty Media Group Common Stock. The Inter-Group Interest is represented by the Number of Shares Issuable with Respect to the Inter-Group Interest. The "Inter-Group Interest Fraction" means a fraction the numerator of which is the Number of Shares Issuable with Respect to the Inter-Group Interest and the denominator of which is the sum of such Number 32 34 of Shares Issuable with Respect to the Inter-Group Interest and the aggregate number of shares of Liberty Media Group Common Stock outstanding. The "Liberty Media Group" means: (a) the interest of the Parent or any of its subsidiaries in Liberty Media Corporation or any of its subsidiaries (including any successor thereto by merger, consolidation or sale of all or substantially all of its assets, whether or not in connection with a Related Business Transaction (as defined below under "-- Conversion and Redemption-Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock")) and their respective properties and assets, (b) all assets and liabilities of the Parent or any of its subsidiaries to the extent attributed to any of the properties or assets referred to in clause (a) of this sentence, whether or not such assets or liabilities are assets and liabilities of Liberty Media Corporation or any of its subsidiaries (or a successor as described in clause (a) of this sentence), (c) all assets and properties contributed or otherwise transferred to the Liberty Media Group from the TCI Group, and (d) the interest of the Parent or any of its subsidiaries in the businesses, assets and liabilities acquired by the Parent or any of its subsidiaries for the Liberty Media Group, as determined by the Board of Directors of the Parent (the "Parent Board of Directors"); provided that (i) from and after any dividend or other distribution with respect to any shares of Liberty Media Group Common Stock (other than a dividend or other distribution payable in shares of Liberty Media Group Common Stock, with respect to which adjustment will be made as described in clause (a) of the definition of "Number of Shares Issuable with Respect to the Inter-Group Interest," or in other securities of the Parent attributed to the Liberty Media Group for which provision will be made as described in the penultimate sentence of this definition), the Liberty Media Group will no longer include an amount of assets or properties equal to the aggregate amount of such kind of assets or properties so paid in respect of shares of Liberty Media Group Common Stock multiplied by a fraction the numerator of which is equal to the Inter-Group Interest Fraction in effect immediately prior to the record date for such dividend or other distribution and the denominator of which is equal to the Outstanding Interest Fraction in effect immediately prior to the record date for such dividend or other distribution and (ii) from and after any transfer of assets or properties from the Liberty Media Group to the TCI Group, the Liberty Media Group will no longer include the assets or properties so transferred. If the Parent pays a dividend or makes any other distribution with respect to shares of Liberty Media Group Common Stock payable in securities of the Parent attributed to the Liberty Media Group other than Liberty Media Group Common Stock, the TCI Group will be deemed to hold an amount of such other securities equal to the amount so distributed multiplied by the fraction specified in clause (i) of this definition (determined as of a time immediately prior to the record date for such dividend or other distribution), and to the extent interest or dividends are paid or other distributions are made on such other securities so distributed to the holders of Liberty Media Group Common Stock, the Liberty Media Group will no longer include a corresponding ratable amount of the kind of assets paid as such interest or dividends or other distributions in respect of such securities so deemed to be held by the TCI Group. The Parent may also, to the extent any such other securities constitute Convertible Securities which are at the time convertible, exercisable or exchangeable, cause such Convertible Securities deemed to be held by the TCI Group to be deemed to be converted, exercised or exchanged (and to the extent the terms of such Convertible Securities require payment or delivery of consideration in order to effect such conversion, exercise or exchange, the Liberty Media Group will in such case include an amount of the kind of properties or assets required to be paid or delivered as such consideration for the amount of the Convertible Securities deemed converted, exercised or exchanged as if such Convertible Securities were outstanding), in which case such Convertible Securities will no longer be deemed to be held by the TCI Group or attributed to the Liberty Media Group. "Market Value" of any class or series of capital stock of the Parent on any day means the average of the high and low reported sale prices regular way of a share of such class or series on such day (if such day is a trading day, and if such day is not a trading day, on the trading day immediately preceding such day) or in 33 35 case no such reported sale takes place on such trading day the average of the reported closing bid and asked prices regular way of a share of such class or series on such trading day, in either case on the Nasdaq National Market, or if the shares of such class or series are not quoted on such Nasdaq National Market on such trading day, the average of the closing bid and asked prices of a share of such class or series in the over-the-counter market on such trading day as furnished by any New York Stock Exchange member firm selected from time to time by the Parent, or if such closing bid and asked prices are not made available by any such New York Stock Exchange member firm on such trading day, the market value of a share of such class or series as determined by the Parent Board of Directors; provided that for purposes of determining the ratios described under "-- Conversion and Redemption -- Conversion at the Option of the Parent" and "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" and "-- Liquidation," (a) the "Market Value" of any share of any series of Parent Common Stock on any day prior to the "ex" date or any similar date for any dividend or distribution paid or to be paid with respect to such series of the Parent Common Stock will be reduced by the fair market value of the per share amount of such dividend or distribution as determined by the Parent Board of Directors and (b) the "Market Value" of any share of any series of Parent Common Stock on any day prior to (i) the effective date of any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of outstanding shares of such series of Parent Common Stock or (ii) the "ex" date or any similar date for any dividend or distribution with respect to any such series of Parent Common Stock in shares of such series of Parent Common Stock will be appropriately adjusted to reflect such subdivision, combination, dividend or distribution. The "Number of Shares Issuable with Respect to the Inter-Group Interest" is currently zero and will from time to time be (a) adjusted as appropriate to reflect subdivisions (by stock split or otherwise) and combinations (by reverse stock split or otherwise) of the Series A LMG Common Stock and dividends or distributions of shares of Series A LMG Common Stock or Series B LMG Common Stock to holders of Series A LMG Common Stock and other reclassifications of Series A LMG Common Stock, (b) decreased (but not to less than zero) by (i) the aggregate number of shares of Series A LMG Common Stock issued or sold by the Parent after the Distribution other than Committed Acquisition Shares, the proceeds of which are attributed to the TCI Group, (ii) the aggregate number of shares of Series A LMG Common Stock issued or delivered upon conversion, exercise or exchange of Convertible Securities (other than Pre-Distribution Convertible Securities and Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares), the proceeds of which are attributed to the TCI Group, (iii) the aggregate number of shares of Series A LMG Common Stock issued or delivered by the Parent as a dividend or distribution to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock, (iv) the aggregate number of shares of Series A LMG Common Stock issued or delivered upon the conversion, exercise or exchange of any Convertible Securities (other than Pre-Distribution Convertible Securities and Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares) issued or delivered by the Parent after the Distribution as a dividend or distribution or by reclassification or exchange to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock and (v) the aggregate number of shares of Series A LMG Common Stock (rounded, if necessary, to the nearest whole number), equal to the aggregate fair value (as determined by the Parent Board of Directors) of assets or properties attributed to the Liberty Media Group that are transferred from the Liberty Media Group to the TCI Group in consideration of a reduction in the Number of Shares Issuable with Respect to the Inter-Group Interest, divided by the Market Value of one share of Series A LMG Common Stock as of the date of such transfer, and (c) increased by (i) the aggregate number of any shares of Series A LMG Common Stock and Series B LMG Common Stock which are retired or otherwise cease to be outstanding following their purchase with funds attributed to the TCI Group, (ii) a number (rounded, if necessary, to the nearest whole number), equal to the fair value (as determined by the Parent Board of Directors) of assets or properties theretofore attributed to the TCI Group that are contributed to the Liberty Media Group in consideration of an increase in the Number of Shares Issuable with Respect to the Inter-Group Interest, 34 36 divided by the Market Value of one share of Series A LMG Common Stock as of the date of such contribution and (iii) the aggregate number of shares of Series A LMG Common Stock and Series B LMG Common Stock into or for which Convertible Securities are deemed to be converted, exercised or exchanged pursuant to the last sentence of the definition of "TCI Group." The Parent will not issue or sell shares of Series B LMG Common Stock in respect of a reduction in the Number of Shares Issuable with Respect to the Inter-Group Interest. Whenever a change in the Number of Shares Issuable with Respect to the Inter-Group Interest occurs, the Parent will prepare and file a statement of such change with the Secretary of the Parent. The "Outstanding Interest Fraction" means a fraction the numerator of which is the aggregate number of shares of Liberty Media Group Common Stock outstanding and the denominator of which is the sum of such aggregate number of shares of Liberty Media Group Common Stock outstanding and the Number of Shares Issuable with Respect to the Inter-Group Interest. "Pre-Distribution Convertible Securities" means Convertible Securities that were outstanding on the record date for the Distribution and were, prior to such date, convertible into or exercisable or exchangeable for shares of the Parent's Class A Common Stock, par value $1.00 per share (which has been redesignated Series A TCI Group Common Stock). The "TCI Group" means as of any date of determination thereof: (a) the interest of the Parent or any of its subsidiaries in all of the businesses in which the Parent or any of its subsidiaries (or any of their predecessors or successors) is or has been engaged, directly or indirectly, and the respective assets and liabilities of the Parent or any of its subsidiaries, other than any businesses, assets or liabilities of the Liberty Media Group; (b) a proportionate interest in the businesses, assets and liabilities of the Liberty Media Group equal to the Inter-Group Interest Fraction as of such date; (c) from and after any dividend or other distribution with respect to shares of Liberty Media Group Common Stock (other than a dividend or other distribution payable in shares of Liberty Media Group Common Stock, with respect to which adjustment will be made as described in clause (a) of the definition of "Number of Shares Issuable with Respect to the Inter-Group Interest," or in other securities of the Parent attributed to the Liberty Media Group, for which provision will be made as described in the penultimate sentence of this definition), an amount of assets or properties theretofore included in the Liberty Media Group equal to the aggregate amount of such kind of assets or properties so paid in respect of such dividend or other distribution with respect to shares of Liberty Media Group Common Stock multiplied by a fraction the numerator of which is equal to the Inter-Group Interest Fraction in effect immediately prior to the record date for such dividend or other distribution and the denominator of which is equal to the Outstanding Interest Fraction in effect immediately prior to the record date for such dividend or other distribution; and (d) any assets or properties transferred from the Liberty Media Group to the TCI Group; provided that, from and after any contribution or transfer of any assets or properties from the TCI Group to the Liberty Media Group, the TCI Group will no longer include such assets or properties so contributed or transferred (other than pursuant to its interest in the businesses, assets and liabilities of the Liberty Media Group described in clause (b) above). If the Parent pays a dividend or makes any other distribution with respect to shares of Liberty Media Group Common Stock payable in other securities of the Parent attributed to the Liberty Media Group, the TCI Group will be deemed to hold an amount of such other securities equal to the amount so distributed multiplied by the fraction specified in clause (c) of this definition (determined as of a time immediately prior to the record date for such dividend or other distribution), and to the extent interest or dividends are paid or other distributions are made on such other securities so distributed to holders of Liberty Media Group Common Stock, the TCI Group will include a corresponding ratable amount of the kind of assets paid as such interest or dividends or other distributions in respect of such securities so deemed to be held by the TCI Group. The Parent may also, to the extent any such other securities constitute Convertible 35 37 Securities which are at the time convertible, exercisable or exchangeable, cause such Convertible Securities deemed to be held by the TCI Group to be deemed to be converted, exercised or exchanged (and to the extent the terms of such Convertible Securities require payment or delivery of consideration in order to effect such conversion, exercise or exchange, the TCI Group will in such case no longer include an amount of the kind of properties or assets required to be paid or delivered as such consideration for the amount of the Convertible Securities deemed converted, exercised or exchanged as if such Convertible Securities were outstanding), in which case such Convertible Securities will no longer be deemed to be held by the TCI Group or attributed to the Liberty Media Group. Voting Rights Holders of Series A TCI Group Common Stock are entitled to one vote for each share of such stock held, holders of Series B TCI Group Common Stock are entitled to ten votes for each share of such stock held, holders of Series A LMG Common Stock are entitled to one vote for each share of such stock held and holders of Series B LMG Common Stock are entitled to ten votes for each share of such stock held, on all matters presented to such stockholders. Except as may otherwise be required by the laws of the State of Delaware or, with respect to any class or series of Parent Preferred Stock, in the Parent Charter (including any resolution or resolutions providing for the establishment any such series pursuant to authority vested in the Parent Board of Directors by the Parent Charter), the holders of TCI Group Common Stock and the holders of Liberty Media Group Common Stock and the holders of each class or series of Parent Preferred Stock, if any, entitled to vote thereon will vote as one class for all purposes. See "-- Other Matters." Neither the holders of Series A TCI Group Common Stock or Series B TCI Group Common Stock, nor the holders of Series A LMG Common Stock or Series B LMG Common Stock, have any rights to vote as a separate class or series on any matter coming before the stockholders of the Parent, except with respect to certain limited class and series voting rights provided under the General Corporation Law of the State of Delaware (the "DGCL"). Dividends Subject to the prior payment of dividends on outstanding shares of Parent Preferred Stock, dividends may be paid as determined by the Parent Board of Directors (i) on the TCI Group Common Stock out of the lesser of (x) the TCI Group Available Dividend Amount and (y) funds of the Parent legally available therefor under the DGCL and (ii) on the Liberty Media Group Common Stock out of the lesser of (x) the Liberty Media Group Available Dividend Amount and (y) funds of the Parent legally available therefor under the DGCL. Under the DGCL the amount of the funds of the Parent legally available for the payment of dividends on any series of the Parent Common Stock is determined on the basis of the entire corporation and not just the TCI Group or the Liberty Media Group. Consequently, the amount of legally available funds will be reduced by the amount of any net losses of the Liberty Media Group or the TCI Group and any dividends or distributions on, or repurchases of, the TCI Group Common Stock or the Liberty Media Group Common Stock and dividends on, or certain repurchases of, Parent Preferred Stock. Certain loan agreements to which certain subsidiaries of the Parent are parties or are subject contain restricted payment provisions that limit the amount of dividends, other than stock dividends, that those companies may pay. Future loan agreements may also contain similar restrictions and limits. The "TCI Group Available Dividend Amount," as of any date, means either (a) the excess of (i) an amount equal to the total assets of the TCI Group less the total liabilities (not including preferred stock) of the TCI Group as of such date over (ii) the aggregate par value of, or any greater amount determined to be capital in respect of, all outstanding shares of TCI Group Common Stock and each class or series of Parent Preferred Stock attributed to the TCI Group or (b) in case there is no such excess, an amount equal to TCI Earnings (Loss) Attributable to the TCI Group (if positive) for the fiscal year in which such date occurs and/or the preceding fiscal year. "TCI Earnings (Loss) Attributable to the TCI Group," for any period, means the net earnings or loss of the TCI Group for such period determined on a basis consistent with the determination of the net earnings or loss of the TCI Group for such period as presented in the combined financial statements of the TCI Group for such period, including income and expenses of the Parent attributed 36 38 to the operations of the TCI Group on a substantially consistent basis, including without limitation, corporate administrative costs, net interest and income taxes. The TCI Group Available Dividend Amount is intended to be similar to the amount that would be legally available for the payment of dividends on the TCI Group Common Stock under the DGCL if the TCI Group were a separate Delaware corporation. There can be no assurance that there will be a TCI Group Available Dividend Amount. The "Liberty Media Group Available Dividend Amount," as of any date, means the product of the Outstanding Interest Fraction and either (a) the excess of (i) an amount equal to the total assets of the Liberty Media Group less the total liabilities (not including preferred stock) of the Liberty Media Group as of such date over (ii) the aggregate par value of, or any greater amount determined to be capital in respect of, all outstanding shares of Liberty Media Group Common Stock and each class or series of Parent Preferred Stock attributed to the Liberty Media Group or (b) in case there is no such excess, an amount equal to TCI Earnings (Loss) Attributable to the Liberty Media Group (if positive) for the fiscal year in which such date occurs and/or the preceding fiscal year. The "TCI Earnings (Loss) Attributable to the Liberty Media Group," for any period, means the net earnings or loss of the Liberty Media Group for such period determined on a basis consistent with the determination of the net earnings or loss of the Liberty Media Group for such period as presented in the combined financial statements of the Liberty Media Group for such period, including income and expenses of the Parent attributed to the operations of the Liberty Media Group on a substantially consistent basis, including, without limitation, corporate administrative costs, net interest and income taxes. The Liberty Media Group Available Dividend Amount is intended to be similar to the amount that would be legally available for the payment of dividends on the Liberty Media Group Common Stock under the DGCL if the Liberty Media Group were a separate Delaware corporation. Except for dividends declared or paid as described below under "-- Share Distributions" and "-- Conversion and Redemption -- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock," any dividends paid on the Series A TCI Group Common Stock or the Series B TCI Group Common Stock will be paid only on both series, in equal amounts per share, and any dividends paid on the Series A LMG Common Stock or the Series B LMG Common Stock will be paid only on both series, in equal amounts per share. The Parent Board of Directors, subject to the provisions described herein under "-- Dividends" and below under "-- Share Distributions," has the authority and discretion to declare and pay dividends on the TCI Group Common Stock or the Liberty Media Group Common Stock in equal or unequal amounts, notwithstanding the relationship between the TCI Group Available Dividend Amount and the Liberty Media Group Available Dividend Amount, the respective amounts of prior dividends declared on, or liquidation rights of, the TCI Group Common Stock or the Liberty Media Group Common Stock or any other factor. At the time of any dividend or other distribution on the outstanding shares of Liberty Media Group Common Stock (including any dividend of Net Proceeds from the Disposition of all or substantially all of the properties and assets of the Liberty Media Group as described below under "-- Conversion and Redemption -- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock"), the TCI Group will (if at such time there is an Inter-Group Interest) be credited, and the Liberty Media Group will be charged (in addition to the charge for the dividend or other distribution paid or distributed in respect of outstanding shares of Liberty Media Group Common Stock), with an amount equal to the product of (i) the aggregate amount of such dividend or distribution paid or distributed in respect of outstanding shares of Liberty Media Group Common Stock times (ii) a fraction the numerator of which is the Inter-Group Interest Fraction and the denominator of which is the Outstanding Interest Fraction. 37 39 Share Distributions Distributions on TCI Group Common Stock. If at any time after the Distribution a distribution paid in TCI Group Common Stock, Liberty Media Group Common Stock, any other securities of the Parent or any other person (a "share distribution") is to be made with respect to the TCI Group Common Stock, such share distribution will be declared and paid only as follows: (i) a share distribution consisting of shares of Series A TCI Group Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A TCI Group Common Stock) to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an equal per share basis; or consisting of shares of Series B TCI Group Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series B TCI Group Common Stock) to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an equal per share basis; or consisting of shares of Series A TCI Group Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A TCI Group Common Stock) to holders of Series A TCI Group Common Stock and, on an equal per share basis, shares of Series B TCI Group Common Stock (or like Convertible Securities convertible into or exercisable or exchangeable for shares of Series B TCI Group Common Stock) to holders of Series B TCI Group Common Stock; (ii) a share distribution consisting of shares of Series A LMG Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A LMG Common Stock) to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an equal per share basis; provided that the sum of (a) the aggregate number of shares of Series A LMG Common Stock to be so issued (or the number of such shares which would be issuable upon conversion, exercise or exchange of any Convertible Securities to be so issued) and (b) the number of shares of such series that are subject to issuance upon conversion, exercise or exchange of any Convertible Securities then outstanding that are attributed to the TCI Group (other than Pre-Distribution Convertible Securities and other than Convertible Securities convertible into or exercisable or exchangeable for Committed Acquisition Shares) is less than or equal to the Number of Shares Issuable with Respect to the Inter-Group Interest; and (iii) a share distribution consisting of any class or series of securities of the Parent or any other person other than TCI Group Common Stock or Liberty Media Group Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of TCI Group Common Stock or Liberty Media Group Common Stock), either on the basis of a distribution of identical securities, on an equal per share basis, to holders of Series A TCI Group Common Stock and Series B TCI Group Common Stock or on the basis of a distribution of one class or series of securities to holders of Series A TCI Group Common Stock and another class or series of securities to holders of Series B TCI Group Common Stock, provided that the securities so distributed (and, if the distribution consists of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exercisable or exchangeable) do not differ in any respect other than their relative voting rights and related differences in designation, conversion, redemption and share distribution provisions, with holders of shares of Series B TCI Group Common Stock receiving the class or series having the higher relative voting rights (without regard to whether such rights differ to a greater or lesser extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A TCI Group Common Stock and the Series B TCI Group Common Stock), provided that if the securities so distributed constitute capital stock of a subsidiary of the Parent, such rights will not differ to a greater extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A TCI Group Common Stock and the Series B TCI Group Common Stock, and provided in each case that such distribution is otherwise made on an equal per share basis. The Parent will not reclassify, subdivide or combine the Series A TCI Group Common Stock without reclassifying, subdividing or combining the Series B TCI Group Common Stock, on an equal per share basis, 38 40 and the Parent will not reclassify, subdivide or combine the Series B TCI Group Common Stock without reclassifying, subdividing or combining the Series A TCI Group Common Stock, on an equal per share basis. Distributions on Liberty Media Group Common Stock. If at any time a share distribution is to be made with respect to the Liberty Media Group Common Stock, such share distribution will be declared and paid only as follows (or as described under "-- Conversion and Redemption" with respect to the redemptions and other distributions referred to therein): (i) a share distribution consisting of shares of Series A LMG Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A LMG Common Stock) to holders of Series A LMG Common Stock and Series B LMG Common Stock, on an equal per share basis; or consisting of shares of Series B LMG Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series B LMG Common Stock) to holders of Series A LMG Common Stock and Series B LMG Common Stock, on an equal per share basis; or consisting of shares of Series A LMG Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A LMG Common Stock) to holders of Series A LMG Common Stock and, on an equal per share basis, shares of Series B LMG Common Stock (or like Convertible Securities convertible into or exercisable or exchangeable for shares of Series B LMG Common Stock) to holders of Series B LMG Common Stock; and (ii) a share distribution consisting of any class or series of securities of the Parent or any other person other than as described in the immediately preceding clause (i) and other than TCI Group Common Stock (or Convertible Securities convertible into or exercisable or exchangeable for shares of Series A TCI Group Common Stock or Series B TCI Group Common Stock), either on the basis of a distribution of identical securities, on an equal per share basis, to holders of Series A LMG Common Stock and Series B LMG Common Stock or on the basis of a distribution of one class or series of securities to holders of Series A LMG Common Stock and another class or series of securities to holders of Series B LMG Common Stock, provided that the securities so distributed (and, if the distribution consists of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exercisable or exchangeable) do not differ in any respect other than their relative voting rights and related differences in designation, conversion, redemption and share distribution provisions, with holders of shares of Series B LMG Common Stock receiving the class or series having the higher relative voting rights (without regard to whether such rights differ to a greater or lesser extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A LMG Common Stock and the Series B LMG Common Stock), provided that if the securities so distributed constitute capital stock of a subsidiary of the Parent, such rights will not differ to a greater extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A LMG Common Stock and the Series B LMG Common Stock, and provided in each case that such distribution is otherwise made on an equal per share basis. The Parent will not reclassify, subdivide or combine the Series A LMG Common Stock without reclassifying, subdividing or combining the Series B LMG Common Stock, on an equal per share basis, and the Parent will not reclassify, subdivide or combine the Series B LMG Common Stock without reclassifying, subdividing or combining the Series A LMG Common Stock, on an equal per share basis. Conversion and Redemption Conversion of Series B TCI Group Common Stock and Series B LMG Common Stock at the Option of the Holder. Each share of Series B TCI Group Common Stock is convertible, at the option of the holder thereof, into one share of Series A TCI Group Common Stock. Each share of Series B LMG Common Stock is convertible, at the option of the holder thereof, into one share of Series A LMG Common Stock. Shares of Series A TCI Group Common Stock are not convertible into shares of Series B TCI Group Common Stock, and shares of Series A LMG Common Stock are not convertible into shares of Series B LMG Common Stock. 39 41 Conversion of Liberty Media Group Common Stock at the Option of Parent. The Parent Board of Directors may at any time declare that (i) all of the outstanding shares of Series A LMG Common Stock will be converted into a number (or fraction) of fully paid and nonassessable shares of Series A TCI Group Common Stock equal to the Optional Conversion Ratio and (ii) all of the outstanding shares of Series B LMG Common Stock will be converted into a number (or fraction) of fully paid and nonassessable shares of Series B TCI Group Common Stock equal to the Optional Conversion Ratio. For these purposes, the "Optional Conversion Ratio" means the quotient (calculated to the nearest five decimal places) obtained by dividing (x) the Liberty Media Group Common Stock Per Share Value by (y) the average Market Value of one share of Series A TCI Group Common Stock over the 20-trading day period ending on the trading day preceding the Appraisal Date. The "Liberty Media Group Private Market Value" means an amount equal to the private market value of the Liberty Media Group as of the last day of the calendar month preceding the month in which the last of the two appraisers referred to in the immediately following sentence are selected (the last day of such calendar month is hereinafter referred to as the "Appraisal Date"). In the event that the Parent determines to establish the Liberty Media Group Private Market Value, two investment banking firms of recognized national standing will be designated to determine the private market value of the Liberty Media Group, one designated by the Parent (the "First Appraiser") and one designated by a committee of the Parent Board of Directors all of whose members are independent directors as determined under Nasdaq National Market rules (the "Second Appraiser"). The date upon which the last of such appraisers is selected is hereinafter referred to as the "Selection Date." Not later than 20 days after the Selection Date, the First Appraiser and the Second Appraiser will each determine its initial view as to the private market value of the Liberty Media Group as of the Appraisal Date and will consult with one another with respect thereto. Not later than the 30th day after the Selection Date, the First Appraiser and the Second Appraiser will each have determined its final view as to such private market value. If the higher of the respective final views of the First Appraiser and the Second Appraiser as to such private market value (the "Higher Appraised Amount") is not more than 120% of the lower of such respective final views (the "Lower Appraised Amount"), the Liberty Media Group Private Market Value (subject to any adjustment described in the second succeeding paragraph) will be the average of those two amounts. If the Higher Appraised Amount is more than 120% of the Lower Appraised Amount, the First Appraiser and the Second Appraiser will agree upon and jointly designate a third investment banking firm of recognized national standing (the "Mutually Designated Appraiser") to determine such private market value. The Mutually Designated Appraiser will not be provided with any of the work of the First Appraiser and Second Appraiser. The Mutually Designated Appraiser will, no later than the 20th day after the date the Mutually Designated Appraiser is designated, determine such private market value (the "Mutually Appraised Amount"), and the Liberty Media Group Private Market Value (subject to any adjustment described in the second succeeding paragraph) will be (i) if the Mutually Appraised Amount is between the Lower Appraised Amount and the Higher Appraised Amount, (a) the average of (1) the Mutually Appraised Amount and (2) the Lower Appraised Amount or the Higher Appraised Amount, whichever is closer to the Mutually Appraised Amount, or (b) the Mutually Appraised Amount, if neither the Lower Appraised Amount nor the Higher Appraised Amount is closer to the Mutually Appraised Amount, or (ii) if the Mutually Appraised Amount is greater than the Higher Appraised Amount or less than the Lower Appraised Amount, the average of the Higher Appraised Amount and the Lower Appraised Amount. For these purposes, if any such investment banking firm expresses its final view of the private market value of the Liberty Media Group as a range of values, such investment banking firm's final view of such private market value will be deemed to be the midpoint of such range of values. Each of the investment banking firms referred to in the immediately preceding paragraph will be instructed to determine the private market value of the Liberty Media Group as of the Appraisal Date based upon the amount a willing purchaser would pay to a willing seller, in an arm's length transaction, if it were acquiring the Liberty Media Group, as if the Liberty Media Group were a publicly traded non-controlled corporation and the purchaser was acquiring all of the capital stock of such corporation and without consideration of any potential regulatory constraints limiting the potential purchasers of the Liberty Media 40 42 Group other than that which would have existed if the Liberty Media Group were a publicly traded non-controlled entity. Following the determination of the Liberty Media Group Private Market Value, the investment banking firms whose final views of the private market value of the Liberty Media Group were used in the calculation of the Liberty Media Group Private Market Value will determine the Adjusted Outstanding Shares of Liberty Media Group Common Stock together with any further appropriate adjustments to the Liberty Media Group Private Market Value resulting from such determination. The "Adjusted Outstanding Shares of Liberty Media Group Common Stock" means a number, as determined by such investment banking firms as of the Appraisal Date, equal to the sum of the number of shares of Liberty Media Group Common Stock outstanding, the Number of Shares Issuable with Respect to the Inter-Group Interest, the number of Committed Acquisition Shares issuable, the number of shares of Liberty Media Group Common Stock issuable upon the conversion, exercise or exchange of all Pre-Distribution Convertible Securities and the number of shares of Liberty Media Group Common Stock issuable upon the conversion, exercise or exchange of those Convertible Securities (other than Pre-Distribution Convertible Securities and other than Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares) the holders of which would derive an economic benefit from conversion, exercise or exchange of such Convertible Securities which exceeds the economic benefit of not converting, exercising or exchanging such Convertible Securities. The "Liberty Media Group Common Stock Per Share Value" means the quotient obtained by dividing the Liberty Media Group Private Market Value by the Adjusted Outstanding Shares of Liberty Media Group Common Stock, provided that if such investment banking firms do not agree on the determinations provided for in this paragraph, the Liberty Media Group Common Stock Per Share Value will be the average of the quotients so obtained on the basis of the respective determinations of such firms. If the Parent determines to convert shares of Series A LMG Common Stock into Series A TCI Group Common Stock and shares of Series B LMG Common Stock into Series B TCI Group Common Stock at the Optional Conversion Ratio, such conversion will occur on a conversion date on or prior to the 120th day following the Appraisal Date. If the Parent determines not to undertake such conversion, the Parent may at any time thereafter undertake to reestablish the Liberty Media Group Common Stock Per Share Value as of a subsequent date. Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock. Upon the sale, transfer, assignment or other disposition, whether by merger, consolidation, sale or contribution of assets or stock or otherwise (a "Disposition"), in one transaction or a series of related transactions by the Parent and its subsidiaries of all or substantially all of the properties and assets of the Liberty Media Group to one or more persons, entities or groups (other than (a) in connection with the Disposition by the Parent of all of the Parent's properties and assets in one transaction or a series of related transactions in connection with the liquidation, dissolution or winding up of the Parent, (b) a dividend, other distribution or redemption in accordance with any provision described under "-- Dividends," "-- Share Distributions," "-- Redemption in Exchange for Stock of Subsidiary" or "-- Liquidation Rights," (c) to any person, entity or group which the Parent, directly or indirectly, after giving effect to the Disposition, controls or (d) in connection with a Related Business Transaction), the Parent will on or prior to the 85th trading day following the consummation of such Disposition, either: (i) subject to the limitations described above under "-- Dividends," declare and pay a dividend in cash and/or securities or other property (other than a dividend or distribution of Parent Common Stock) to the holders of the outstanding shares of Liberty Media Group Common Stock equally on a share for share basis (subject to the provisions described in the last sentence of the paragraph herein which defines the term "Net Proceeds"), in an aggregate amount equal to the product of the Outstanding Interest Fraction as of the record date for determining the holders entitled to receive such dividend and the Net Proceeds of such Disposition; 41 43 (ii) provided that there are funds of the Parent legally available therefor and the Liberty Media Group Available Dividend Amount would have been sufficient to pay a dividend in lieu thereof as described in clause (i) of this paragraph: (a) if such Disposition involves all (not merely substantially all) of the properties and assets of the Liberty Media Group, redeem all outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock in exchange for cash and/or securities or other property (other than Parent Common Stock) in an aggregate amount equal to the product of the Adjusted Outstanding Interest Fraction as of the date of such redemption and the Net Proceeds of such Disposition, such aggregate amount to be allocated (subject to the provisions described in the last sentence of the paragraph herein which defines the term "Net Proceeds") to shares of Series A LMG Common Stock and Series B LMG Common Stock in the ratio of the number of shares of each such series outstanding (so that the amount of consideration paid for the redemption of each share of Series A LMG Common Stock and each share of Series B LMG Common Stock is the same); or (b) if such Disposition involves substantially all (but not all) of the properties and assets of the Liberty Media Group, apply an aggregate amount of cash and/or securities or other property (other than Parent Common Stock) equal to the product of the Outstanding Interest Fraction as of the date shares are selected for redemption and the Net Proceeds of such Disposition to the redemption of outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock, such aggregate amount to be allocated (subject to the provisions described in the last sentence of the paragraph herein which defines the term "Net Proceeds") to shares of Series A LMG Common Stock and Series B LMG Common Stock in the ratio of the number of shares of each such series outstanding, and the number of shares of each such series to be redeemed to equal the lesser of (x) the whole number nearest the number determined by dividing the aggregate amount so allocated to the redemption of such series by the average Market Value of one share of Series A LMG Common Stock during the ten-trading day period beginning on the 16th trading day following the consummation of such Disposition and (y) the number of shares of such series outstanding (so that the amount of consideration paid for the redemption of each share of Series A LMG Common Stock and each share of Series B LMG Common Stock is the same); or (iii) convert (a) each outstanding share of Series A LMG Common Stock into a number (or fraction) of fully paid and nonassessable shares of Series A TCI Group Common Stock and (b) each outstanding share of Series B LMG Common Stock into a number (or fraction) of fully paid and nonassessable shares of Series B TCI Group Common Stock, in each case equal to 110% of the average daily ratio (calculated to the nearest five decimal places) of the Market Value of one share of Series A LMG Common Stock to the Market Value of one share of Series A TCI Group Common Stock during the ten-trading day period referred to in clause (ii)(b) of this paragraph. For these purposes, "substantially all of the properties and assets of the Liberty Media Group" as of any date means a portion of such properties and assets that represents at least 80% of then-current market value (as determined by the Parent Board of Directors) of the properties and assets of the Liberty Media Group as of such date. A "Related Business Transaction" means any Disposition of all or substantially all of the properties and assets of the Liberty Media Group in which the Parent receives as proceeds of such Disposition primarily equity securities (including, without limitation, capital stock, convertible securities, partnership or limited partnership interests and other types of equity securities, without regard to the voting power or contractual or other management or governance rights related to such equity securities) of the purchaser or acquirer of such assets and properties of the Liberty Media Group, any entity which succeeds (by merger, formation of a joint venture enterprise or otherwise) to such assets and properties of the Liberty Media Group or a third party issuer, which purchaser, acquirer or other issuer is engaged or proposes to engage primarily in one or more businesses similar or complementary to the businesses conducted by the Liberty Media Group prior to such Disposition, as determined in good faith by the Parent Board of Directors. 42 44 The "Adjusted Outstanding Interest Fraction" means a fraction the numerator of which is the number of outstanding shares of Liberty Media Group Common Stock and the denominator of which is the sum of (a) such number of outstanding shares, (b) the Number of Shares Issuable with Respect to the Inter-Group Interest, (c) the number of shares of Liberty Media Group Common Stock issuable upon conversion, exercise or exchange of Pre-Distribution Convertible Securities and (d) the number of Committed Acquisition Shares issuable. The "Net Proceeds" with respect to any Disposition of any of the properties and assets of the Liberty Media Group means an amount, if any, equal to the gross proceeds of such Disposition after any payment of, or reasonable provision for, (a) any taxes payable by the Parent in respect of such Disposition or in respect of any resulting dividend or redemption (or which would have been payable but for the utilization of tax benefits attributable to the TCI Group), (b) any transaction costs, including, without limitation, any legal, investment banking and accounting fees and expenses and (c) any liabilities and other obligations (contingent or otherwise) of, or attributed to, the Liberty Media Group, including, without limitation, any indemnity or guarantee obligations incurred in connection with the Disposition or any liabilities for future purchase price adjustments and any preferential amounts plus any accumulated and unpaid dividends and other obligations (without duplication of amounts allocated for the satisfaction of the Parent's obligations with respect to Pre-Distribution Convertible Securities and Committed Acquisition Shares issuable which are included in the determination of the Adjusted Outstanding Interest Fraction) in respect of Parent Preferred Stock attributed to the Liberty Media Group. The Parent may elect to pay the dividend or redemption price referred to in clause (i) or (ii) above either in the same form as the proceeds of the Disposition were received or in any other combination of cash or securities or other property (other than Parent Common Stock) that the Parent Board of Directors determines will have an aggregate market value on a fully distributed basis, of not less than the amount of the Net Proceeds. If the dividend or redemption price is paid in the form of securities of an issuer other than the Parent, the Parent Board of Directors may determine either to (i) pay the dividend or redemption price in the form of separate classes or series of securities, with one class or series of such securities to holders of Series A LMG Common Stock and another class or series of securities to holders of Series B LMG Common Stock, provided that such securities (and, if such securities are convertible into or exercisable or exchangeable for shares of another class or series of securities, the securities so issuable upon such conversion, exercise or exchange) do not differ in any respect other than their relative voting rights and related differences in designation, conversion, redemption and share distribution provisions with holders of shares of Series B LMG Common Stock receiving the class or series having the higher relative voting rights (without regard to whether such rights differ to a greater or lesser extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A LMG Common Stock and the Series B LMG Common Stock), provided that if such securities constitute capital stock of a subsidiary of the Parent, such rights will not differ to a greater extent than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A LMG Common Stock and Series B LMG Common Stock, and otherwise such securities will be distributed on an equal per share basis, or (ii) pay the dividend or redemption price in the form of a single class of securities without distinction between the shares received by the holders of Series A LMG Common Stock and Series B LMG Common Stock. At the time of any dividend made as a result of a Disposition referred to above, the TCI Group will be credited, and the Liberty Media Group will be charged (in addition to the charge for the dividend paid in respect of outstanding shares of Liberty Media Group Common Stock), with an amount equal to the product of (i) the aggregate amount paid in respect of such dividend times (ii) a fraction the numerator of which is the Inter-Group Interest Fraction and the denominator of which is the Outstanding Interest Fraction. Redemption in Exchange for Stock of Subsidiary. At any time at which all of the assets and liabilities attributed to the Liberty Media Group are held directly or indirectly by any one or more corporations all of the capital stock of which is owned by the Parent (the "Liberty Media Group Subsidiaries"), the Parent Board of Directors may, subject to there being funds of the Parent legally available therefor, redeem on a pro rata basis, all of the outstanding shares of Liberty Media Group Common Stock in exchange for an aggregate number of outstanding fully paid and nonassessable shares of common stock of each Liberty Media Group Subsidiary 43 45 equal to the product of the Adjusted Outstanding Interest Fraction and the number of all of the outstanding shares of common stock of such Liberty Media Group Subsidiary. In effecting such a redemption, the Parent Board of Directors may determine either to (i) redeem shares of Series A LMG Common Stock and Series B LMG Common Stock in exchange for shares of separate classes or series of common stock of each Liberty Media Group Subsidiary with relative voting rights and related differences in designation, conversion, redemption and share distribution provisions not greater than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Series A LMG Common Stock and Series B LMG Common Stock, with holders of shares of Series B LMG Common Stock receiving the class or series having the higher relative voting rights, or (ii) redeem shares of Series A LMG Common Stock and Series B LMG Common Stock in exchange for shares of a single class of common stock of each Liberty Media Group Subsidiary without distinction between the shares distributed to the holders of the two series of Liberty Media Group Common Stock. If the Parent determines to undertake a redemption as described in clause (i) of the preceding sentence, the outstanding shares of common stock of each Liberty Media Group Subsidiary not distributed to holders of Liberty Media Group Common Stock would consist solely of the class or series having the lower relative voting rights. Certain Provisions Respecting Convertible Securities. Unless the provisions of any class or series of Pre-Distribution Convertible Securities or Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares provide specifically to the contrary, after any conversion date or redemption date on which all outstanding shares of Liberty Media Group Common Stock were converted or redeemed, any share of Liberty Media Group Common Stock that is issued on conversion, exercise or exchange of any Pre-Distribution Convertible Securities or any Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares will, immediately upon issuance pursuant to such conversion, exercise or exchange and without any notice or any other action on the part of the Parent or the Parent Board of Directors or the holder of such share of Liberty Media Group Common Stock, be converted into or redeemed in exchange for, as applicable, the kind and amount of shares of capital stock, cash and/or other securities or property that a holder of such Pre-Distribution Convertible Securities or any Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares would have been entitled to receive pursuant to the terms of such securities had such terms provided that the conversion, exercise or exchange privilege in effect immediately prior to any such conversion or redemption of all outstanding shares of Liberty Media Group Common Stock would be adjusted so that the holder of any such Pre-Distribution Convertible Securities or any Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares thereafter surrendered for conversion, exercise or exchange would be entitled to receive the kind and amount of shares of capital stock, cash and/or other securities or property such holder would have received as a result of such action had such securities been converted, exercised or exchanged immediately prior thereto. With respect to any Convertible Securities which are created, established or otherwise first authorized for issuance subsequent to the record date for the Distribution (other than Pre-Distribution Convertible Securities and Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares), the terms and provisions of which do not provide for adjustments specifying the kind and amount of capital stock, cash and/or securities or other property that such holder would be entitled to receive upon the conversion, exercise or exchange of such Convertible Securities following any conversion date or redemption date on which all outstanding shares of Liberty Media Group Common Stock were converted or redeemed, then upon such conversion, exercise or exchange of such Convertible Securities, any share of Liberty Media Group Common Stock that is issued on conversion, exercise or exchange of any such Convertible Securities will, immediately upon issuance pursuant to such conversion, exercise or exchange and without any notice or any other action on the part of the Parent or the Parent Board of Directors or the holder of such share of Liberty Media Group Common Stock, be redeemed in exchange for, to the extent assets of the Parent are legally available therefor, the amount of $.01 per share in cash. General Conversion and Redemption Provisions. Not later than the 10th trading day following the consummation of a Disposition referred to above under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock," the Parent will announce publicly by press release (i) the Net 44 46 Proceeds of such Disposition, (ii) the number of outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock, (iii) the number of shares of Series A LMG Common Stock and Series B LMG Common Stock into or for which Convertible Securities are then convertible, exercisable or exchangeable and the conversion, exercise or exchange prices thereof (and stating which, if any, of such Convertible Securities constitute Pre-Distribution Convertible Securities or Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares) and the number of Committed Acquisition Shares issuable, (iv) the Outstanding Interest Fraction as of a recent date preceding the date of such notice and (v) the Adjusted Outstanding Interest Fraction as of a recent date preceding the date of such notice. Not earlier than the 26th trading day and not later than the 30th trading day following the consummation of such Disposition, the Parent will announce publicly by press release which of the actions described in clauses (i), (ii) or (iii) of the first paragraph under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" it has irrevocably determined to take. The Parent also will cause to be given to each holder of outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock and to each holder of Convertible Securities convertible into or exercisable or exchangeable for shares of either such series (unless provision for notice is otherwise made pursuant to the terms of such Convertible Securities) a notice setting forth (i) if the Parent has determined to pay a dividend described in clause (i) of the first paragraph under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" (a "Dividend Election"), (x) the record date for determining holders entitled to receive such dividend, which will not be earlier than the 40th trading day, nor later than the 50th trading day, following the consummation of such Disposition and (y) the anticipated payment date of such dividend (which will not be more than 85 trading days following the consummation of such Disposition), (ii) if the Parent has determined to redeem shares of Liberty Media Group Common Stock following a Disposition of all (and not merely substantially all) of the properties and assets of the Liberty Media Group as described in clause (ii)(a) of the first paragraph under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" (a "Full Redemption Election"), (x) the redemption date (which will not be more than 85 trading days following the consummation of such Disposition) and (y) a statement that all shares of Liberty Media Group Common Stock outstanding on the redemption date will be redeemed, (iii) if the Parent has determined to redeem shares of Liberty Media Group Common Stock following a Disposition of substantially all (but not all) of the properties and assets of the Liberty Media Group as described in clause (ii)(b) of the first paragraph under "--Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" (a "Partial Redemption Election"), (x) a date not earlier than the 40th trading day and not later than the 50th trading day following the consummation of such Disposition on which shares of Liberty Media Group Common Stock then outstanding will be selected for redemption and (y) the anticipated redemption date (which will not be more than 85 trading days following the consummation of such Disposition) and (iv) in the event of any conversion as described above under "-- Conversion at the Option of the Parent" or as described in clause (iii) of the first paragraph under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" (a "Conversion Election"), (x) a statement that all outstanding shares of Liberty Media Group Common Stock will be converted and (y) the conversion date (which will not be more than 85 trading days following the consummation of the Disposition in the event of conversion pursuant to the provisions described under "-- Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common Stock" and which will not be more than 120 days after the Appraisal Date in the event of conversion pursuant to the provisions described under "-- Conversion at the Option of the Parent"). Each notice of a Dividend Election, a Full Redemption Election or a Partial Redemption Election also will state, as applicable, (i) the kind of shares of capital stock, cash and/or other securities or property to be distributed in respect of shares of Liberty Media Group Common Stock (in the case of a Dividend Election) or paid as the redemption price with respect to shares of Liberty Media Group Common Stock outstanding on the redemption date (in the case of a Full Redemption Election) or selected for redemption (in the case of a Partial Redemption Election); (ii) the Net Proceeds of such Disposition; (iii) in the case of a Dividend Election and a Partial Redemption Election, the Outstanding Interest Fraction as of a recent date preceding the date of such notice, and in the case of a Full Redemption Election, the Adjusted Outstanding Interest Fraction as of a recent date preceding the date of such notice; (iv) the number of outstanding shares of Series A LMG Common Stock and Series B 45 47 LMG Common Stock and the number of shares of Series A LMG Common Stock and Series B LMG Common Stock into or for which outstanding Convertible Securities are then convertible, exercisable or exchangeable and the conversion, exercise or exchange price thereof (and, in the case of a Full Redemption Election, stating which, if any, of such Convertible Securities constitute Pre-Distribution Convertible Securities or Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares and the number of Committed Acquisition Shares issuable); (v) in the case of a Full Redemption Election, the place or places where certificates for shares of Liberty Media Group Common Stock properly endorsed or assigned for transfer (unless the Parent waives such requirement), are to be surrendered for delivery of certificates for shares of such capital stock, cash and/or other securities or property; (vi) in the case of notice to holders of Convertible Securities, a statement to the effect that holders of such Convertible Securities will be entitled to receive such dividend (in the case of a Dividend Election) or participate in such redemption (in the case of a Full Redemption Election) or in the selection of shares for redemption (in the case of a Partial Redemption Election) only if such holders appropriately convert, exercise or exchange such Convertible Securities on or prior to the record date for determining holders entitled to receive such dividend, the redemption date, or the date fixed for the selection of shares to be redeemed, respectively, and a statement as to what, if anything, such holder will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, the provisions described under "-- Certain Provisions Respecting Convertible Securities" if such holder converts, exercises or exchanges such Convertible Securities following such redemption date or date for selection of shares to be redeemed, as applicable, and (vii) in the case of a Partial Redemption Election, a statement that the Parent will not be required to register a transfer of any shares of Liberty Media Group Common Stock for a period of 15 trading days next preceding the date fixed for selection of shares to be redeemed. In the case of a Partial Redemption Election, the Parent also will cause to be given to each holder of shares of Liberty Media Group Common Stock selected for redemption, a notice setting forth (i) the number of shares of Series A LMG Common Stock and Series B LMG Common Stock held by such holder to be redeemed, (ii) a statement that such shares of Series A LMG Common Stock and Series B LMG Common Stock will be redeemed, (iii) the redemption date (which will not be more than 85 trading days following the consummation of such Disposition), (iv) the kind and per share amount of shares of capital stock, cash and/or other securities or property to be received by such holder with respect to each share of such Liberty Media Group Common Stock to be redeemed, including details as to the calculation thereof, and (v) the place or places where certificates for shares of such Liberty Media Group Common Stock, properly endorsed or assigned for transfer (unless the Parent waives such requirement), are to be surrendered for delivery of certificates for shares of such capital stock, cash and/or other securities or property. The outstanding shares of Liberty Media Group Common Stock to be redeemed will be redeemed by the Parent pro rata among the holders of Liberty Media Group Common Stock or by such other method as may be determined by the Parent Board of Directors to be equitable. In the case of a Conversion Election, the Parent's notice also will state (i) the per share number of shares of Series A TCI Group Common Stock or Series B TCI Group Common Stock, as applicable, to be received with respect to each share of Series A LMG Common Stock or Series B LMG Common Stock, including details as to the calculation thereof, (ii) the place or places where certificates for shares of Liberty Media Group Common Stock, properly endorsed or assigned for transfer (unless the Parent waives such requirement), are to be surrendered, (iii) the number of outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock, the number of Committed Acquisition Shares issuable and the number of shares of Series A LMG Common Stock and Series B LMG Common Stock into or for which outstanding Convertible Securities are then convertible, exercisable or exchangeable and the conversion, exercise or exchange prices thereof and (iv) in the case of a notice to holders of Convertible Securities, a statement to the effect that holders of such Convertible Securities will be entitled to participate in such conversion only if such holders appropriately convert, exercise or exchange such Convertible Securities on or prior to the conversion date and a statement as to what, if anything, such holders will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, the provision described under "--Certain Provisions Respecting Convertible Securities" if such holders convert, exercise or exchange such Convertible Securities following such conversion date. 46 48 Notice of a Dividend Election will be given not later than the 30th trading day following the consummation of the Disposition; notice of a Full Redemption Election will be given not less than 35 trading days nor more than 45 trading days prior to the redemption date; notice of a Partial Redemption Election will be given not later than the 30th trading day following the consummation of the Disposition and the notice to holders of shares selected for redemption will be given promptly following such selection, but not earlier than the 40th trading day and not later than the 50th trading day following the consummation of the Disposition; and notice of a Conversion Election will be given not less than 35 trading days nor more than 45 trading days prior to the conversion date. All such notices will be sent by first-class mail, postage prepaid, to a holder at such holder's address as the same appears on the transfer books of the Parent. If the Parent determines to redeem shares of Series A LMG Common Stock and Series B LMG Common Stock as described above under "-- Redemption in Exchange for Stock of Subsidiary," the Parent will promptly cause to be given to each holder of Series A LMG Common Stock and Series B LMG Common Stock and to each holder of Convertible Securities convertible into or exercisable or exchangeable for shares of either such series (unless provision for such notice is otherwise made pursuant to the terms of such Convertible Securities), a notice setting forth (i) a statement that all outstanding shares of Liberty Media Group Common Stock will be redeemed in exchange for shares of common stock of the Liberty Media Group Subsidiaries, (ii) the redemption date, (iii) the Adjusted Outstanding Interest Fraction as of a recent date preceding the date of such notice, (iv) the place or places where certificates for shares of Liberty Media Group Common Stock, properly endorsed or assigned for transfer (unless the Parent waives such requirement), are to be surrendered for delivery of certificates for shares of common stock of the Liberty Media Group Subsidiaries, (v) the number of outstanding shares of Series A LMG Common Stock and Series B LMG Common Stock and the number of shares of Series A LMG Common Stock and Series B LMG Common Stock into or for which outstanding Convertible Securities are then convertible, exercisable or exchangeable and the conversion, exercise or exchange prices thereof (and stating which, if any, of such Convertible Securities constitute Pre-Distribution Convertible Securities or Convertible Securities which are convertible into or exercisable or exchangeable for Committed Acquisition Shares) and the number of Committed Acquisition Shares issuable, and (vi) in the case of a notice to holders of Convertible Securities, a statement to the effect that holders of such Convertible Securities will be entitled to receive shares of common stock of the Liberty Media Group Subsidiaries upon redemption only if such holders appropriately convert, exercise or exchange such Convertible Securities on or prior to the redemption date referred to in clause (ii) of this sentence and a statement as to what, if anything, such holders will be entitled to receive pursuant to the terms of such Convertible Securities or, if applicable, the provisions described under "-- Certain Provisions Respecting Convertible Securities" if such holders convert, exercise or exchange such Convertible Securities following the redemption date. Such notice will be sent by first-class mail, postage prepaid, not less than 35 trading days nor more than 45 trading days prior to the redemption date, at such holder's address as the same appears on the transfer books of the Parent. Neither the failure to mail any notice to any particular holder of Liberty Media Group Common Stock or of Convertible Securities nor any defect therein will affect the sufficiency thereof with respect to any other holder of outstanding shares of Liberty Media Group Common Stock or of Convertible Securities, or the validity of any conversion or redemption. The Parent will not be required to issue or deliver fractional shares of any class of capital stock or any fractional securities to any holder of Liberty Media Group Common Stock upon any conversion, redemption, dividend or other distribution described above. In connection with the determination of the number of shares of any class of capital stock that is issuable or the amount of securities that is deliverable to any holder of record upon any such conversion, redemption, dividend or other distribution (including any fractions of shares or securities), the Parent may aggregate the number of shares of Liberty Media Group Common Stock held at the relevant time by such holder of record. If the number of shares of any class of capital stock or the amount of securities remaining to be issued or delivered to any holder of Liberty Media Group Common Stock is a fraction, the Parent will, if such fraction is not issued or delivered to such holder, pay a cash adjustment in respect of such fraction in an amount equal to the fair market value of such fraction on the fifth trading day prior to the date such payment is to be made (without interest). For purposes of the preceding sentence, "fair 47 49 market value" of any fraction will be (i) in the case of any fraction of a share of capital stock of the Parent, the product of such fraction and the Market Value of one share of such capital stock and (ii) in the case of any other fractional security, such value as is determined by the Parent Board of Directors. No adjustments in respect of dividends will be made upon the conversion or redemption of any shares of Liberty Media Group Common Stock; provided, however, that if the conversion date or the redemption date with respect to the Liberty Media Group Common Stock is subsequent to the record date for the payment of a dividend or other distribution thereon or with respect thereto, the holders of shares of Liberty Media Group Common Stock at the close of business on such record date will be entitled to receive the dividend or other distribution payable on or with respect to such shares on the date set for payment of such dividend or other distribution, notwithstanding the conversion or redemption of such shares or the Parent's default in payment of the dividend or distribution due on such date. Before any holder of shares of Liberty Media Group Common Stock will be entitled to receive certificates representing shares of any kind of capital stock or cash and/or securities or other property to be received by such holder with respect to any conversion or redemption of shares of Liberty Media Group Common Stock, such holder is required to surrender at such place as the Parent will specify certificates for such shares, properly endorsed or assigned for transfer (unless the Parent waives such requirement). The Parent will as soon as practicable after such surrender of certificates representing shares of Liberty Media Group Common Stock deliver to the person for whose account such shares were so surrendered, or to the nominee or nominees of such person, certificates representing the number of whole shares of the kind of capital stock or cash and/or securities or other property to which such person is entitled, together with any payment for fractional securities referred to above. If less than all of the shares of Liberty Media Group Common Stock represented by any one certificate are to be redeemed, the Parent will issue and deliver a new certificate for the shares of Liberty Media Group Common Stock not redeemed. The Parent will not be required to register a transfer of (i) any shares of Liberty Media Group Common Stock for a period of 15 trading days next preceding any selection of shares of Liberty Media Group Common Stock to be redeemed or (ii) any shares of Liberty Media Group Common Stock selected or called for redemption. Shares selected for redemption may not thereafter be converted pursuant to the provisions described under "-- Conversion at the Option of the Holder." From and after any applicable conversion date or redemption date, all rights of a holder of shares of Liberty Media Group Common Stock that were converted or redeemed will cease except for the right, upon surrender of the certificates representing shares of Liberty Media Group Common Stock, to receive certificates representing shares of the kind and amount of capital stock or cash and/or securities or other property for which such shares were converted or redeemed, together with any payment for fractional securities and such holder will have no other or further rights in respect of the shares of Liberty Media Group Common Stock so converted or redeemed, including, but not limited to, any rights with respect to any cash, securities or other property which are reserved or otherwise designated by the Parent as being held for the satisfaction of the Parent's obligations to pay or deliver any cash, securities or other property upon the conversion, exercise or exchange of any Convertible Securities outstanding as of the date of such conversion or redemption or any Committed Acquisition Shares which may then be issuable. No holder of a certificate that, immediately prior to the applicable conversion date or redemption date for the Liberty Media Group Common Stock, represented shares of Liberty Media Group Common Stock will be entitled to receive any dividend or other distribution with respect to shares of any kind of capital stock into or in exchange for which the Liberty Media Group Common Stock was converted or redeemed until surrender of such holder's certificate for a certificate or certificates representing shares of such kind of capital stock. Upon such surrender, there will be paid to the holder the amount of any dividends or other distributions (without interest) which theretofore became payable with respect to a record date after the conversion date or redemption date, as the case may be, but that were not paid by reason of the foregoing, with respect to the number of whole shares of the kind of capital stock represented by the certificate or certificates issued upon such surrender. From and after a conversion date or redemption date, as the case may be, for any shares of Liberty Media Group Common Stock, the Parent will, however, be entitled to treat the certificates for shares of Liberty Media Group Common Stock that have not yet been surrendered for conversion or redemption as evidencing the ownership of the number of whole shares of the kind or kinds of capital stock for which the shares of Liberty Media 48 50 Group Common Stock represented by such certificates have been converted or redeemed, notwithstanding the failure to surrender such certificates. The Parent will pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of any shares of capital stock and/or other securities on conversion or redemption of shares of Liberty Media Group Common Stock. The Parent will not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of any shares of capital stock in a name other than that in which the shares of Liberty Media Group Common Stock so converted or redeemed were registered and no such issue or delivery will be made unless and until the person requesting such issue has paid to the Parent the amount of any such tax, or has established to the satisfaction of the Parent that such tax has been paid. Liquidation Rights In the event of a liquidation, dissolution or winding up of the Parent, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Parent and subject to the prior payment in full of the preferential amounts to which any class or series of Parent Preferred Stock is entitled, (i) the holders of the shares of TCI Group Common Stock will share equally, on a share for share basis, in a percentage of the funds of the Parent remaining for distribution to its common stockholders equal to 100% multiplied by the average daily ratio (expressed as a decimal) of x/z for the 20-trading day period ending on the trading day prior to the date of the public announcement of such liquidation, dissolution or winding up, and (ii) the holders of the shares of Liberty Media Group Common Stock will share equally, on a share for share basis, in a percentage of the funds of the Parent remaining for distribution to its common stockholders equal to 100% multiplied by the average daily ratio (expressed as a decimal) of y/z for such 20-trading day period, where x is the aggregate Market Capitalization of the Series A TCI Group Common Stock and the Series B TCI Group Common Stock, y is the aggregate Market Capitalization of the Series A LMG Common Stock and the Series B LMG Common Stock, and z is the aggregate Market Capitalization of the Series A TCI Group Common Stock, the Series B TCI Group Common Stock, the Series A LMG Common Stock and the Series B LMG Common Stock. Neither a consolidation, merger nor sale of assets will be construed to be a "liquidation," "dissolution" or "winding up" of the Parent. The "Market Capitalization" of any class or series of capital stock of the Parent on any trading day means the product of (i) the Market Value of one share of such class or series on such trading day and (ii) the number of shares of such class or series outstanding on such trading day. No holder of Liberty Media Group Common Stock will have any special right to receive specific assets of the Liberty Media Group in the case of any dissolution, liquidation or winding up of the Parent. Determinations by the Parent Board of Directors The Parent Charter provides that any determinations made by the Parent Board of Directors under any provision described under "-- TCI Group Common Stock and Liberty Media Group Common Stock" above will be final and binding on all stockholders of the Parent, except as may otherwise be required by law. Such a determination would not be binding if it were established that the determination was made in breach of a fiduciary duty of the Parent Board of Directors. The Parent will prepare a statement of any such determination by the Parent Board of Directors respecting the fair market value of any properties, assets or securities and will file such statement with the Secretary of the Parent. Preemptive Rights Holders of the TCI Group Common Stock and Liberty Media Group Common Stock do not have any preemptive rights to subscribe for any additional shares of capital stock or other obligations convertible into or exercisable for shares of capital stock that may hereafter be issued by the Parent. 49 51 OTHER MATTERS The DGCL, the Parent Charter and the Parent's Bylaws contain provisions which may serve to discourage or make more difficult a change in control of Parent without the support of the Parent Board of Directors or without meeting various other conditions. The principal provisions of the DGCL and the aforementioned corporate governance documents are outlined below. DGCL Section 203, in general, prohibits a "business combination" between a corporation and an "interested stockholder" within three years of the date such stockholder became an "interested stockholder," unless (i) prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, exclusive of shares owned by directors who are also officers and by certain employee stock plans or (iii) on or after such date, the business combination is approved by the board of directors and authorized by the affirmative vote at a stockholders' meeting of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The term "business combination" is defined to include, among other transactions between the interested stockholder and the corporation or any direct or indirect majority-owned subsidiary thereof, a merger or consolidation; a sale, pledge, transfer or other disposition (including as part of a dissolution) of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; certain transactions that would increase the interested stockholder's proportionate share ownership of the stock of any class or series of the corporation or such subsidiary; and any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or any such subsidiary. In general, and subject to certain exceptions, an "interested stockholder" is any person who is the owner of 15% or more of the outstanding voting stock (or, in the case of a corporation with classes of voting stock with disparate voting power, 15% or more of the voting power of the outstanding voting stock) of the corporation, and the affiliates and associates of such person. The term "owner" is broadly defined to include any person that individually or with or through his or its affiliates or associates, among other things, beneficially owns such stock, or has the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or understanding or upon the exercise of warrants or options or otherwise or has the right to vote such stock pursuant to any agreement or understanding, or has an agreement or understanding with the beneficial owner of such stock for the purpose of acquiring, holding, voting or disposing of such stock. The restrictions of DGCL Section 203 do not apply to corporations that have elected, in the manner provided therein, not to be subject to such section or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or authorized for quotation on an interdealer quotation system of a registered national securities association or held of record by more than 2,000 stockholders. The Parent Charter does not contain any provision "opting out" of the application of DGCL Section 203 and TCI has not taken any of the actions necessary for it to "opt out" of such provision. As a result, the provisions of Section 203 will remain applicable to transactions between the Parent and any of its "interested stockholders." The Parent Charter also contains certain provisions which could make a change in control of Parent more difficult. For example, the Parent Charter requires, subject to the rights, if any, of any class or series of Parent Preferred Stock, the affirmative vote of 66 2/3% of the total voting power of the outstanding shares of Voting Securities, voting together as a single class, to approve (i) a merger or consolidation of the Parent with, or into, another corporation, other than a merger or consolidation which does not require the consent of stockholders under the DGCL or a merger or consolidation which has been approved by 75% of the members of the Parent Board of Directors (in which case, in accordance with the DGCL, the affirmative vote of a majority of the total voting power of the outstanding Voting Securities would, with certain exceptions, be required for approval), (ii) the sale, lease or exchange of all or substantially all of the property and assets of the Parent or (iii) the dissolution of the Parent. "Voting Securities" is currently defined as the TCI Group Common Stock, the Liberty Media Group Common Stock and any class or series of Parent Preferred Stock entitled to vote generally with the holders of Parent Common Stock on matters submitted to stockholders for a 50 52 vote. The Parent Charter also provides for a Parent Board of Directors of not less than three members, divided into three classes of approximately equal size, with each class to be elected for a three-year term at each annual meeting of stockholders. The exact number of directors, currently nine, is fixed by the Parent Board of Directors. The holders of TCI Group Common Stock, Liberty Media Group Common Stock, Class B Preferred Stock and Series C Preferred Stock, voting together as a single class, vote in elections for directors. (The Parent's Series F Preferred Stock has voting rights, but shares of such series are not entitled to vote because they are held by subsidiaries of the Parent.) Stockholders of the Parent do not have cumulative voting rights. The Parent Charter authorizes the issuance of 50,000,000 shares of Series Preferred Stock, of which 48,020,000 shares remained available for designation as of December 31, 1995 (before giving effect to the designation of the Series G Preferred Stock and the Series H Preferred Stock). Under the Parent Charter, the Parent Board of Directors is authorized, without further action by the stockholders of the Parent, to establish the preferences, limitations and relative rights of the Series Preferred Stock. In addition, 1,900,000,000 shares of the TCI Group Common Stock and 825,000,000 shares of Liberty Media Group Common Stock are currently authorized by the Parent Charter, of which 1,243,621,801 and 660,906,868, respectively, remained available for issuance as of December 31, 1995. The issue and sale of additional shares of TCI Group Common Stock, Liberty Media Group Common Stock and/or Series Preferred Stock could occur in connection with an attempt to acquire control of the Parent, and the terms of such shares of Series Preferred Stock could be designed in part to impede the acquisition of such control. The Parent Charter requires the affirmative vote of 66 2/3% of the total voting power of the outstanding shares of Voting Securities, voting together as a single class, to approve any amendment, alteration or repeal of any provision of the Parent Charter or the addition or insertion of other provisions therein. The Parent Charter and the Parent's Bylaws provide that a special meeting of stockholders will be held at any time, subject to the rights of the holders of any class or series of Parent Preferred Stock, upon the call of the Secretary of the Parent upon (i) the written request of the holders of not less than 66 2/3% of the total voting power of the outstanding shares of Voting Securities or (ii) at the request of not less than 75% of the members of the Parent Board of Directors. Subject to the rights of any class or series of Parent Preferred Stock, the Parent's Bylaws require that written notice of the intent to make a nomination at a meeting of stockholders must be received by the Secretary of the Parent, at the Parent's principal executive offices, not later than (a) with respect to an election of directors to be held at an annual meeting of stockholders, 90 days in advance of such meeting, and (b) with respect to an election of directors to be held at a special meeting of stockholders, the close of business on the seventh day following the day on which notice of such meeting is first given to stockholders. The notice must contain: (1) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (2) a representation that the stockholder is a holder of record of the Parent's Voting Securities entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (4) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each proposed nominee been nominated, or intended to be nominated, by the Parent Board of Directors; and (5) the consent of each nominee to serve as a director of the Parent if so elected. Any actions to remove directors is required to be for "cause" (as defined in the Parent Charter) and be approved by the holders of 66 2/3% of the total voting power of the outstanding shares entitled to vote in the election of directors. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Baker & Botts, L.L.P., special tax counsel for the Company, has issued an opinion that the following discussion accurately sets forth the material United States federal income tax considerations relevant to certain purchasers of the Series A Preferred Stock, but this discussion does not purport to be a complete 51 53 analysis of all the potential tax considerations relating thereto. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations and Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This discussion does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor's decision to purchase the Series A Preferred Stock, and it is not intended to be wholly applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations and non-United States persons, may be subject to special rules. In addition, this discussion is limited to persons that will hold the Series A Preferred Stock as a "capital asset" (within the meaning of section 1221 of the Code). ALL PROSPECTIVE PURCHASERS OF THE SERIES A PREFERRED STOCK ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, EXCHANGE AND DISPOSITION OF THE SERIES A PREFERRED STOCK. DIVIDENDS ON SERIES A PREFERRED STOCK The amount of a dividend distribution paid on the Series A Preferred Stock will be equal to the amount of cash distributed and the fair market value (as of the date of distribution) of any property distributed, such dividend distributions will be taxable to a holder as ordinary income to the extent of the Company's current or accumulated earnings and profits (if any) for federal income tax purposes. To the extent that the amount of such a distribution exceeds the Company's earnings and profits, the distribution to the holder will be treated first as a tax-free return of capital to the extent of the holder's basis in the Series A Preferred Stock and thereafter as capital gain from the sale or exchange of the Series A Preferred Stock. Such gain will be long-term or short-term depending on the holder's holding period for the Series A Preferred Stock. Dividends paid out of the Company's earnings and profits to corporate holders may be eligible for the 70% dividends-received deduction, subject to the minimum holding period requirement under section 246(c) of the Code (generally at least 46 days) and other applicable requirements and limitations. Under section 246A of the Code, the dividends-received deduction may be reduced or eliminated if the holder's shares of Series A Preferred Stock are debt-financed. Under certain circumstances, a corporate holder may be subject to the alternative minimum tax with respect to a portion of its dividends-received deduction. Prospective investors in the Series A Preferred Stock should be aware that on December 7, 1995, the Clinton Administration proposed that the dividends-received deduction be reduced from 70% to 50% for any dividends paid on any stock after January 31, 1996. The Clinton Administration's proposals would also modify the minimum holding period requirement contained in section 246(c) of the Code such that a holder of stock would not be entitled to the dividends-received deduction for dividends paid on any stock after January 31, 1996, unless, with respect to any particular dividend payment, the shareholder satisfies the holding period requirement over a period immediately before or immediately after the shareholder becomes entitled to receive such dividend. It cannot be predicted whether the Clinton Administration's proposals will ultimately become law and prospective investors in the Series A Preferred Stock should consider the implications of these proposals ultimately becoming law on their investment in the Series A Preferred Stock. Under certain circumstances, a corporation that receives an "extraordinary dividend," as defined in section 1059(c) of the Code, will be required to reduce its basis in the Series A Preferred Stock by the portion of such dividend that is not taxed pursuant to the dividends-received deduction if the holder does not meet minimum holding period requirements (generally two years). In most circumstances, quarterly dividends on the Series A Preferred Stock, if not in arrears, should not constitute extraordinary dividends under section 1059(c). In addition, under section 1059(f) of the Code, any dividend with respect to "disqualified preferred stock" is treated as an "extraordinary dividend," regardless of the holder's holding period. The Company believes that the Series A Preferred Stock will not constitute "disqualified preferred stock." 52 54 REDEMPTION PREMIUM Under section 305 of the Code and the applicable Treasury Regulations, since the Series A Preferred Stock is subject to optional redemption by the Company (beginning on the fifth anniversary of the date of issuance), the excess of the redemption price of the Series A Preferred Stock over its issue price (the "redemption premium") will be treated as distributed to the holder of such stock, on an economic accrual basis, if redemption by the Company pursuant to this right is more likely than not to occur. However, the Company believes that the optional redemption will not be deemed to be more likely than not to occur by virtue of a regulatory safe harbor, since (i) the Company and the holders of the Series A Preferred Stock are not sufficiently related to each other, (ii) there are no arrangements that effectively require the Company to redeem the Series A Preferred Stock pursuant to its optional redemption rights, and (iii) given the redemption premium required of the Company if it exercises this right of redemption, such exercise would not reduce the yield of the Series A Preferred Stock. In addition, a deemed distribution in the amount of any redemption premium will be triggered by the mandatory redemption on the tenth anniversary of the date of issuance (over this ten-year period) if such redemption premium exceeds a "de minimis" amount (as determined under the principles of section 1273(a)(3) of the Code). The premium payable as a result of the redemption in exchange for Series A TCI Group Common Stock will depend on whether the Series A Preferred Stock is redeemed for Series A TCI Group Common Stock and, if so, the fair market value of the Series A TCI Group Common Stock ultimately received; thus the amount of any such premium is unclear given that (i) in determining the Cash Equivalent Amount, an "average" closing sales price (using 10 consecutive trading days) of the Series A TCI Group Common Stock is used, (ii) a 5% discount is applied to the relevant average closing sales price and (iii) there could be changes in the market price of the Series A TCI Group Common Stock between the time the Cash Equivalent Amount is set and the time such stock is ultimately received by the redeemed holders of the redeemed shares of the Series A Preferred Stock. Although there appears to be no redemption premium with respect to the Company's obligation for mandatory redemption if the redemption price is paid in cash (assuming that the issue price of the Series A Preferred Stock is at least equal to its liquidation preference), the above uncertainties regarding the ultimate fair market value of any Series A TCI Group Common Stock received in redemption makes it unclear as to whether any constructive dividends will be required to be taken into account in the event that Series A TCI Group Common Stock is used for the mandatory redemption. It is also possible that the exchange feature of the Series A Preferred Stock will be considered separable from the Series A Preferred Stock itself, and that the amount paid for the Series A Preferred Stock will be deemed allocated between the "stock" portion and the exchange portion. Such an allocation would cause a redemption premium on the "stock" portion which would be taken into income as noted above. The law relating to accrual of redemption premiums is new and not well developed, but the Company believes, based on existing regulations related to exchangeable debt, that the exchange feature will be considered part of the Series A Preferred Stock for this purpose, and thus no redemption premium will result from the exchange feature. REDEMPTION OF SERIES A PREFERRED STOCK A redemption of the Series A Preferred Stock for cash or Series A TCI Group Common Stock will be treated under section 302 of the Code as a distribution that is taxable as a dividend (to the extent of the Company's current or accumulated earnings and profits) unless the redemption (i) results in a "complete termination" of the holder's stock interest in the Company under section 302(b) of the Code, or (ii) is "substantially disproportionate" with respect to the holder under section 302(b)(2) of the Code, or (iii) is "not essentially equivalent to a dividend" with respect to the holder under section 302(b)(1) of the Code. In determining whether any of these tests has been met, shares of stock considered to be owned by the holder by reason of certain constructive ownership rules set forth in section 318 of the Code, as well as shares actually owned, generally must be taken into account. If the redemption does not satisfy any of the section 302 tests, it will be treated as a dividend in the amount of the lesser of (x) the amount of cash or the fair market value of the Series A TCI Group Common Stock received (as described below) and (y) the Company's current or accumulated earnings and profits. Such a dividend will be ordinary income and may qualify for the dividends received deduction for corporate 53 55 recipients. To the extent that the amount of the distribution exceeds the Company's current or accumulated earnings and profits, the excess would be treated as a return of capital to the extent of the holder's tax basis in the Series A Preferred Stock (probably after reduction, for corporate holders, of that tax basis under the extraordinary dividend rules discussed below). Any amount in excess of the amount of the dividend and the return of capital would be treated as a capital gain. If the holder retains a stockholding in the Company, the remaining tax basis in the Series A Preferred Stock (reduced, for corporate holders, by any amounts treated as extraordinary dividends, as discussed below, or as a return of capital) would be transferred to the retained stockholdings; otherwise the tax basis may be transferred to any shares of stock owned by a related person, or such remaining basis may be lost. In the case of a redemption that is not pro-rata as to all shareholders or that is part of a partial liquidation (within the meaning of section 302(e) of the Code) of the redeeming corporation, any amount treated as a dividend with respect to such redemption generally will be treated as an "extraordinary dividend" under section 1059 of the Code, regardless of the holder's holding period for the redeemed stock or the size of the distribution. A redemption that is pro-rata with respect to all shareholders and that is treated as a dividend will generally be an "extraordinary dividend" if it exceeds the "threshold percentage" set forth in section 1059(e) of the Code and the holder does not meet certain holding period requirements. Furthermore, it is possible that under the aggregation rule of section 1059 of the Code, quarterly dividends preceding a redemption of the Series A Preferred Stock that is treated as a dividend might be aggregated with the redemption distribution and themselves be treated as "extraordinary dividends." See the discussion under "Dividends on Series A Preferred Stock" above. If a redemption is not treated as a distribution that is taxable as a dividend, it will result in taxable gain or loss equal to the difference between the amount of cash or the fair market value of Series A TCI Group Common Stock received by the redeeming shareholder and such holder's tax basis in the Series A Preferred Stock redeemed. Such gain or loss will be capital gain or loss and will be long-term or short-term depending on the holder's holding period for the Series A Preferred Stock redeemed. EXCHANGE FOR SERIES A TCI GROUP COMMON STOCK While the question is not entirely free from doubt, the Company believes that the exchange of the Series A Preferred Stock for Series A TCI Group Common Stock will qualify as a tax-free reorganization under section 368(a)(1)(B) of the Code, and therefore such exchange will be tax-free to the holders of the Series A Preferred Stock. However, gain realized upon the receipt of cash paid in lieu of fractional shares of Series A TCI Group Common Stock will be taxed immediately. Except to the extent that basis is utilized when cash is paid in lieu of fractional shares of Series A TCI Group Common Stock, the adjusted basis for the shares of Series A TCI Group Common Stock received upon the exchange will be equal to the adjusted basis of the Series A Preferred Stock exchanged, and the holding period of the shares of Series A TCI Group Common Stock received will include the holding period of the Series A Preferred Stock exchanged. If this exchange does not qualify as a tax-free reorganization, it will be taxed as a sale of the Series A Preferred Stock, resulting in taxable gain or loss equal to the difference between the fair market value of the Series A TCI Group Common Stock received by the exchanging shareholder and such holder's tax basis in the Series A Preferred Stock exchanged. Such holder's holding period in the Series A TCI Common Stock received will not include the holding period of the Series A Preferred Stock exchanged. ADJUSTMENT OF EXCHANGE RATE Treasury Regulations promulgated under section 305 of the Code treat holders of exchangeable stock as having received a constructive distribution where the exchange ratio of such exchangeable stock is adjusted if (i) as a result, the proportionate interest of the holders of such exchangeable stock in the assets or earnings and profits of the corporation into which the stock is exchangeable is increased and (ii) the adjustment is not made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the exchange ratio is not considered to be made pursuant to such a formula where the adjustment is made to compensate for certain taxable distributions with respect to the stock into which such exchangeable stock is exchangeable. Thus, 54 56 under certain circumstances (for example, in the case of an adjustment for certain dividends paid by Parent on the Series A TCI Group Common Stock, other than dividends paid in shares of Series A TCI Group Common Stock), a reduction in the Exchange Rate for the Series A Preferred Stock is likely to be taxable to the holders thereof as a dividend to the extent of the earnings and profits of the Parent. In the case of a corporate holder, it is possible that such a dividend (and other dividends, including regular quarterly dividends) could be treated as an "extraordinary dividend" under section 1059 of the Code. See the discussion under "Dividends on Series A Preferred Stock" above. In addition, the failure to fully adjust the Exchange Rate of the Series A Preferred Stock to reflect distributions of stock dividends with respect to the Series A TCI Group Common Stock (or rights to acquire Series A TCI Group Common Stock) may result in a taxable dividend to the holders of the Series A TCI Group Common Stock and holders of rights to acquire Series A TCI Group Common Stock. BACKUP WITHHOLDING Certain non-corporate holders of the Series A Preferred Stock may be subject to backup withholding at the rate of 31% with respect to dividends on the Series A Preferred Stock and certain consideration received upon the exchange for or redemption of the Series A Preferred Stock. Generally, backup withholding applies only when the taxpayer (i) fails to furnish or certify his correct taxpayer identification number to the payor in the manner required, (ii) is notified by the IRS that he has failed to report payments of interest and dividends properly or (iii) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest and dividend payments. Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining any applicable exemption. A non-United States holder may obtain a refund of any amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS. 55 57 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "Purchase Agreement") among the Company, the Parent, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), CS First Boston Corporation, Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated (the "Underwriters"), the Company has agreed to sell to the Underwriters, and the Underwriters severally have agreed to purchase from the Company, the number of shares of Series A Preferred Stock set forth opposite each Underwriter's name below.
NUMBER OF SHARES OF UNDERWRITER SERIES A PREFERRED STOCK ------------------------ Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................ CS First Boston Corporation...................................... Lehman Brothers Inc. ............................................ Morgan Stanley & Co. Incorporated................................ ------------------------ Total............................................... =================
In the Purchase Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Series A Preferred Stock being sold pursuant to the Purchase Agreement if any of the shares of Series A Preferred Stock being sold pursuant to the Purchase Agreement are purchased. Under certain circumstances, the commitments of non-defaulting Underwriters may be increased. The Underwriters have advised the Company that they propose initially to offer the shares of Series A Preferred Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted to the Underwriters an option, exercisable for 30 days following the date of this Prospectus, to purchase up to 300,000 shares of Series A Preferred Stock at the price to the public set forth on the cover page of this Prospectus less the underwriting discount. The Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of shares of Series A Preferred Stock offered hereby. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase the same percentage of shares of Series A Preferred Stock as the number of shares of Series A Preferred Stock to be purchased by such Underwriter shown in the foregoing table bears to the total number of shares of Series A Preferred Stock initially offered hereby. The Company and the Parent have agreed, for a period of 60 days after the date of this Prospectus, to not, without the prior consent of Merrill Lynch, directly or indirectly, sell, offer to sell or grant any option for the sale of, any shares of the capital stock of the Company or shares of Series A or Series B TCI Group Common Stock or securities convertible into or exchangeable for capital stock of the Company or shares of Series A or Series B TCI Group Common Stock, other than to the Underwriters pursuant to the Purchase Agreement, subject to certain exceptions set forth in the Purchase Agreement. Prior to this offering there has been no public market for the shares of Series A Preferred Stock. The initial public offering price for the shares of Series A Preferred Stock was determined in negotiations between the Company and the Underwriters. In determining the terms of the shares of Series A Preferred Stock, including the initial public offering price, the Company and the Underwriters took cognizance of the Company's recent results of operations, the future prospects of the Company and the industry in general, market prices and terms of, and yields on, securities of other companies considered to be comparable to the Company and prevailing conditions in the securities market. There can be no assurance that an active trading market will develop for the shares of Series A Preferred Stock or that the shares of Series A Preferred Stock will trade in the public market subsequent to the offering at or above the initial public offering price. 56 58 The Company and the Parent have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the Underwriters may be required to make in respect thereof. Certain of the Underwriters have provided various investment banking services to the Company, the Parent and certain of the Parent's other subsidiaries. LEGAL MATTERS The legality of securities offered hereby will be passed upon for the Company and the Parent by Baker & Botts, L.L.P., 885 Third Avenue, New York, New York 10022-4834. Jerome H. Kern, a partner of Baker & Botts, L.L.P. is a director of Tele-Communications, Inc. Mr. Kern holds options to purchase shares of Series A TCI Group Common Stock and Series A Liberty Media Group Common Stock. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Brown & Wood, One World Trade Center, New York, New York 10048-0557. EXPERTS The consolidated balance sheets of Tele-Communications, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1994, and the related financial statement schedules, which appear in Tele-Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994, as amended, have been incorporated by reference herein in reliance upon the reports, dated March 27, 1995, of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP covering the December 31, 1994 consolidated financial statements refer to the adoption of Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in 1994. The consolidated balance sheets of TCI Communications Inc. (formerly Tele-Communications, Inc.) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholder(s)' equity, and cash flows for each of the years in the three year period ended December 31, 1994, and the related financial statement schedules, which appear in TCI Communications, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994, as amended, have been incorporated by reference herein in reliance upon the reports, dated March 27, 1995, of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP covering the December 31, 1994 consolidated financial statements refer to the adoption of Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in 1994. The consolidated balance sheets of TeleWest Communications plc and subsidiaries as of 31 December 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the years in the three year period ended 31 December 1994, which appear in the 31 December 1994 Annual Report on Form 10-K of Tele-Communications, Inc., as amended, have been incorporated by reference herein in reliance upon the report of KPMG, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The combined balance sheets of Cablevision (a combination of certain cable television assets of Cablevision S.A., Television Belgrano S.A., Construred S.A. and Univent's S.A.) as of December 31, 1994 and 1993, and the related combined statements of operations and deficit and cash flows for each of the years in the three-year period ended December 31, 1994, which appear in the Current Report on Form 8-K of Tele-Communications, Inc. dated April 20, 1995, as amended, have been incorporated by reference herein in reliance upon the report of KPMG Finsterbush Pickenhayn Sibille, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 57 59 The consolidated balance sheets of QVC, Inc. and subsidiaries as of January 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended January 31, 1994, which appear in the current Report on Form 8-K of Tele-Communications, Inc. dated February 3, 1995, as amended, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the January 31, 1994 consolidated financial statements refers to a change in the method of accounting for income taxes. The financial statements of TeleCable Corporation as of December 31, 1993 and 1992 and for each of the two years in the period ended December 31, 1993, incorporated in this Prospectus by reference to the combined Current Report on Form 8-K of Tele-Communications, Inc. and TCI Communications, Inc., dated August 26, 1994, have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 58 60 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE PARENT OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE PARENT SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. 3 Incorporation of Documents by Reference........................... 3 Summary............................... 4 Use of Proceeds....................... 9 Selected Financial Data............... 9 Price Range of Series A TCI Group Common Stock and Dividends.......... 13 The Company........................... 14 The Parent............................ 14 Description of the Series A Preferred Stock............................... 16 Description of the Guarantee.......... 27 Description of Parent Common Stock.... 31 Certain Federal Income Tax Considerations...................... 51 Underwriting.......................... 56 Legal Matters......................... 57 Experts............................... 57
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 2,000,000 SHARES TCI COMMUNICATIONS, INC. CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A (LIQUIDATION PREFERENCE OF $50 PER SHARE) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND EXCHANGEABLE FOR SHARES OF SERIES A TCI GROUP COMMON STOCK OF, TELE-COMMUNICATIONS, INC. --------------------- PROSPECTUS --------------------- MERRILL LYNCH & CO. CS FIRST BOSTON LEHMAN BROTHERS MORGAN STANLEY & CO. INCORPORATED JANUARY , 1996 ------------------------------------------------------ ------------------------------------------------------ 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 16. EXHIBITS. 1 -- Form of Underwriting Agreement. 4.1 -- Restated Certificate of Incorporation of the Company dated as of August 4, 1994. (Incorporated herein by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10-K/A (Amendment No. 1) (Commission File No. 0-5550)). 4.2 -- Form of Restated Certificate of Incorporation of the Company. 4.3 -- Restated Certificate of Incorporation of the Parent dated August 4, 1994, as amended on August 4, 1994, August 16, 1994, October 11, 1994, October 21, 1994, January 26, 1995, August 3, 1995, and August 3, 1995. (Incorporated herein by reference to Exhibit 99.1 of the Parent's Current Report on Form 8-K, dated August 10, 1995 (Commission File No. 0-20421)). 4.4 -- Bylaws of the Company as adopted August 4, 1994 (Incorporated herein by reference to Exhibit 3.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10K/A (Amendment No. 1) (Commission File No. 0-5550)). 4.5 -- Form of Bylaws of the Company.* 4.6 -- Bylaws of the Parent as adopted June 16, 1994 (Incorporated herein by reference to Exhibit 3.2 of the Parent's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10-K/A (Amendment No. 1) (Commission File No. 0-20421)). 4.7 -- Form of Certificate of Designation of % Cumulative Exchangeable Preferred Stock, Series A, of the Company. 4.8 -- Form of stock certificate for Series A Preferred Stock. 4.9 -- Form of Guarantee Agreement to be entered into by the Parent. 5 -- Opinion of Baker & Botts, L.L.P. regarding the legality of the securities being registered. 8 -- Opinion of Baker & Botts, L.L.P. regarding certain tax matters. 12.1 -- Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of the Company. 12.2 -- Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of the Parent. 23.1 -- Consent of KPMG Peat Marwick LLP. 23.2 -- Consent of KPMG Peat Marwick LLP. 23.3 -- Consent of KPMG. 23.4 -- Consent of KPMG Finsterbush Pickenhayn Sibille. 23.5 -- Consent of KPMG Peat Marwick LLP. 23.6 -- Consent of Price Waterhouse, LLP. 23.7 -- Consent of Baker & Botts, L.L.P. (included in Exhibit 5 and Exhibit 8). 24 -- Power of Attorney for certain officers of the Company (Power of Attorney for directors of the Company and for officers and directors of the Parent are incorporated herein by reference to pages II-7 and II-8 of the Company's and the Parent's Registration Statement on Form S-3 filed with the Commission on November 9, 1995 (Commission File No. 33-64127)).
- --------------- * Previously filed. II-1 62 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwood Village, State of Colorado, on January 2, 1996. TCI COMMUNICATIONS, INC. By: /s/ Stephen M. Brett ----------------------------- Name: Stephen M. Brett Title: Senior Vice President Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwood Village, State of Colorado, on January 2, 1996. TELE-COMMUNICATIONS, INC. By: /s/ Stephen M. Brett ----------------------------- Name: Stephen M. Brett Title: Executive Vice President II-2 63 Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ---------------------------------------- ----------------------------- --------------------- * Chairman of the Board and - ---------------------------------------- Director of TCI (Bob Magness) Communications, Inc. * Director of TCI - ---------------------------------------- Communications, Inc. (John C. Malone) * Director of TCI - ---------------------------------------- Communications, Inc. (Donne F. Fisher) * President of TCI - ---------------------------------------- Communications, Inc. (Brendan R. Clouston) (Principal Executive Officer) * Senior Vice President and - ---------------------------------------- Controller of TCI (Gary K. Bracken) Communications, Inc. (Principal Financial and Accounting Officer) *By: /s/ Stephen M. Brett January 3, 1996 - ---------------------------------------- Stephen M. Brett, Attorney-in-Fact
II-3 64 Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ---------------------------------------- ----------------------------------- ---------------- * Chairman of the Board and Director - ---------------------------------------- of Tele-Communications, Inc. (Bob Magness) * President and Director of - ---------------------------------------- Tele-Communications, Inc. (John C. Malone) (Principal Executive Officer) * Executive Vice President and - ---------------------------------------- Director of Tele-Communications, (Donne F. Fisher) Inc. (Principal Financial and Accounting Officer) Director of Tele-Communications, - ---------------------------------------- Inc. (John W. Gallivan) * Director of Tele-Communications, - ---------------------------------------- Inc. (Kim Magness) * Director of Tele-Communications, - ---------------------------------------- Inc. (Robert A. Naify) * Director of Tele-Communications, - ---------------------------------------- Inc. (Jerome H. Kern) * Director of Tele-Communications, - ---------------------------------------- Inc. (Tony Coelho) * By: /s/ Stephen M. Brett January 3, 1996 - ---------------------------------------- Stephen M. Brett Attorney-in-Fact
II-4 65 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ------ ---------------------------------------------------------------------------- ------ 1 -- Form of Underwriting Agreement. 4.1 -- Restated Certificate of Incorporation of the Company dated as of August 4, 1994. (Incorporated herein by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10-K/A (Amendment No. 1) (Commission File No. 0-5550)). 4.2 -- Form of Restated Certificate of Incorporation of the Company. 4.3 -- Restated Certificate of Incorporation of the Parent dated August 4, 1994, as amended on August 4, 1994, August 16, 1994, October 11, 1994, October 21, 1994, January 26, 1995, August 3, 1995, and August 3, 1995. (Incorporated herein by reference to Exhibit 99.1 of the Parent's Current Report on Form 8-K, dated August 10, 1995 (Commission File No. 0-20421)). 4.4 -- Bylaws of the Company as adopted August 4, 1994 (Incorporated herein by reference to Exhibit 3.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10K/A (Amendment No. 1) (Commission File No. 0-5550)). 4.5 -- Form of Bylaws of the Company.* 4.6 -- Bylaws of the Parent as adopted June 16, 1994 (Incorporated herein by reference to Exhibit 3.2 of the Parent's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Form 10-K/A (Amendment No. 1) (Commission File No. 0-20421)). 4.7 -- Form of Certificate of Designation of % Cumulative Exchangeable Preferred Stock, Series A of the Company. 4.8 -- Form of Stock Certificate for Series A Preferred Stock. 4.9 -- Form of Guarantee Agreement to be entered into by the Parent and the Company. 5 -- Opinion of Baker & Botts, L.L.P. regarding the legality of the securities being registered. 8 -- Opinion of Baker & Botts, L.L.P. regarding certain tax matters. 12.1 -- Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of the Company. 12.2 -- Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of the Parent. 23.1 -- Consent of KPMG Peat Marwick LLP. 23.2 -- Consent of KPMG Peat Marwick LLP. 23.3 -- Consent of KPMG. 23.4 -- Consent of KPMG Finsterbush Pickenhayn Sibille. 23.5 -- Consent of KPMG Peat Marwick LLP. 23.6 -- Consent of Price Waterhouse, LLP. 23.7 -- Consent of Baker & Botts, L.L.P. (included in Exhibit 5 and Exhibit 8). 24 -- Power of Attorney for certain officers of the Company (Power of Attorney for directors of the Company and for officers and directors of the Parent are incorporated herein by reference to pages II-7 and II-8 of the Company's and the Parent's Registration Statement on Form S-3 filed with the Commission on November 9, 1995 (Commission File No. 33-64127)).
- --------------- * Previously filed. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 Cumulative Exchangeable Preferred Stock, Series A TCI COMMUNICATIONS, INC. (a Delaware Corporation) PURCHASE AGREEMENT January __, 1996 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated CS FIRST BOSTON CORPORATION LEHMAN BROTHERS INC. MORGAN STANLEY & CO. INCORPORATED c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1305 Dear Sirs: Each of TCI Communications, Inc., a corporation formed under the laws of the State of Delaware (the "Company"), and Tele-Communications, Inc. a Delaware corporation (the "Parent"), confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), CS First Boston Corporation, Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated (collectively, the "Underwriters," which term shall include any underwriter substituted as hereinafter provided in Section 9 hereof) with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares of the Company's Cumulative Exchangeable Preferred Stock, Series A (the "Preferred Securities") set forth in Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase up to an additional 300,000 Preferred Securities to cover over-allotments, if any. Each of the Preferred Securities is exchangeable (unless previously redeemed) at the option of the holder commencing January __, 2001, for __ shares of Series A TCI Group Common Stock (the "Series A TCI Group Common Stock") of the Parent. The Parent will irrevocably and unconditionally guarantee, on a subordinated basis, the payment of dividends by the Company on the Preferred Securities 2 (but only if and to the extent declared by the Company's Board of Directors) and the redemption price (including accumulated and unpaid dividends) payable with respect to the Preferred Securities (the "Guarantee"). The Company may elect to make any dividend, redemption or liquidation payment in cash, by the delivery of shares of Series A TCI Group Common Stock or by any combination of the foregoing forms of consideration elected by the Company. The aforesaid 2,000,000 shares of Preferred Securities (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 300,000 shares of Preferred Securities subject to the option described in Section 2(b) hereof (the "Option Securities"), together in each instance with the Guarantee, are hereinafter called, collectively, the "Offered Securities". The Company and the Parent understand that the Underwriters propose to make a public offering of the Offered Securities as soon as the Underwriters deem advisable after this Agreement has been executed and delivered. SECTION 1 Registration Statement and Prospectus. The Company and the Parent have filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-64127) covering the registration of the Offered Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company and the Parent will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any 2 3 registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for use in connection with the offering of the Offered Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated January __, 1996 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. SECTION 2 Agreements to Sell and Purchase. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 9 hereof. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 300,000 Option Securities at the price per share set 3 4 forth in Schedule B. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Underwriters to the Company setting forth the number of Option Securities as to which the several Underwriters are exercising the option and the time and date of payment for and delivery of such Option Securities. Such time and date of delivery for the Option Securities (the "Date of Delivery") shall be determined by the Underwriters, but shall not be, unless otherwise agreed upon by the Underwriters, the Company and the Parent, later than seven full business days after the exercise of said option, and in no event prior to the Closing Date, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional shares. SECTION 3 Delivery and Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities to be purchased by the Underwriters shall be made at the offices of Baker & Botts, L.L.P., 885 Third Avenue, Suite 1900, New York, New York 10022-4834, or at such other place as shall be agreed upon by the Underwriters, the Company and the Parent, at 10:00 A.M. on the third business day following the date hereof, or such other time not later than ten business days after such date as shall be agreed upon by the Underwriters, the Company and the Parent (such time and date of payment and delivery being herein called the "Closing Date"). In addition, in the event that any or all of the Option Securities are purchased by the several Underwriters, payment of the purchase price, and delivery of certificates, for such Option Securities shall be made at the above-mentioned offices of Baker & Botts, L.L.P., or at such other place as shall be agreed upon by the Underwriters, the Company and the Parent, on the Date of Delivery as specified in the notice from the Underwriters to the Company. Payment shall be made to the Company by certified or official bank check or checks drawn in New York Clearing House funds or similar next day funds payable to the order of the Company against delivery to the Underwriters for the account of the several Underwriters of certificates for the Offered Securities to be purchased by it. Certificates for the Offered Securities shall be in such denominations and registered in such name as the Underwriters may request in writing at least one business day before the Closing Date or the Date of Delivery, as the case may be. The certificates 4 5 for the Initial Securities and the Option Securities will be made available for examination and packaging by the Underwriters not later than 10:00 A.M. on the last business day prior to the Closing Date or the Date of Delivery, as the case may be, at the offices of the transfer agent for the Preferred Securities in New York City. It is understood that each Underwriter has authorized Merrill Lynch, for its account, to accept delivery of, to issue a receipt for, and make payment of the purchase price for, the Offered Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Offered Securities to be purchased by any Underwriter whose check has not been received by Closing Time, but such payment shall not relieve such Underwriter from its obligations hereunder. SECTION 4 Covenants of the Company and the Parent. Each of the Company and the Parent, jointly and severally, covenants with each Underwriter as follows: (a) The Company and the Parent, subject to Section 4(c), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Underwriters immediately, and confirm the notice in writing, (1) of the effectiveness of any post-effective amendment to the Registration Statement, and, if Rule 430A of the 1933 Act Regulations is being relied upon, of the filing of the amended Prospectus pursuant to Rule 430A and Rule 424(b), (2) of any comments of the Commission regarding the Registration Statement or the Prospectus (or any of the documents incorporated by reference therein) or of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, any order preventing or suspending the use of any preliminary prospectus or the initiation or threatening of any proceedings for that purpose, (4) of the receipt by the Company or the Parent of any notification with respect to the suspension of the qualification of the Offered Securities for offer or sale in any jurisdiction or the initiation or threatening of any proceedings for such purpose and (5) of the happening of any event during the period mentioned in paragraph (d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus (as theretofore amended or supplemented) untrue or which requires the making of any changes in the Registration Statement or the Prospectus (as theretofore amended or supplemented) in order to make the statements therein, in light of the circumstances when the Prospectus is delivered to a purchaser, not misleading. The Company and the Parent will use their reasonable best efforts to prevent the issuance of any order suspending the effectiveness of the Registration Statement or 5 6 any order preventing or suspending the use of any preliminary prospectus or suspending the qualification of the Offered Securities for offer or sale in any jurisdiction, and if any such order is issued, the Company and the Parent will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (b) To furnish to each of the Underwriters, without charge, one conformed copy of the Registration Statement and any supplement and post-effective amendment thereto, including all financial statements and schedules, exhibits and documents incorporated therein by reference (including exhibits incorporated therein by reference to the extent not previously furnished to the Underwriters) and to deliver to the Underwriters the number of conformed copies of the Registration Statement and any post-effective amendment thereto, excluding exhibits, as the Underwriters or their counsel may reasonably request. (c) To give the Underwriters advance notice of their intention to file any amendment or supplement to the Registration Statement (including any filing under Rule 462(b)) or the Prospectus with respect to the Offered Securities, and not to file any such amendment or supplement to which the Underwriters shall reasonably object in writing. (d) During the period of time that the Prospectus is required by law to be delivered, to deliver to each Underwriter, without charge, as many copies of the Prospectus or any amendment or supplement thereto as such Underwriter may reasonably request. Each of the Company and the Parent consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Offered Securities may be sold, both in connection with the offering or sale of the Offered Securities and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. If during such period of time any event shall occur which in the judgment of the Company or the Parent should be set forth (or incorporated by reference) in the Prospectus in order to make the statements therein, in light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with law, the Company and the Parent will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and shall in any event forthwith file all reports and any definitive proxy statement or information statement required to be filed by the Company or the Parent with the Commission pursuant to Section 13 or 14 of the 1934 Act subsequent to the date of the Prospectus, and will deliver to each Underwriter, without charge, such number 6 7 of copies thereof as such Underwriter may reasonably request. If during such period of time any event shall occur which in the judgment of the Underwriters should be so set forth in the Prospectus, or which in the judgment of the Underwriters makes it necessary to so supplement or amend the Prospectus, the Company and the Parent will consult with the Underwriters concerning the necessity of filing with the Commission a supplement or amendment to the Prospectus or a report pursuant to Section 13 or 14 of the 1934 Act. (e) Prior to any public offering of any Offered Securities by the Underwriters, to cooperate with the Underwriters and counsel retained by the Underwriters in connection with the registration or qualification of the Offered Securities (and any securities issuable upon conversion, exercise or exchange of the Offered Securities) for offer and sale under the securities or Blue Sky laws of, and the determination of the eligibility of the Offered Securities for investment under the laws of, such jurisdictions as the Underwriters may request; provided, that in no event shall either the Company or the Parent be obligated to qualify to do business as a foreign corporation or as a securities dealer in any jurisdiction where it is not now so qualified, to conform its capitalization or the composition of its assets to the securities or Blue Sky laws of any jurisdiction or to take any action which would subject either such party to taxation or general service of process in any jurisdiction where it is not now so subject. The Company and the Parent will pay all reasonable fees and expenses (including reasonable counsel fees and expenses) relating to registration or qualification of Offered Securities (and any securities issuable upon conversion, exercise or exchange of any Offered Securities) under such securities or Blue Sky laws and in connection with the determination of the eligibility of Offered Securities for investment under the laws of such jurisdictions as the Underwriters may designate. In each jurisdiction in which the Offered Securities have been so qualified, the Company and the Parent will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as may be required in connection with the distribution of the Offered Securities. (f) To make generally available to their security holders and to each Underwriter consolidated earnings statements (which need not be audited) that satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder. (g) If, at the time that the Registration Statement became effective, any information was omitted therefrom in 7 8 reliance upon Rule 430A of the 1933 Act Regulations, then, immediately following the execution of this Agreement, to prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of each amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including any amended Prospectus), containing all information so omitted. (h) To pay or cause to be paid the following: (1) all costs and expenses incurred in connection with the preparation, printing and filing of the Registration Statement, any preliminary prospectus, the Prospectus and any legal investment memorandum and Blue Sky memorandum as contemplated by Section 4(e), (2) any filing fees incident to any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Offered Securities, (3) any fees charged by securities rating agencies for rating any of the Offered Securities, (4) all costs and expenses incurred in connection with the preparation, issuance and delivery of the Offered Securities (and any securities issuable upon conversion, exercise or exchange of any Offered Securities) (other than transfer taxes), (5) all costs and expenses incurred in connection with furnishing such copies of the Registration Statement, the Prospectus and any preliminary prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of Offered Securities by dealers to whom Offered Securities may be sold, (6) the fees and expenses incurred in connection with the registration of the Offered Securities under the 1934 Act and (7) the fees and expenses of the transfer agent for the Preferred Securities. (i) If this Agreement is terminated by the Underwriters because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied or because of any failure or refusal on the part of the Company or the Parent to comply with the terms of this Agreement, or if for any reason either of the Company or the Parent shall be unable to perform its obligations herein or therein, the Company and the Parent will reimburse the several Underwriters for all out-of-pocket expenses (including the fees and expenses of counsel retained by the Underwriters) reasonably incurred by the Underwriters in connection herewith. Neither the Company nor the Parent, however, will be liable to any of the Underwriters for damages on account of loss of anticipated profits. (j) During a period of 60 days from the date of this Agreement, neither the Company nor the Parent will, without prior written consent of Merrill Lynch, directly or 8 9 indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of, any shares of capital stock of the Company or shares of Series A and Series B TCI Group Common Stock or securities convertible into or exchangeable for or exercisable for shares of capital stock of the Company or shares of Series A and Series B TCI Group Common Stock (collectively, "Convertible Securities"), except (x) shares of capital stock of the Company or shares of Series A or Series B TCI Group Common Stock or Convertible Securities (or both) offered or sold to directors, officers and employees of the Company or the Parent pursuant to options in existence on the date of this Agreement or pursuant to employee benefit plans or as executive compensation, (y) such number of shares of capital stock of the Company or shares of Series A or Series B TCI Group Common Stock and/or Convertible Securities as may be required to consummate the transactions described in Schedule C hereto and (z) an additional number of shares of capital stock of the Company or shares of Series A or Series B TCI Group Common Stock or Convertible Securities not to exceed 3,000,000 in the aggregate. (k) To use every reasonable effort to effect and maintain the listing of the Preferred Securities on the Nasdaq National Market and to file with the Nasdaq National Market all documents and notices required by the Nasdaq National Market of companies that have securities quoted on such exchange. SECTION 5 Representations and Warranties. (a) Each of the Company and the Parent, jointly and severally, represents and warrants to each Underwriter as of the date hereof, as of the Closing Date referred to in Section 3 hereof and as of any Date of Delivery as follows: (1) The documents incorporated by reference in the Registration Statement and the Prospectus, when they were filed (or, if an amendment with respect to any such document was filed, when such amendment was filed) with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations of the Commission promulgated thereunder, and any further documents so filed and incorporated by reference will, when they are filed with the Commission, conform in all material respects to the requirements of the 1934 Act and the rules and regulations of the Commission promulgated thereunder; none of such documents, when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the 9 10 circumstances under which they were made, not misleading; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (2) Each of the Company and the Parent meets the registrant requirements and the transaction requirements for use of Form S-3 under the 1933 Act in connection with the offering of the Offered Securities. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act, and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company or the Parent, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Date (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time of filing thereof with the Commission, included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company and the Parent will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company and the Parent in writing by any Underwriter expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material 10 11 respects with the 1933 Act Regulations, if applicable, and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (3) This Agreement has been duly authorized, executed and delivered. (4) Each of the Offered Securities and the Series A TCI Group Common Stock conforms to the description thereof in the Prospectus. (5) The Preferred Securities have been duly and validly authorized by the Company and, upon the filing of a Certificate of Designations for such Preferred Securities with the Delaware Secretary of State (the "Certificate of Designations") and the issuance and delivery of such Preferred Securities against payment therefor by the Underwriters in accordance with this Agreement, such Preferred Securities will be duly and validly issued and fully paid and non-assessable; the shares of Series A TCI Group Common Stock initially issuable upon exchange of such Preferred Securities have been reserved for issuance upon such exchange; and, when issued in accordance with the terms of the Certificate of Designations upon exchange of Preferred Securities or in respect of any redemption or dividend payment thereon, the shares of Series A TCI Group Common Stock so issued will be duly authorized, validly issued, fully paid and non-assessable. (6) The Guarantee has been duly authorized and, when executed and delivered by the Parent at the Closing Date, will constitute a valid and legally binding agreement of the Parent enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles (regardless of whether the issue of enforceability is considered in a proceeding at law or in equity). (7) The issuance and sale of the Preferred Securities by the Company and the Guarantee by the Parent and the fulfillment of the terms of this Agreement will not result in a breach of any of the terms or provisions of, or constitute a default under, the certificate of incorporation or bylaws of either such party, or any indenture, mortgage, deed of trust or other material agreement or instrument to which either such party or any of its significant subsidiaries (as such term is defined in Rule 1.02(v) of Regulations S-X) is now a party or by which it is bound, or any order of any court or 11 12 governmental agency or authority entered in any proceeding to which either such party was or is now a party or by which it is bound. (8) The accountants who certified the financial statements and supporting schedules included by reference in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (9) Except to the extent set forth in the Prospectus, neither the Company nor the Parent has received any notice of, nor does it have any actual knowledge of, any failure by it or any of its significant subsidiaries (as such term is defined in Rule 1.02(v) of Regulation S-X) to be in substantial compliance with all existing statutes and regulations applicable to it or such subsidiaries, which failure would materially and adversely affect the conduct of the business of the Company and its subsidiaries or of the Parent and its subsidiaries, in each case considered as a whole. (b) Any certificate signed by any officer of the Company or of the Parent and delivered to the Underwriters or to counsel for the Underwriters pursuant to the terms of this Agreement shall be deemed a representation and warranty by the Company or the Parent, as the case may be, to the Underwriters as to the matters covered thereby. SECTION 6 Indemnification. Each of the Company and the Parent agrees, jointly and severally, to indemnify and hold harmless each Underwriter, and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any such untrue statement or omission or allegation thereof based upon information furnished in writing to the Company or the Parent by any Underwriter expressly for use therein; provided, however, that neither the Company nor the Parent shall indemnify any Underwriter or any person who controls any such Underwriter from any such losses, claims, damages or liabilities alleged by any person who purchased Offered Securities from such Underwriter if the untrue statement, omission or allegation thereof upon which such losses, claims, damages or 12 13 liabilities are based was made in: (i) any preliminary prospectus, if a copy of the Prospectus (as then amended or supplemented if the Parent shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person at or prior to the written confirmation of the sale of Offered Securities to such person, and if the Prospectus (as so amended or supplemented) corrected the untrue statement or omission giving rise to such loss, claim, damage or liability; (ii) any Prospectus used by such Underwriter or any person who controls such Underwriter, after such time as the Company or the Parent advised such Underwriter that the filing of a post-effective amendment or supplement thereto was required, except the Prospectus as so amended or supplemented; or (iii) any Prospectus used after such time as the obligation of the Company and the Parent to keep the same current and effective has expired. This indemnity will be in addition to any liability which the Company or the Parent may otherwise have. All fees and expenses which are reimbursable pursuant to this Section 6 shall be reimbursed as they are incurred. If any action or proceeding (including any governmental investigation) shall be brought or asserted against any Underwriter or any person controlling such Underwriter in respect of which indemnity may be sought from the Company or the Parent, such Underwriter or such controlling person shall promptly notify the Company and the Parent in writing, and the Company and the Parent shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Underwriter and the payment of all expenses. Any omission so to notify the Company or the Parent shall not, however, relieve the Company or the Parent from any liability which either such party may have to any indemnified party otherwise than under this Section 6. An Underwriter or any person controlling an Underwriter shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such separate counsel shall be such Underwriter's expense or the expense of such controlling person unless (a) the Company or the Parent has agreed to pay such fees and expenses or (b) the Company or the Parent shall have failed to assume the defense of such action or proceeding and employ counsel reasonably satisfactory to such Underwriter in any such action or proceeding or (c) the named parties to any such action or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and either of the Company or the Parent, and such Underwriter or such controlling person shall have been advised by counsel to such Underwriter that there may be a conflict of interest between such Underwriter or such controlling person and either of the Company or the Parent in the conduct of the defense of such action (in which case, if such Underwriter or such controlling person notifies the Company and the Parent in writing that it elects to employ separate counsel at the expense of the Company and the Parent, neither the 13 14 Company nor the Parent shall have the right to assume the defense of such action or proceeding on behalf of such Underwriter or such controlling person), it being understood, however, that neither the Company nor the Parent shall, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (unless the members of such firm are not admitted to practice in a jurisdiction where an action is pending, in which case the Company and the Parent shall pay the reasonable fees and expenses of one additional firm of attorneys to act as local counsel in such jurisdiction, provided the services of such counsel are substantially limited to that of appearing as attorneys of record). Neither the Company nor the Parent shall be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Company and the Parent agree to indemnify and hold harmless such Underwriter and any such controlling person from and against any loss or liability by reason of such settlement or judgment. Each Underwriter severally agrees to indemnify and hold harmless each of the Company and the Parent, including its directors and each of its officers, and each person, if any, who controls the Company or the Parent within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Parent to such Underwriter, but only with respect to information furnished in writing by such Underwriter expressly for use in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any preliminary prospectus. In case any action or proceeding shall be brought against the Company or the Parent or the Parent's directors or officers or any such controlling person, in respect of which indemnity may be sought against an Underwriter, such Underwriter shall have the rights and duties given to the Company and the Parent, and the Company or the Parent or the Parent's directors or officers or such controlling person shall have the rights and duties given to such Underwriter by the preceding paragraph. If the indemnification provided for in this Section 6 is unavailable to an indemnified party under the first or third paragraph hereof in respect of any losses, claims, damages or liabilities referred to therein (other than by reason of such indemnified party's failure to comply with the first sentence of the second paragraph of this Section 6), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative 14 15 benefits received by the Company and the Parent on the one hand and the Underwriters on the other hand from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company or Parent on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company or the Parent on the one hand and the Underwriters on the other in connection with the offering of the Offered Securities shall be deemed to be in the same proportion as the total net proceeds from the offering of the Offered Securities received by the Company and the Parent bear to the total underwriting discounts received by the Underwriters in respect thereof. The relative fault of the Company or the Parent on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Parent or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of this Section 6, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. Each of the Company and the Parent and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company and the Parent contained in this Agreement shall remain operative and in full force and effect regardless of (a) any investigation made 15 16 by or on behalf of any Underwriter, by or on behalf of any person controlling such Underwriter or by or on behalf of the Company or the Parent, (b) acceptance of any of the Offered Securities and payment therefor or (c) any termination of this Agreement. SECTION 7 Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters hereunder are subject to the following conditions: (a) At the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission; and the Underwriters shall have received a certificate, dated the Closing Date and signed by (i) the Chairman of the Board, the President, an Executive Vice President or the Senior Vice President-Finance and Treasurer of the Company and (ii) the Chairman of the Board, the President, an Executive Vice President or the Senior Vice President-Finance and Treasurer of the Parent (each of whom may, as to threatened proceedings, rely upon the best of his information and belief), to such effect and to the effect set forth in clause (e) of this Section 7. If the Company and the Parent have elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the Offered Securities and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to the Closing Date the Parent shall have provided evidence satisfactory to the Underwriters of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At the Closing Date the Underwriters shall have received: (1) The opinions, dated as of the Closing Date, and reasonably satisfactory to counsel for the Underwriters, from Messrs. Cole, Raywid & Braverman or such other special communications counsel for the Parent and the Company as may be reasonably satisfactory to the Underwriters and from the General Counsel of the Company and the Parent to the following effect and covering such additional matters as the Underwriters may reasonably request: (i) the Parent and each of its significant subsidiaries (including the Company) is a corporation duly organized, validly existing and in good standing 16 17 under the laws of the jurisdiction of its incorporation with the corporate power and authority to carry on its business as described in the Prospectus (as amended or supplemented, if applicable); and each of the Company and the Parent has the corporate power and authority to execute and deliver, and perform its obligations under, this Agreement, and to issue and sell the Offered Securities as contemplated by this Agreement; (ii) the Parent and each of its significant subsidiaries (including the Company) is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would, in the aggregate, have a material adverse effect upon the financial condition, results of operations, business or properties of the Company and its subsidiaries or the Parent and its subsidiaries, in each case taken as a whole, as the case may be; (iii) All corporate proceedings legally required in connection with the authorization and issuance of, and the sale of, the Preferred Securities by the Company in accordance with the terms of this Agreement have been taken; (iv) All corporate proceedings legally required in connection with the authorization and issuance of, and the sale of, the Guarantee by the Parent in accordance with the terms of this Agreement and the reservation for issuance of the Series A TCI Group Common Stock by the Parent in accordance with the Guarantee have been taken; (v) To the best knowledge of such counsel, there is no legal or governmental proceeding pending or threatened against the Company or the Parent or any of its subsidiaries which is required to be disclosed in the Prospectus (as amended or supplemented, if applicable) and is not so disclosed and correctly summarized therein; (vi) To the best knowledge of such counsel, there is no contract or other document known to such counsel of a character required to be described in the Prospectus (as amended or supplemented, if applicable) or to be filed as an exhibit to the Registration Statement (or to a document incorporated by reference therein) that is not described or filed as required; (vii) The execution and delivery of this Agreement, the issuance of the Offered Securities, and the fulfillment of the terms herein and therein contained do not conflict with, or result in a breach of, or 17 18 constitute a default under, the charter or the by-laws of the Company or the Parent, as the case may be, or, to the best knowledge of such counsel, conflict in any material respect with, or result in a material breach of or constitute a material default under any material agreement, indenture or other instrument known to such counsel to which the Company or the Parent is a party or by which it is bound, or result in a violation of any law, administrative regulation or court or governmental decree known to such counsel applicable to the Company or the Parent, except that such counsel need not express any opinion with respect to (i) matters opined upon by special communications counsel and Messrs. Sherman & Howard or (ii) the Blue Sky laws of any jurisdiction; (viii) To the best knowledge of such counsel, neither the Registration Statement nor the Prospectus, as amended or supplemented, if applicable (expect as to the financial statements and schedules and any other financial and statistical data contained or incorporated by reference in the Registration Statement or Prospectus, as to which no opinion need be expressed), contained, as of the date the Prospectus was first filed with the Commission, or contains, as of the Closing Date, any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus as amended or supplemented, if applicable, in light of the circumstances under which they were made,) not misleading. (2) from Messrs. Sherman & Howard, special counsel to the Company and the Parent, to the following effect and covering such additional matters as the Underwriters may reasonably request: (i) The execution and delivery of this Agreement, the issuance of the Offered Securities, the reservation for issuance of shares of Series A TCI Group Common Stock in accordance with the Guarantee and the fulfillment of the terms of this Agreement, the Certificate of Designations and the Guarantee do not or will not, as appropriate, result in a material breach of or constitute a material default under any material agreement for borrowed money known to such counsel to which the Company or the Parent or any of the Parent's significant subsidiaries is a party or by which it is bound; and (ii) neither the Parent nor the Company is an "investment company" within the meaning of the Investment 18 19 Company Act of 1940, as amended, and neither such party is subject to regulation under such Act. and (3) from Baker & Botts, L.L.P., special counsel to the Company and the Parent, to the following effect and covering such additional matters as the Underwriters may reasonably request: (i) This Agreement has been duly authorized, executed and delivered by the Company; (ii) This Agreement and the Guarantee have been duly authorized, executed and delivered by the Parent; and the Guarantee is a legal, valid and binding agreement of the Parent enforceable in accordance with its terms, except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other laws affecting creditors' rights generally, and (B) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (iii) The Preferred Securities have been duly and validly authorized by the Company and, upon the filing of a Certificate of Designations for such Preferred Securities with the Delaware Secretary of State and the issuance and delivery of such Preferred Securities against payment therefor by the Underwriters in accordance with this Agreement, such Preferred Securities will be duly and validly issued and fully paid and non-assessable; (iv) The Series A TCI Group Common Stock issuable in exchange for, or in respect of any dividend or redemption payment on, the Preferred Securities in accordance with the terms of the Certificate of Designations has been duly and validly authorized; and, when such shares of Series A TCI Group Common Stock are issued and delivered in exchange for, or in respect of any dividend or redemption payment on, the Preferred Securities in accordance with the Certificate of Designations, will be duly and validly issued and fully paid and non-assessable; (v) The Registration Statement is effective under the 1933 Act and, to the best of such counsel's knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been 19 20 issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission; (vi) Each of the Preferred Securities, the Guarantee and the Series A TCI Group Common Stock conforms in all material respects as to legal matters to the descriptions thereof in the Prospectus (as amended or supplemented, if applicable); (vii) The statements set forth in the Prospectus under the caption "Certain Federal Income Tax Considerations," insofar as they purport to describe the provisions of law referred to therein, are accurate and complete in all material respects. In addition, such counsel shall state that "The Registration Statement and the Prospectus, as amended or supplemented, if applicable (except as to (x) the financial statements and schedules and any other financial and statistical data contained or incorporated by reference therein and (y) the documents incorporated or deemed to be incorporated by reference therein, as to which no opinion is expressed), complied, as of the date the Prospectus was first filed with the Commission pursuant to Rule 424, and comply, as of the date hereof, as to form in all material respects with the requirements of the Act and the rules and regulations of the Commission under the Act (the "Rules"). In passing upon the form of such documents, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Parent or the Company and take no responsibility for the accuracy, completeness or fairness of the statements contained therein except insofar as such statements relate to the description of the Offered Securities or relate to us. However, in connection with the preparation of the Registration Statement and the Prospectus, we had conferences with certain officers and other representatives of the Parent and the Company, and our examination of the Registration Statement and the Prospectus and our discussions in such conferences did not disclose to us any information (relying as to the materiality of any such information primarily upon officers and other representatives of the Parent and the Company) which gave us reason to believe that either the Registration Statement or the Prospectus, as amended or supplemented, if applicable (except as to (x) the financial statements and schedules and any other financial and statistical data contained or incorporated by reference therein and (y) the documents incorporated therein or deemed to be incorporated by reference therein, as to which no belief is expressed), contained, as of the date the Prospectus was first filed with the Commission pursuant to Rule 424, or contains, as of the date hereof, any untrue statement of a 20 21 material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, as amended or supplemented, if applicable, in light of the circumstances under which they were made), not misleading." In giving such opinions, such counsel may rely (x) as to matters of fact, to the extent they deem proper, upon certificates of officers of the Company or the Parent, public officials and others, and (y) as to matters of law if other than the law of the United States or Colorado (in the case of Messrs. Sherman & Howard and General Counsel of the Parent) or New York (in the case of Baker & Botts, L.L.P.), on the opinions of local counsel retained by them or the Company or the Parent, provided that such counsel are satisfactory to the Underwriters and counsel retained by the Underwriters. (c) The Underwriters shall have received on the Closing Date from Messrs. Brown & Wood, counsel retained by the Underwriters, an opinion with respect to the Offered Securities, the Registration Statement and the Prospectus in the form customarily given by such firm, including an opinion to the effect that the Registration Statement and the Prospectus, as amended or supplemented, if applicable (except as to the financial statements and schedules and any other financial and statistical data contained or incorporated by reference therein, as to which no opinion need be expressed) comply as to form in all material respects with the Act. (d) On the Closing Date, the Underwriters shall have received from each of KPMG Peat Marwick LLP and Price Waterhouse LLP letters, dated as of the Closing Date, in form and substance reasonably satisfactory to the Underwriters. (e) The representations and warranties of the Company and the Parent in this Agreement shall be true and correct on and as of the Closing Date; each of the Company and the Parent shall have complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date; and except as reflected in or contemplated by the Registration Statement and the Prospectus, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been, at the Closing Date, any material adverse change in the condition (financial or otherwise), business, prospects or results of operations of the Company and its subsidiaries or of the Parent and its subsidiaries, in each case considered as a whole. (f) Subsequent to the date of this Agreement, there shall not have occurred any change, or any development 21 22 involving a prospective change, in or affecting particularly the business, prospects or financial affairs of the Company and its subsidiaries or of the Parent and its subsidiaries, in each case considered as a whole which, in the reasonable judgment of the Underwriters, is so material and adverse that it would be impracticable to proceed with the public offering or delivery of the Offered Securities on the terms and in the manner contemplated by the Prospectus. (g) At the Closing Date the Preferred Securities and the Series A TCI Group Common Stock into which such Preferred Securities are exchangeable shall have been approved for quotation on the Nasdaq National Market and the Company and the Parent shall have filed all notices and documents required by the Nasdaq National Market of companies that have securities quoted on such exchange. (h) In the event the Underwriters exercise the option granted in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Parent contained herein and the statements in any certificates furnished by the Parent hereunder shall be true and correct as of the Date of Delivery, and the Underwriters shall have received: (1) A certificate, dated the Date of Delivery, signed by (i) the Chairman of the Board, the President, an Executive Vice President or the Senior Vice President-Finance and Treasurer of the Company and (ii) the Chairman of the Board, the President, an Executive Vice President or the Senior Vice President-Finance and Treasurer of the Parent, confirming that the certificate delivered at the Closing Date pursuant to Section 7(a) hereof remains true as of the Date of Delivery. (2) The favorable opinions of Cole Raywid & Braverman, special communications counsel to the Parent and the Company, the General Counsel for the Parent, Sherman & Howard and Baker & Botts, L.L.P., in form and substance satisfactory to counsel for the Underwriters, dated the Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinions required by Section 7(b). (3) The favorable opinion of Brown & Wood, counsel for the Underwriters, dated the Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 7(c). (4) Letters from each of KPMG Peat Marwick LLP and Price Waterhouse LLP, dated the Date of Delivery, 22 23 substantially the same in scope and substance as the letter furnished to the Underwriters pursuant to Section 7(d). SECTION 8 Termination of Agreement. The obligation of the Underwriters to purchase the Offered Securities may be terminated at any time prior to the Closing Date by notice to the Company from the Underwriters, without liability on the part of the Underwriters to the Company or the Parent, if, on or prior to such date, (i) additional material governmental restrictions, not in force and effect on the date of this Agreement, shall have been imposed upon trading in securities generally or minimum or maximum prices shall have been generally established on the New York Stock Exchange or on the American Stock Exchange, or trading in securities generally shall have been suspended on either such Exchange or trading in the common stock or debt securities of the Company or the Parent in the over-the-counter market shall have been suspended or a general banking moratorium shall have been established by Federal or New York authorities, or (ii) a war involving the United States of America or other national calamity shall have occurred or shall have accelerated to such an extent as to affect adversely the marketability of the Offered Securities. SECTION 9 Default by One or More of the Underwriters. If one or more of the Underwriters shall fail on the Closing Date to purchase the Offered Securities that it or they are obligated to purchase hereunder (the "Defaulted Securities"), the non-defaulting Underwriters shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any substitute underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be approved by the non-defaulting Underwriters and upon the terms herein set forth; if, however, the non-defaulting Underwriters have not completed such arrangements within such 24-hour period, then: (a) if the principal amount of Defaulted Securities does not exceed 10% of the aggregate principal amount of Offered Securities, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the principal amount of Defaulted Securities exceeds 10% of the aggregate principal amount of Offered Securities, the Company shall be entitled for an additional 24-hour period to find one or more substitute underwriters satisfactory to the non-defaulting Underwriters in their reasonable discretion to purchase such Defaulted Securities. 23 24 In the event of any such default either the non-defaulting Underwriters or the Trust and the Company shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements relating to the purchase of the Offered Securities. If the principal amount of Defaulted Securities exceeds 10% of the aggregate principal amount of Offered Securities, and neither the non-defaulting Underwriters nor the Company make arrangements pursuant to this Section 9 within the period stated for the purchase of the Defaulted Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter to the Company except as provided in Section 6. No action taken pursuant to this Section 9 shall relieve any defaulting Underwriter from liability in respect of its default. A substitute underwriter hereunder shall be an Underwriter for all purposes of this Agreement. SECTION 10 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to Merrill Lynch & Co., North Tower, World Financial Center, New York, New York 10281-1305, attention __________; and notices to the Company shall be directed to it at its office at Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado 80111-3000, attention: Donne F. Fisher, Executive Vice President (Principal Financial Officer). SECTION 11 Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and the Parent and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and the Parent and their respective successors and legal representatives and the controlling persons and officers and directors referred to in Section 6 hereof and their respective successors, heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Parent and their respective successors and legal representatives and said controlling persons, officers and directors and their respective successors, heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Offered Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 24 25 SECTION 12 Governing Law and Time. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company and the Parent a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company and the Parent in accordance with its terms. Very truly yours, TCI COMMUNICATIONS, INC. By: _____________________________ TELE-COMMUNICATIONS, INC. By: _____________________________ CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated CS FIRST BOSTON CORPORATION LEHMAN BROTHERS INC. MORGAN STANLEY & CO. INCORPORATED BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: _________________________________________ Authorized Signatory 25 26 SCHEDULE A
Number of Initial Name of Underwriter Securities ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . . CS First Boston Corporation . . . . . . . . . . . . . . . . . Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . Morgan Stanley & Co. Incorporated . . . . . . . . . . . . . . --------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 =========
Sch A - 1 27 SCHEDULE B TCI COMMUNICATIONS, INC. (a Delaware Corporation) 2,000,000 Shares Cumulative Exchangeable Preferred Stock, Series A 1. The initial public offering price per share for the Offered Securities, determined as provided in said Section 2, shall be $____. 2. The purchase price per share for the Offered Securities to be paid by the several Underwriters shall be $____, being an amount equal to the initial public offering price set forth above less $____ per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be (i) reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities and increased by the amount of accrued but unpaid dividends on the Option Securities from the original date of issue of the Initial Securities and (ii) increased by the amount of accrued and unpaid dividends on the Option Securities from the original date of issue of the Option Securities. Sch B - 1 28 SCHEDULE C [LIST OF PENDING TRANSACTIONS TO BE PROVIDED BY COMPANY] Sch C - 1 EX-4.2 3 FORM OF RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 4.2 FORM OF 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"). 2 ARTICLE II REGISTERED OFFICE The address of the Corporation's registered office in the State of Delaware is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904. 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 3 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 4 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 5 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 6 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 7 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 8 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 9 (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 10 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 2/3% 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 11 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 12 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 13 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 14 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 15 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 16 IN WITNESS WHEREOF, said TCI COMMUNICATIONS, INC. has caused this Restated Certificate of Incorporation to be signed by its President this day of January, 1996. TCI COMMUNICATIONS INC. By: ------------------------------- Name: Title: 16 EX-4.7 4 FORM OF CERTIFICATE OF DESIGNATION 1 [Draft--1/2/96] Exhibit 4.7 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 Restated 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"), an Executive Committee of the Board of Directors (the "Executive 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 Executive Committee has adopted the following resolution, creating the following new series of the Company's Preferred Stock: -1- 2 "BE IT RESOLVED, that pursuant to authority expressly granted by the provisions of Article IV, Section B of the Restated 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 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 authorized number of shares of Series A Preferred Stock shall be 2,300,000. 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 into account any stock dividend on the Series A TCI Group Common Stock, or any subdivision, split, combination or reclassification of the Series A TCI Group Common Stock that occurs, or the Ex-Dividend Date for which occurs, during the period following the first Trading Day in such ten-Trading Day period and ending on the last full Trading Day immediately preceding the Dividend Payment Date to which such Record Date relates, 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. -2- 3 "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 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 -3- 4 (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 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, for any Dividend Period, the last day of such Dividend Period, which shall be the ___ day of each ________, ________, ________ and ________, commencing with ________ __, 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 ____ shares of Series A TCI Group -4- 5 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). "Ex-Dividend Date" shall mean the date on which "ex-dividend" trading commences for a divided, an issuance of rights, warrants or options or a distribution to which any of subparagraphs (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 __, 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 __, 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. -5- 6 "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 __, 2006. "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 liquidations prices, respectively, without preference or priority, one over the other, as between the holders of shares of such class or series and the holders of Series 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 -6- 7 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). "Record Date" for the dividends payable on any Dividend Payment Date shall mean the ___ 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," as 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. "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 of redemption or rights on liquidation if the holders of shares of such class or series shall be entitled to dividend payments, payments on redemption or payments of amounts distributable upon dissolution, liquidation or winding up of -7- 8 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 Group Common Stock" shall mean the Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per share, of Parent, which term shall include, where appropriate, in the case of any reclassification, recapitalization or other change in the Series A TCI Group Common Stock, or in the case of a consolidation or merger of Parent with or into another Person affecting the Series A TCI Group Common Stock, such capital stock to which a holder of Series A TCI Group Common Stock shall be entitled upon the occurrence of such event. "Series B TCI Group Common Stock" shall mean the Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per share, of Parent, which term shall include, where appropriate, in the case of any reclassification, recapitalization or other change in the Series B TCI Group Common Stock, or in the case of a consolidation or merger of Parent with or into another Person affecting the Series B TCI Group Common Stock, such capital stock to which a holder of Series B TCI Group Common Stock shall be entitled upon the occurrence of such event. "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. "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 -8- 9 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 __% of the Stated Value per share, rounded to the nearest cent (or a dividend rate per share of $_____ per annum or $_____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 ________ __, 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 ________ __, 1996 in the amount of $ __ 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. 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 -9- 10 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 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 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. -10- 11 (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 __ of the year indicated below: -11- 12
Year Call Price ---- ---------- 2001.............. $ 2002.............. 2003.............. 2004.............. 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, -12- 13 as appropriate, the following (and may contain such other information as the Company deems advisable): (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 -13- 14 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) 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 therefor, and the applicable cash adjustment, if any, in lieu of fractional shares, without interest. Any cash and/or shares of Series A TCI Group Common Stock so deposited or set apart which shall remain unclaimed at the end of one year after the Redemption Date shall be returned or released to the Company, after which time the holders of shares of Series A Preferred Stock called for redemption on such Redemption -14- 15 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 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, -15- 16 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 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, nor shall any other distribution be made on any Junior Stock, unless: (i) full dividends on all Parity Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such Junior Stock dividend or distribution payment, to the extent such dividends are cumulative; (ii) the 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 -16- 17 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 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 -17- 18 fractional shares, if any), or through the application of the proceeds from the sale of, shares of Junior Stock and/or Convertible Securities for shares of Junior Stock; (ii) the payment of dividends or the making of distributions on any class or series of Parity Stock solely in (together with a cash adjustment for fractional shares, if any) (x) shares of Junior Stock and/or Convertible Securities for shares of Junior Stock or (y) any securities of Parent (including shares of Series A TCI Group Common Stock), or the redemption, exchange, purchase or other acquisition of any class or series of Parity Stock solely in exchange for (together with a cash adjustment for fractional shares, if any), or through the application of the proceeds from the sale of, (A) shares of Junior Stock and/or Convertible Securities for shares of Junior Stock or (B) any securities of Parent (including shares of Series A TCI Group Common Stock); or (iii) the exchange of 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 the Initial Exchange Date and prior to the close of business on the Mandatory Redemption Date, unless previously redeemed, into shares of Series A TCI Group Common Stock at the Exchange Rate. An exchange of shares of Series A Preferred Stock pursuant to this paragraph (6) shall be effected directly with the 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 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. -18- 19 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 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 all of the requirements for such exchange shall have been satisfied. 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). 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 Series A TCI Group Common Stock for all purposes as of the opening of business on the next succeeding day on which such stock transfer books are open, and such exchange shall be at the Exchange Rate in effect on the date that such shares of 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 -19- 20 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 are exchanged 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, (C) combine the outstanding shares of Series A TCI Group Common Stock into a smaller number of shares, -20- 21 (D) pay a dividend or make a distribution on the outstanding shares of Series A TCI Group Common Stock in shares of its capital stock (other than Series A TCI Group Common Stock), or (E) issue by reclassification of its outstanding shares of Series A TCI Group Common Stock (other than a reclassification by way of merger or binding share exchange that is subject to subparagraph (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 distribution. For a subdivision, split, combination or reclassification, the adjustment shall become effective immediately after -21- 22 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- 23 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 -23- 24 would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Series A TCI Group Common Stock (or such Convertible Securities) issued upon the exercise of such rights, warrants or options (or the exercise, exchange or conversion of such Convertible Securities). No adjustment shall be made under this subparagraph (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 -24- 25 the dividend or 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 -25- 26 provision is being applied (except that if no other cash dividend has had an Ex-Dividend Date occurring in such period, the period for calculating the average of the Closing Prices shall be the period commencing 365/366 days prior to the date immediately prior to the Ex-Dividend Date with respect to the cash dividend to which this provision is being applied), such cash dividend together with each other cash dividend with an Ex-Dividend Date occurring in such 365-/366-day period that is aggregated with such cash dividend in accordance with this paragraph shall be deemed to be an Extraordinary Cash Dividend. The adjustment pursuant to the foregoing provisions of this subparagraph (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 -26- 27 assets of the Parent subject to this subparagraph (6)(b)(iii), then, from and after the record date referred to in the 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 -27- 28 account of the Parent or any of its Subsidiaries shall not be deemed outstanding for the purposes of this subparagraph (6)(b). (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. -28- 29 (ix) There shall be no adjustment to the Exchange Rate in the event of the issuance of any stock or other securities or assets of the Parent in a reorganization, acquisition or other similar transaction except as specifically provided in this paragraph (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 entirety or substantially as an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which shares of Series A TCI Group Common Stock shall be reclassified or converted into the right to receive stock, securities or other property (including cash or any combination thereof), proper provision shall be made so that each share of 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 -29- 30 Group Common Stock (or such Other Property) failed to exercise rights of election, if any, as to the kind or amount of stock, securities or other property receivable upon consummation of such Transaction (provided that if the kind or amount of stock, securities or other property receivable upon consummation of such Transaction is not the same for each non-electing share, then the kind and amount of stock, securities or other property receivable upon consummation of such Transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares)). The kind and amount of stock or securities into which the shares of 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 -30- 31 (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 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 -31- 32 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 (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 -32- 33 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) 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 -33- 34 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. (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 -34- 35 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. (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 that 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, -35- 36 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 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- 37 (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 ____ day of January, 1996. _____________________________________________________ Vice President of TCI Communications, Inc. Attest: _____________________________________________________ -37- EX-4.8 5 FORM OF STOCK CERTIFICATE 1 EXHIBIT 4.8 PREFERRED STOCK PREFERRED STOCK NUMBER SHARES TE SEE REVERSE FOR CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 872287 20 6 TCI COMMUNICATIONS, INC CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A This Certifies That Is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A ("SERIES A PREFERRED STOCK"), $.01 PAR VALUE PER SHARE OF TCI COMMUNICATIONS, INC (the "Corporation") transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon the surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are subject to all of the terms and conditions contained in the Restated Certificate of Incorporation of the Corporation, the Certificate of Designations for the Series A Preferred Stock (the "Certificate of Designations") and all amendments thereto. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: - ------------------------------- [SEAL] ------------------------------- SECRETARY PRESIDENT COUNTERSIGNED: TRANSFER AGENT THE BANK OF NEW YORK AND REGISTRAR (NEW YORK) BY AUTHORIZED SIGNATURE 2 TCI COMMUNICATIONS, INC. THE CORPORATION WILL FURNISH TO EACH STOCKHOLDER, UPON REQUEST AND WITHOUT CHARGE, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. THE SERIES A PREFERRED STOCK IS EXCHANGEABLE FOR SHARES OF TELE-COMMUNICATIONS, INC. SERIES A TCI GROUP COMMON STOCK, SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THE CERTIFICATE OF DESIGNATIONS. IF THE CORPORATION ELECTS TO REDEEM IN PART THE SHARES OF SERIES A PREFERRED STOCK, THE CORPORATION WILL NOT BE REQUIRED TO REGISTER A TRANSFER OF (I) ANY SHARES OF SUCH CLASS FOR A PERIOD OF 5 BUSINESS DAYS NEXT PRECEDING ANY SELECTION OF SHARES OF SUCH CLASS TO BE REDEEMED OR (II) ANY SHARES OF SUCH CLASS SELECTED OR CALLED FOR REDEMPTION. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws and regulations: TEN COM- as tenants in common UNIF GIFT MIN ACT-______Custodian_______ TEN ENT- as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with right of survivorship and under Uniform Gifts to Minors not as tenants in common Act_____________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - --------------------------------------------------------------------- Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. Dated -------------------------------- X -------------------------------------------- X -------------------------------------------- NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: By: - ---------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15. Pursuant to a Guarantee Agreement, dated January ___, 1996 (the "Guarantee"), entered into by Tele-Communications, Inc., a Delaware corporation ("Parent"), for the benefit of the holders of the Series A Preferred Stock, Parent has irrevocably and unconditionally guaranteed, on a subordinated basis, (i) the payment by the Corporation of dividends (to the extent declared by the Corporation's Board of Directors) on, any mandatory or optional redemption price for and, upon dissolution, liquidation or winding up of the Corporation, the liquidation preference of the Series A Preferred Stock and (ii) the issuance and delivery of Tele-Communications, Inc. Series A TCI Group Common Stock in exchange for shares of Series A Preferred Stock upon surrender thereof to Parent in accordance with the provisions of the Certificate of Designations. Parent will furnish to each holder of Series A Preferred Stock, upon request and without charge, a copy of the Guarantee. WITNESS the facsimile signatures of the Parent's duly authorized officers. Dated: ------------------------------- - -------------------------------------- ------------------------------------- SECRETARY PRESIDENT EX-4.9 6 FORM OF GUARANTEE AGREEMENT 1 EXHIBIT 4.9 DRAFT 01/02/96 GUARANTEE AGREEMENT GUARANTEE AGREEMENT (this "Guarantee"), dated as of January __, 1996, is executed and delivered by Tele-Communications, Inc., a Delaware corporation (the "Parent"), for the benefit of the Holders (as hereinafter defined) from time to time of the Cumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred Stock"), of TCI Communications, Inc., a Delaware corporation (the "Company") and a wholly owned subsidiary of the Parent. WITNESSETH: WHEREAS, the Company is issuing and selling up to 2,300,000 shares of its Series A Preferred Stock in an underwritten offering, and the Parent desires to issue this Guarantee for the benefit of the Holders, as provided herein; and WHEREAS, the Parent desires hereby to unconditionally and irrevocably agree, on a subordinated basis, to pay to the Holders the Guarantee Payments (as hereinafter defined) and to perform the other obligations set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of the Series A Preferred Stock, which purchase the Parent hereby agrees shall benefit the Parent, the Parent hereby agrees as follows: ARTICLE I. DEFINITIONS As used in this Guarantee, the terms set forth in this Article shall have the meanings set forth below. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to such terms in the Certificate of Designations for the Series A Preferred Stock filed with the Delaware Secretary of State on January __, 1996 (as such certificate may be amended from time to time, the "Certificate of Designations"). The Certificate of Designations, as in effect on the date hereof, is attached hereto as Exhibit A. "Event of Default" shall mean the occurrence of any of the following: the failure of the Company (i) to make any portion of a dividend payment to the Holders, if the payment of such dividend was declared by the Board of Directors of the Company; (ii) to pay to the Holders of shares of Series A Preferred Stock outstanding at the close of business 2 on the Mandatory Redemption Date the aggregate Mandatory Redemption Price payable therefor; (iii) to pay to the Holders of shares of Series A Preferred Stock called for redemption on an Optional Redemption Date the aggregate Optional Redemption Price payable therefor; or (iv), to pay, in the event of the dissolution, liquidation or winding up of the Company, to the Holders of outstanding shares of Series A Preferred Stock on the Liquidating Payment Date an amount equal to the aggregate Liquidation Preference of such shares. "Guarantee Average Market Price" as of any Guarantee 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 Guarantee Payment Date, appropriately adjusted in such manner as the Parent Board of Directors in good faith deems appropriate to take into account any stock dividend on the Series A TCI Group Common Stock, or any subdivision, split, combination or reclassification of the Series A TCI Group Common Stock that occurs, or the Ex-Dividend Date for which occurs, during the period following the first Trading Day in such ten-Trading Day period and ending on the last full Trading Day immediately preceding the Guarantee Payment Date. "Guarantee Payments" shall mean the following payments, without duplication, to the extent not paid by the Company: (v) any accrued and unpaid dividends which have theretofore been declared by the Board of Directors of the Company on the Series A Preferred Stock; (vi) the Mandatory Redemption Price payable for shares of Series A Preferred Stock outstanding at the close of business on the Mandatory Redemption Date; (vii) the Optional Redemption Price payable for shares of Series A Preferred Stock called for redemption on an Optional Redemption Date that are outstanding at the close of business on such Optional Redemption Date; and (iv) upon a voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Liquidation Preference payable in respect of shares of Series A Preferred Stock that are outstanding at the close of business on the Liquidating Payment Date (irrespective of whether the Company has unrestricted or legally available funds therefor). "Guarantee Cash Equivalent Amount" shall mean an amount equal to 95% of the Guarantee Average Market Price per share of Series A TCI Group Common Stock. "Guarantee Payment Date" shall mean the date on which the Parent or, subject to Section 2.2(a), the Company makes the aggregate Guarantee Payment to all holders of outstanding shares of Series A Preferred Stock entitled thereto. "Holder" shall mean any Person in whose name a share of Series A Preferred Stock is registered on the stock transfer books of the Company as of any date of determination; provided, however, that in determining whether the Holders of the requisite percentage of Series A Preferred Stock have given any consent or waiver hereunder, "Holder" shall not include the Parent or any Subsidiary thereof, either directly or indirectly. -2- 3 "Senior Liabilities" shall mean all liabilities of the Parent other than those in respect of the Parent's capital stock. "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. "Subsidiary" of any Person means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Series A TCI Group Common Stock" shall mean the Tele-Communications Inc. Series A TCI Group Common Stock, par value $1.00 per share, of the Parent, which term shall include, where appropriate, in the case of any reclassification, recapitalization or other change in the Series A TCI Group Common Stock, or in the case of a consolidation or merger of the 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. ARTICLE II. GUARANTEE 2.1 General. The Parent irrevocably and unconditionally agrees to pay in full to each Holder, upon the occurrence and during the continuance of an Event of Default, all Guarantee Payments payable with respect to the shares of Series A Preferred Stock owned by such Holder, regardless of any defense, right of set-off or counterclaim which the Company may have or assert. This Guarantee is continuing, irrevocable, full, unconditional and absolute from the Issue Date. 2.2 Manner of Making Payment. (a) The Parent may satisfy its obligation to pay any amount represented by a Guarantee Payment to a Holder by direct payment of such amount or, to the extent the Company has immediately available unrestricted funds available therefor, by causing the Company to pay such amount to such Holder. (b) The Parent may satisfy its obligation to make a Guarantee Payment, at the election of the Parent, (i) in cash, (ii) through the delivery of shares of Series A TCI Group Common Stock or (iii) through any combination of the foregoing forms of -3- 4 consideration elected by the Parent in its sole discretion. (c) If the Parent elects to pay to a Holder, in whole or in part, any Guarantee Payment payable in respect of shares of Series A Preferred Stock owned by such Holder through the delivery of shares of Series A TCI Group Common Stock (the portion of any Guarantee Payment paid through the delivery of such shares being referred to herein as the "Guarantee Stock Portion"), the number of shares of Series A TCI Group Common Stock to be delivered shall equal the greater of (i) the same number of shares of Series A TCI Group Common Stock as such Holder would have received from the Company (x) had the Company made the dividend, redemption or liquidation payment in respect of which such Guarantee Payment is being made when originally due through the delivery of shares of Series A TCI Group Common Stock and (y) had the Company elected to pay an amount of such payment equal to the Guarantee Stock Portion with shares of Series A TCI Group Common Stock or (ii) the number of shares of Series A TCI Group Common Stock determined by dividing the Guarantee Stock Portion by the Guarantee 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 Parent shall instead pay a cash adjustment determined as provided in Section 2.2(d) below. Any portion of a Guarantee Payment that is not paid through the delivery of shares of Series A TCI Group Common Stock shall be paid in cash (rounded to the nearest whole cent) through the delivery of a check from the Parent or, if elected by the Parent pursuant to Section 2.2(a) above, through the delivery of a check from the Company. (d) No fractional shares of Series A TCI Group Common Stock or scrip shall be issued in connection with the delivery of shares of Series A TCI Group Common Stock in payment, in whole or in part, of any Guarantee Payment. Whether or not a fractional share would be delivered to a holder of Series A Preferred Stock shall be based upon the total number of shares of Series A Preferred Stock owned by such holder with respect to which such Guarantee Payment is to be made 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 Parent 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 Guarantee Payment Date. (e) The Parent's right to elect to make any Guarantee Payment, in whole or in part, through the issuance and 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 issued and delivered being fully paid and nonassessable and free from any preemptive rights, liens or adverse claims; (ii) the delivery of such shares 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 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 issued and delivered being listed, -4- 5 and upon delivery being eligible for trading, on the Nasdaq National Market or on a national securities exchange. If the conditions set forth in clauses (i), (ii), and (iii) of this Section 2.2(e) have not been satisfied prior or on the date of any Guarantee Payment, such Guarantee Payment shall be paid solely in cash. 2.3 Waiver of Certain Rights. The Parent hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 2.4 Obligations Not Affected. The obligations, covenants, agreements and duties of the Parent under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Company of any express or implied agreement, covenant, term or condition relating to the Series A Preferred Stock to be performed or observed by the Company; (b) the extension of time for the payment by the Company of all or any portion of the dividends, Redemption Price, Liquidation Preference or any other sums payable under the terms of the Series A Preferred Stock or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Series A Preferred Stock; (c) any, failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Series A Preferred Stock, or any action on the part of the Company granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Company or any of the assets of the Company; (e) any invalidity of, or defect or deficiency in, any of the shares of Series A Preferred Stock; or (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred. There shall be no obligation of the Holders to give notice to, or obtain any consent of, the Parent with respect to the happening of any of the foregoing. -5- 6 2.5 Holders May Proceed Directly Against Parent. This Guarantee is a guarantee of payment and not of collection. A Holder may enforce this Guarantee directly against the Parent, and the Parent waives any right or remedy to require that any action be brought against the Company or any other Person before proceeding against the Parent. Subject to Section 2.6 hereof, all waivers herein contained shall be without prejudice to the Holders' right at the Holders' option to proceed against the Company, whether by separate action or by joinder. The Parent agrees that this Guarantee shall not be discharged except by payment of the Guarantee Payments in full. 2.6 Subrogation. The Parent shall be subrogated to all rights of the Holders against the Company in respect of any amounts paid to the Holders by the Parent under this Guarantee and shall have the right to waive payment of any amount of any Guarantee Payment in respect of which payment has been made to the Holders by the Parent pursuant to Section 2.1 hereof; provided, however, that the Parent shall not (except to the extent required by mandatory provisions of law) exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of a payment under this Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Parent in violation of the preceding sentence, the Parent agrees to pay over such amount to the Holders. 2.7 Independent Obligations. The Parent acknowledges that its obligations hereunder are independent of the obligations of the Company with respect to the Series A Preferred Stock and that the Parent shall be liable as principal and sole debtor under this Guarantee to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 2.4 hereof. 2.8 Termination. This Guarantee shall terminate as to each Holder and be of no further force and effect upon the earliest to occur of (i) the full payment of the Mandatory Redemption Price for all of the shares of Series A Preferred Stock held by such Holder, (ii) the full payment of the Optional Redemption Price for all shares of Series A Preferred Stock held by such Holder that are called for redemption on an Optional Redemption Date, if after such Optional Redemption Date such Holder no longer holds any outstanding shares of Series A Preferred Stock, (iii) the payment of the full Liquidation Preference of the shares of Series A Preferred Stock held by such Holder upon any liquidation, dissolution or winding up of the Company, (iv) the exchange by such Holder of shares of Series A Preferred Stock held by it for the requisite number of shares of Series A TCI Group Common Stock (and cash in lieu of any fractional share, if any) in accordance with the Certificate of Designations, and following such exchange such Holder no longer holds any shares of Series A Preferred Stock; or (v) at such time as such Holder shall otherwise dispose of all of its shares of Series A Preferred Stock; provided, however, that this Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid to such Holder by the Company -6- 7 under the Certificate of Designations or by the Parent under this Guarantee for any reason whatsoever. The Parent agrees to indemnify each Holder and hold it harmless from and against any loss it may suffer in such circumstances. ARTICLE III. CERTAIN COVENANTS OF THE PARENT 3.1 Certain Covenants. The Parent covenants that, for so long as any shares of Series A Preferred Stock remain outstanding, if there shall have occurred and be continuing any event that would constitute an Event of Default hereunder, then the Parent shall not declare or pay any cash dividend on, make any cash distributions with respect to, or redeem, purchase or otherwise acquire, any shares of its capital stock; provided, however, that the Parent may (i) declare cash dividends or cash distributions on, or redeem, purchase or otherwise acquire, shares of preferred stock of the Parent where, under the terms of the instrument creating such preferred stock, the failure to do so would constitute a default or event of default under such instrument and (ii) redeem, purchase or otherwise acquire shares of preferred stock of the Parent (x) with shares of common stock of the Parent (plus a cash adjustment for any fractional shares) or (y) upon the exercise by the holders thereof of conversion, exchange or redemption rights. 3.2 Merger or Consolidation. The Parent shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any other Person, and the Parent shall not permit any Person to consolidate with or merge into the Parent or convey, transfer or lease its properties and assets substantially as an entirety to the Parent, if: (a) at such time an Event of Default shall have occurred and be continuing; or (b) the survivor of such merger, consolidation or share exchange (if other than the Parent) or the Person to which the Parent's assets are sold, transferred or leased is not an entity organized under the laws of the United States or the laws of a State of the United States; or (c) the survivor of such merger, consolidation or share exchange (if other than the Parent) or the Person to which the Parent's assets are sold, transferred or leased does not assume all of the obligations of the Parent under the Guarantee. ARTICLE IV. SUBORDINATION 4.1 Guarantee Payments Subordinated to Senior Liabilities. (a) The Parent covenants and agrees, and each Holder of a share of Series -7- 8 A Preferred Stock by his acceptance thereof likewise agrees, that the payment of the Guarantee Payments is subordinated, to the extent and in the manner provided in this Article IV, to the prior payment in full of all Senior Liabilities. (b) This Article IV shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Liabilities, and such provisions are made for the benefit of the holders of Senior Liabilities, and such holders are made obligees hereunder and they and/or each of them may enforce such provisions. 4.2 Parent Not to Make Guarantee Payments in Certain Circumstances. (a) Upon the maturity of any Senior Liabilities by lapse of time, acceleration or otherwise, such Senior Liabilities shall first be paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holders of such Senior Liabilities, before any payment is made on account of the Guaranteed Payments. (b) Upon the happening of any default in payment of any Senior Liability (after the expiration or lapse of any grace period), unless and until such default shall have been cured or waived or shall have ceased to exist, no further payment (in cash or securities) shall be made by the Parent with respect to the Guarantee Payments. 4.3 Guarantee Payments Subordinated to Prior Payment of All Senior Liabilities on Dissolution, Liquidation or Reorganization of the Parent. (a) Upon any distribution of assets of the Parent in any dissolution, winding up, liquidation or reorganization of the Parent (whether in bankruptcy, insolvency or receivership or similar legal proceedings): (i) the holders of all Senior Liabilities shall first be entitled to receive payment in full of all amounts due thereunder before the Holders are entitled to receive any payment on account of the Guarantee Payments; and (ii) any payment or distribution of assets of the Parent of any kind or character, whether in cash, property or securities (other than securities of the Parent as reorganized or readjusted or securities of the Parent or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in this Article IV with respect to this Guarantee, to the payment in full without diminution or modification by such plan of all Senior Liabilities), to which the Holders would be entitled except for the provisions of this Article IV, shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holders of Senior Liabilities or their representative, or to the trustee under any indenture under which Senior Liabilities may have been issued, to the extent necessary to make payment in full of all Senior -8- 9 Liabilities remaining unpaid, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Liabilities. The Parent shall give prompt written notice to all Holders of any dissolution, winding up, liquidation or reorganization of the Parent. (b) The consolidation of the Parent with, or the merger of the Parent into, another corporation or the liquidation or dissolution of the Parent following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Section 3.2 of this Guarantee shall not be deemed a dissolution, winding up, liquidation or reorganization of the Parent for the purposes of this Section 4.3, if the corporation formed by such consolidation or into which the Parent is merged or the Person which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Section 3.2. 4.4 Holders of Series A Preferred Stock to be Subrogated to Rights of Holders of Senior Liabilities. Subject to the payment in full of all Senior Liabilities, the Holders shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Liabilities pursuant to the provisions of this Article IV to the rights of the holders of such Senior Liabilities to receive payments or distributions of cash, property or securities of the Parent applicable to the Senior Liabilities until all Guarantee Payments shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Liabilities of any cash, property or securities to which the Holders would be entitled except for the provisions of this Article IV, shall, as between the Parent, its creditors other than holders of Senior Liabilities and the Holders, be deemed to be a payment or distribution by the Parent to or on account of Senior Liabilities. 4.5 Obligation of the Parent Unconditional. Nothing contained in this Article IV is intended to or shall impair, as between the Parent, its creditors (other than holders of Senior Liabilities) and the Holders, the obligation of the Parent, which is absolute and unconditional, to pay to the Holders the Guarantee Payments upon the occurrence of an Event of Default or is intended to or shall affect the relative rights of Holders and creditors of the Parent other than the holders of the Senior Liabilities, nor shall anything herein prevent the Holders from exercising all remedies otherwise permitted by applicable law upon default under this Guarantee. -9- 10 4.6 Subordination Rights Not Impaired by Acts or Omissions of the Parent or Holders of Senior Liabilities. (a) No right of any present or future holders of any Senior Liabilities to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Parent or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Parent with the terms of this Guarantee, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. (b) Without in any way limiting the generality of Section 4.6(a) above, the holders of Senior Liabilities may, at any time and from time to time, without the consent of or notice to the holders of Series A Preferred Stock, without incurring responsibility to the Holders, without incurring responsibility and without impairing or releasing the subordination provided in this Article IV or the obligations hereunder of the Holders to the holders of the Senior Liabilities, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Liabilities, or otherwise amend or supplement in any manner Senior Liabilities or any instrument evidencing the same or any agreement under which Senior Liabilities is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Liabilities; (iii) release any Person liable in any manner for the payment or collection of Senior Liabilities; and (iv) exercise or refrain from exercising any rights against the Parent and any other Person. 4.7 Status of Guarantee. This Guarantee constitutes an unsecured obligation of the Parent ranking (i) subordinate and junior in right of payment to all Senior Liabilities, (ii) pari passu with the most senior preferred stock now or hereafter issued by the Parent and (iii) senior to the common stock of the Parent. ARTICLE V. EXCHANGE PROVISIONS OF SERIES A PREFERRED STOCK 5.1 Compliance with Exchange Provisions. The Parent covenants and agrees that it will take any and all actions required of it under the provisions of paragraph (6) of the Certificate of Designations. Without limiting the generality of the foregoing, the Parent hereby covenants and agrees as follows: (a) as promptly as practicable after the Exchange Date for an exchange of shares of shares of Series A Preferred Stock, to issue and deliver at the office or agency referred to in subparagraph (6)(a) of the Certificate of Designations to the Holder of such 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 (and/or any other shares of capital stock of the Parent) issuable upon such -10- 11 exchange in accordance with the provisions of paragraph (6) of the Certificate of Designations; (b) to treat the Person in whose name any certificate for shares of Series A TCI Group Common Stock is issued upon an exchange 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 any shares of Series A Preferred Stock surrendered for exchange 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 as of the opening of business on the next succeeding day on which such stock transfer books are open (provided all of the other requirements for a valid exchange are met as of such date); (c) to use its best efforts to cause the Parent Board of Directors to make such determinations as may be required of it pursuant to the provisions of the Certificate of Designations, including pursuant to subparagraph (6)(b)(iii) of the Certificate of Designations; (d) whenever the Exchange Rate is required to be adjusted as provided in paragraph (6) of the Certificate of Designations, to (x) forthwith compute the adjusted Exchange Rate in accordance with the provisions of subparagraph (6)(b) of the Certificate of Designations and prepare and file the certificate required by subparagraph (6)(e) of the Certificate of Designations at the office of the transfer agent for the Series A TCI Group Common Stock and the Series A Preferred Stock, and (y) mail to the holders of the outstanding shares of Series A Preferred Stock the notice required by subparagraph (6)(e); and (e) whenever the Parent shall take any action which would require an adjustment to the Exchange Rate or shall authorize any of the actions or events described in clause (i) or (ii) of subparagraph (6)(f) of the Certificate of Designations, to cause to be filed at each office or agency maintained for the purpose of exchange of the shares of Series A Preferred Stock, and 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 of the Company, at least 10 days before the record date (or other date set for definitive action if there shall be no record date), the notice required by subparagraph (6)(f) of the Certificate of Designations. 5.2 Certain Consolidations or Mergers of Parent. The Parent covenants and agrees not to become a party to any Transaction (as such term is defined in subparagraph (6)(d) of the Certificate of Designations) in 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), unless 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 -11- 12 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 paragraph (6) of the Certificate of Designations) 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 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 provisions of this Section 5.2 shall similarly apply to successive Transactions. 5.3 Actions in Respect of Series A TCI Group Common Stock. The Parent covenants and agrees to take such reasonable action which may, in the opinion of its 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 paragraph (6)(a) of the Certificate of Designations, (ii) the delivery of such shares 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 so 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 so delivered upon such exchange are free of preemptive rights and any liens or adverse claims. 5.4 Reservation of Series A TCI Group Common. The Parent covenants and agrees to at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of 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 paragraph (6) of the Certificate of Designations, 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 (assuming for this purpose that all of the outstanding shares of Series A Preferred Stock are held by a single holder). 5.5 Termination of Obligation to Issue Series A TCI Group Common Stock. TCI's obligations under this Article V to issue Series A TCI Group Common Stock shall terminate upon the termination of the right of Holders of Series A Preferred Stock to -12- 13 effect such exchange as set forth in the Certificate of Designations and, with respect to a particular Holder, upon an exchange of all of the outstanding shares of Series A Preferred Stock held by such Holder; provided, however, that such obligations shall be reinstated if at any time any such exchange shall fail to be effective or shall be required for any reason to be reversed. ARTICLE VI. MISCELLANEOUS 6.1 Third Party Beneficiaries. All of the Parent's obligations under this Guarantee shall be directly enforceable by the Holders from time to time of the Series A Preferred Stock. Each Holder of Series A Preferred Stock is an intended third-party beneficiary of this Guarantee. 6.2 Successors and Assigns. All covenants and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Parent and shall inure to the benefit of the Holders. Except as permitted by Section 2.2(a) and Section 3.2, the Parent shall not assign its rights or delegate its obligations hereunder without the prior approval of the Holders of at least 66 2/3% of the shares of Series A Preferred Stock then outstanding. 6.3 Amendments; Waivers. (a) Except with respect to any changes which do not adversely affect the rights of Holders (in any of which cases no vote will be required), this Guarantee may only be amended by an instrument in writing signed by the Parent with the prior approval of the Holders of at least 66 2/3% of the shares of Series A Preferred Stock then outstanding. (b) Each of the provisions of Article III may be waived, in whole or in part, or the application of all or any part of such provisions in any particular circumstance or generally may be waived, in each case with the prior written consent of the Holders of at least 66 2/3% of the shares of Series A Preferred Stock then outstanding. 6.4 Notices. Any notice, request or other communication required or permitted to be given hereunder to the Parent shall be given in writing by delivering the same against receipt therefor by registered mail, hand delivery, facsimile transmission (confirmed by registered mail) or telex, addressed to the Parent, as follows (and if so given, shall be deemed given when mailed; upon receipt of facsimile confirmation, if sent by facsimile transmission; or upon receipt of an answer-back, if sent by telex): -13- 14 Tele-Communications, Inc. 5619 DTC Parkway Englewood, CO 80111 Attention: Stephen M. Brett, General Counsel Telecopy: (303) 488-3245 Any notice, request or other communication required or permitted to be given hereunder to the Holders shall be given by the Parent in the same manner as notices are sent by the Company to the Holders. 6.5 Genders. The masculine and neuter genders used herein shall include the masculine, feminine and neuter genders. 6.6 Guarantee Not Separately Transferable. This Guarantee is solely for the benefit of the Holders and is not separately transferable from the Series A Preferred Stock. 6.7 GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. 6.8 Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.9 Headings. The Article and section headings herein are for convenience only and shall not affect the construction hereof. 6.10 Delivery of Guarantee. The Parent shall promptly deliver a copy of this Guarantee, without charge, to each Holder that shall request a copy of this Guarantee. -14- 15 IN WITNESS WHEREOF, the Parent has caused this Guarantee to be duly executed as of the day and year first above written. TELE-COMMUNICATIONS, INC. By: ------------------------------- Name: Title: ATTEST: - ----------------------------------- Secretary -15- EX-5 7 OPINION OF BAKER & BOTTS RE: LEGALITY 1 [BAKER & BOTTS LETTERHEAD] January 3, 1996 EXHIBIT 5 TCI Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, Colorado 80111-3000 Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, Colorado 80111-3000 Dear Sirs: As counsel for TCI Communications, Inc., a Delaware corporation (the "Company") and Tele-Communications, Inc., a Delaware corporation (the "Parent"), we have examined and are familiar with the registration statement on Form S-3, File No. 33-64127 (the "Registration Statement"), which relates to the registration under the Securities Act of 1933, as amended, of 2,300,000 shares (the "Shares") of the Company's Cumulative Exchangeable Preferred Stock, Series A, par value $.01 per share, to be issued and sold to the underwriters (the "Underwriters") named in the Registration Statement. Each of the Shares is exchangeable (unless previously redeemed) at the option of the holder commencing on the fifth anniversary of the date of original issuance of the Shares, for shares of Tele-Communications, Inc. Series A TCI Group Common Stock (the "Series A TCI Group Common Stock") of the Parent. The Parent will irrevocably and unconditionally guarantee, on a subordinated basis, the payment of dividends by the Company on the Shares (but only if and to the extent declared by the Company's Board of Directors), the redemption price and the liquidation preference (including accumulated and unpaid dividends) of the Shares upon any dissolution, liquidation or winding up of the Company (including accumulated and unpaid dividends) payable with respect to the Shares (the "Guarantee"). 2 January 3, 1996 Page 2 In connection therewith, we have examined, among other things, originals, certified copies or copies otherwise identified to our satisfaction as being copies of originals, of the Restated Certificate of Incorporation, as amended, and Bylaws, as amended, of each of the Company and the Parent, in the forms filed as Exhibits 4.1, 4.4, 4.3 and 4.6, respectively, to the Registration Statement; the proposed Restated Certificate of Incorporation of the Company (the "Restated Charter"), the proposed Certificate of Designations for the Shares (the "Certificate of Designations") and the proposed By-Laws of the Company, in the forms filed as Exhibits 4.2, 4.7 and 4.5, respectively, to the Registration Statement; records of proceedings of each of the Company's and the Parent's Board of Directors, including committees thereof, with respect to the filing of the Registration Statement and related matters; the form of the Purchase Agreement, in the form filed as Exhibit 1 to the Registration Statement (the "Underwriting Agreement"); and such other documents, records, certificates of public officials and questions of law as we deemed necessary or appropriate for the purpose of this opinion. In rendering this opinion, we have relied, to the extent we deem such reliance appropriate, on certificates of officers of the Company and the Parent as to factual matters. We have assumed the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or reproduction copies. We have further assumed that there will be no changes in applicable law between the date of this opinion and the date of issuance and sale of the Shares and the Guarantees to the Underwriters. Based upon the foregoing, we are of the opinion that: (i) when (a) the Restated Charter and the Certificate of Designations are accepted for filing by the Secretary of State of the State of Delaware, and (b) the Shares are issued, signed by the transfer agent and delivered pursuant to the Underwriting Agreement and paid for by the Underwriters in accordance therewith, such Shares will be duly authorized, validly issued, fully paid and non-assessable; (ii) when (a) the Shares are exchanged for shares of Series A TCI Group Common Stock, and (b) such shares of Series A TCI Group Common Stock are issued signed by the transfer agent and delivered in accordance with the terms of the Guarantee and the Certificate of Designations, such shares 3 January 3, 1996 Page 3 of Series A TCI Group Common Stock will be duly authorized, validly issued, fully paid and non-assessable; (iii) when (a) the Guarantee is executed by the Parent, and (b) the Shares and the related guarantees are delivered pursuant to the Underwriting Agreement and paid for by the Underwriters in accordance therewith, the Guarantee will be a legal, valid and binding agreement of the Parent enforceable in accordance with its terms, except (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other laws affecting creditors' rights generally, and (b) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. We hereby consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to the reference to us contained therein under the heading "Legal Matters." In giving the foregoing consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. As you are aware, Jerome H. Kern, a partner of this Firm, is a director of the Parent. Very truly yours, BAKER & BOTTS, L.L.P. EX-8 8 OPINION OF BAKER & BOTTS RE: CERTAIN TAX MATTERS 1 [BAKER & BOTTS LETTERHEAD] January 3, 1996 EXHIBIT 8 TCI Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, Colorado 80111-3000 Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, Colorado 80111-3000 Dear Sirs: We refer to the registration statement on Form S-3, File No. 33-64127 (the "Registration Statement") of TCI Communications, Inc., a Delaware corporation (the "Company") and Tele-Communications, Inc., a Delaware corporation (the "Parent"), filed with the Securities and Exchange Commission (the "SEC") in accordance with the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder (collectively called the "Act") which relates to the registration of 2,300,000 shares (the "Shares") of the Company's Cumulative Exchangeable Preferred Stock, Series A, par value $.01 per share, to be issued and sold to the underwriters (the "Underwriters") named in the Registration Statement. We have acted as your counsel in connection with certain tax matters related to the Shares including the information in the Registration Statement under the caption "Certain Federal Income Tax Consequences". In connection therewith, we have examined, among other things, the Registration Statement and the proposed Certificate of Designations for the Shares, and we have conducted such research as we have deemed necessary or appropriate for the purpose of this opinion. 2 January 3, 1996 Page 2 Based on the foregoing, we are of the opinion that the summary in the Registration Statement under the caption "Certain Federal Income Tax Consequences" is a full and fair disclosure of the material United States Federal income tax consequences of the ownership of Shares as of the date hereof. Except as stated above, we express no opinion with respect to any other matter. We are furnishing this opinion to you solely in connection with the filing of the Registration Statement, and this opinion is not to be relied upon, circulated, quoted, or otherwise referred to for any other purpose without our prior written consent. We hereby consent to the filing of this opinion as Exhibit 8 to the Registration Statement. In giving the foregoing consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act. Jerome H. Kern, a partner of Baker & Botts, L.L.P., is a director of the Parent. Very truly yours, BAKER & BOTTS, L.L.P. EX-12.1 9 CALCULATION OF RATIOS OF EARNINGS - COMPANY 1 EXHIBIT 12.1 TCI COMMUNICATIONS, INC. AND CONSOLIDATED SUBSIDIARIES Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (amounts in millions, except for ratios) (unaudited)
Nine Months Year Ended December 31, Ended September 30, ------------------------------------- ------------------- 1994 1993 1992 1991 1990 1995 1994 ------------------------------------- ------------------- Earnings (losses) from continuing operations before income taxes $ 223 161 45 (108) (308) (75) 142 Add: Interest on debt 784 738 815 928 990 720 577 Interest Portion of Rentals 25 23 22 23 23 26 18 Amortization of debt expense 12 12 9 6 6 10 8 Distributions from and (earnings) losses of less than 50%-owned affiliates with debt not guaranteed by TCIC (32) 26 (10) (27) 34 26 14 Minority interests in earnings (losses) of consolidated subsidiaries 12 13 277 24 (63) -- 3 Elimination of preferred stock dividend requirement of consolidated subsidiaries to 50%-owned affiliates -- -- (250) (42) (36) -- -- Preferred stock dividend requirement of 50%-owned affiliates, other than amounts to TCIC -- -- 175 23 15 -- -- ------------------------------------- ------------- Earnings available for combined fixed charges and preferred stock dividends $ 1,024 973 1,083 827 661 707 762 ===================================== ============= Fixed charges: Interest on debt: TCIC and consolidated subsidiaries 777 731 718 826 868 713 566 Elimination of interest of consolidated subsidiaries to 50%-owned affiliates -- -- (36) (47) (51) -- -- Less than 50%-owned affiliates with debt guaranteed by TCIC 7 -- -- -- -- 7 4 TCIC's proportionate share of interest of 50%-owned affiliates -- 7 133 149 173 -- 7 ------------------------------------- ------------- 784 738 815 928 990 720 577 Interest portion of rentals 25 23 22 23 23 26 18 Amortization of debt expense 12 12 9 6 6 10 8 Preferred stock dividend requirements of consolidated subsidiaries 10 14 281 61 56 7 7 Elimination of preferred stock dividend requirement of consolidated subsidiaries to 50%-owned affiliates -- -- (250) (42) (36) -- -- Preferred stock dividend requirement of 50%-owned affiliates, other than amounts to TCIC -- -- 175 23 15 -- -- Capitalized interest 15 9 6 5 6 7 12 ------------------------------------- ------------- Total Fixed Charges $ 846 796 1,058 1,004 1,060 770 622 ===================================== ============= Ratio of earnings to combined fixed charges and preferred stock dividends 1.21 1.22 1.02 -- -- 1.23 Deficiency $ -- -- -- (177) (399) (63) --
(a) Preferred Stock dividend requirements have been increased to an amount representing the pretax earnings which would be required to cover such dividend requirements. The effective income tax rate utilized for purposes of increasing preferred stock dividend requirements in 1993 has been adjusted to exclude the effect of the federal income tax rate change in the third quarter of 1993. (continued) 2 TCI COMMUNICATIONS, INC. AND CONSOLIDATED SUBSIDIARIES Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (amounts in millions, except for ratios) (unaudited) Fixed Charges related to interest on debt of less than 50%-owned affiliates guaranteed by TCIC:
Year ended December 31, 1990 710 1991 506 1992 2,517 1993 13,833 1994 5,346 Nine Months Ended September 30, 1994 7,403 1995 3,053
EX-12.2 10 CALCULATION OF RATIOS OF EARNINGS - PARENT 1 EXHIBIT 12.2 TELE-COMMUNICATIONS, INC. AND CONSOLIDATED SUBSIDIARIES Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (amounts in millions, except for ratios) (unaudited)
Nine Months Year Ended December 31, Ended September 30, --------------------------------------- ------------------- 1994 1993(a) 1992(a) 1991 1990 1995 1994 ---------------------------------------- ------------------- Earnings (losses) from continuing operations before income taxes $ 166 161 45 (108) (308) (196) 148 Add: Interest on debt 811 738 815 928 990 776 582 Interest Portion of Rentals 27 23 22 23 23 34 19 Amortization of debt expense 13 12 9 6 6 11 8 Distributions from and (earnings) losses of less than 50%-owned affiliates with debt not guaranteed by TCI 38 26 (10) (27) 34 120 (104) Minority interests in earnings (losses) of consolidated subsidiaries, including preferred stock dividend requirement of consolidated subs 0 13 277 24 (63) (36) 8 Elimination of preferred stock dividend requirement of consolidated subsidiaries to 50%-owned affiliates -- -- (250) (42) (36) -- -- Preferred stock dividend requirement of 50%-owned affiliates, other than amounts to TCI -- -- 175 23 15 -- -- --------------------------------------- ---------- Earnings available for combined fixed charges and preferred stock dividends $1,055 973 1,083 827 661 709 661 ======================================= ========== Fixed charges: Interest on debt: TCI and consolidated subsidiaries 785 731 718 826 868 745 568 Elimination of interest of consolidated subsidiaries to 50%-owned affiliates -- -- (36) (47) (51) -- -- Less than 50%-owned affiliates with debt guaranteed by TCIC 7 -- -- -- -- 7 -- TCI's proportionate share of interest of 50%-owned affiliates 19 7 133 149 173 24 14 --------------------------------------- ---------- 811 738 815 928 990 776 582 Interest portion of rentals 27 23 22 23 23 34 19 Amortization of debt expense 13 12 9 6 6 11 8 Preferred stock dividend requirements of consolidated subsidiaries 20 14 281 61 56 52 12 Elimination of preferred stock dividend requirement of consolidated subsidiaries to 50%-owned affiliates -- -- (250) (42) (36) -- -- Preferred stock dividend requirement of 50%-owned affiliates, other than amounts to TCI -- -- 175 23 15 -- -- Capitalized interest 16 9 6 5 6 7 12 --------------------------------------- ---------- Total Fixed Charges $ 887 796 1,058 1,004 1,060 880 633 ======================================= ========== Ratio of earnings to fixed charges 1.19 1.22 1.02 -- -- 1.04 Deficiency $ -- -- -- (177) (399) (171) --
(a) Preferred Stock dividend requirements have been increased to an amount representing the pretax earnings which would be required to cover such dividend requirements. The effective income tax rate utilized for purposes of increasing preferred stock dividend requirements in 1993 has been adjusted to exclude the effect of the federal income tax rate change in the third quarter of 1993. (continued) 2 TELE-COMMUNICATIONS, INC. AND CONSOLIDATED SUBSIDIARIES Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (amounts in millions, except for ratios) (unaudited) Fixed Charges related to interest on debt of less than 50%-owned affiliates guaranteed by TCI:
Year ended December 31, 1990 710 1991 506 1992 2,517 1993 13,833 1994 5,777 Nine Months Ended September 30, 1994 10,676 1995 4,866
EX-23.1 11 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Tele-Communications, Inc.: We consent to the incorporation by reference in the registration statement No. 33-64127 on Form S-3, as amended, of TCI Communications, Inc. and Tele-Communications, Inc. of our reports dated March 27, 1995, relating to the consolidated balance sheets of Tele-Communications, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, and all related financial statement schedules, which reports appear in the December 31, 1994 Annual Report on Form 10-K, as amended, of Tele-Communications, Inc. and to the reference to our firm under the heading "Experts" in the registration statement. Our reports covering the December 31, 1994 consolidated financial statements refer to the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in 1994. KPMG PEAT MARWICK, LLP Denver, Colorado January 3, 1996 EX-23.2 12 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders TCI Communications, Inc.: We consent to the incorporation by reference in the registration statement No. 33-64127 on Form S-3, as amended, of TCI Communications, Inc. and Tele-Communications, Inc. of our reports dated March 27, 1995, relating to the consolidated balance sheets of TCI Communications, Inc. (formerly Tele-Communications, Inc.) and subsidiaries as of December 31, 1994 and 1993, 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, 1994, and all related financial statement schedules, which reports appear in the December 31, 1994 Annual Report on Form 10-K, as amended, of TCI Communications, Inc. and to the reference to our firm under the heading "Experts" in the registration statement. Our reports covering the December 31, 1994 consolidated financial statements refer to the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in 1994. KPMG PEAT MARWICK LLP Denver, Colorado January 3, 1996 EX-23.3 13 CONSENT OF KPMG 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders of TeleWest Communications plc: We consent to the incorporation by reference in the registration statement No. 33-64127 on Form S-3, as amended, of TCI Communications, Inc. and Tele-Communications, Inc. of our report dated 21 March, 1995, relating to the consolidated balance sheet of TeleWest Communications plc and subsidiaries as of 31 December 1994 and 1993, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended 31 December 1994, which report appears in the 31 December 1994 Annual Report on Form 10-K of Tele-Communications, Inc. and TCI Communications, Inc., as amended, and to the reference to our firm under the heading "Experts" in the registration statement. KPMG London, England 3 January 1996 EX-23.4 14 CONSENT OF KPMG FINSTERBUSCH PICKENHAYN SIBILLE 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Cablevision: We consent to the incorporation by reference in the registration statement No. 33-64127 on Form S-3, as amended, of TCI Communications, Inc. and Tele-Communications, Inc. of our report dated March 24, 1995, relating to the combined balance sheets of Cablevision (A combination of certain cable television assets of Cablevision S.A., Televisora Belgrano S.A., Construred S.A. and Univent's S.A.) as of December 31, 1994 and 1993, and the related combined statements of operations and deficit and cash flows for each of the years in the three-year period ended December 31, 1994, which appear in the Current Report on Form 8-K of Tele-Communications, Inc. and TCI Communications, Inc. dated April 20, 1995, as amended, and to the reference to our firm under the heading "Experts" in the registration statement. KPMG FINSTERBUSCH PICKENHAYN SIBILLE Juan Carlos PickenHayn Partner Buenos Aires, Argentina January 3, 1996 EX-23.5 15 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders QVC Inc.: We consent to the incorporation by reference in the registration statement No. 33-64127 on Form S-3, as amended, of TCI Communications, Inc. and Tele-Communications, Inc. of our report dated March 4, 1994, relating to the consolidated balance sheets of QVC, Inc. and subsidiaries as of January 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended January 31, 1994, which report appears in the Current Report on Form 8-K of Tele-Communications, Inc. and TCI Communications, Inc. dated February 3, 1995, as amended, and to the reference to our firm under the heading "Experts" in the registration statement. Our report refers to a change in the method of accounting for income taxes. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania January 3, 1996 EX-23.6 16 CONSENT OF PRICE WATERHOUSE, LLP 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement on Form S-3 of TCI Communications, Inc. and Tele-Communications, Inc. of our report dated February 4, 1994, relating to the consolidated financial statements of TeleCable Corporation which appears on page 12 of the TCI Communications, Inc. and Tele-Communications, Inc. Current Report on Form 8-K dated August 26, 1994. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Norfolk, Virginia January 2, 1996 EX-24 17 POWER OF ATTORNEY FOR CERTAIN OFFICERS OF THE CO. 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen M. Brett, Esq., and Robert W. Murray Jr., Esq. and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority, to do and perform each and every act and thing requisite or necessary to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- Chairman of the Board and ----------------- Director of TCI Communications, Inc. (Bob Magness) Director of TCI Communications, Inc. ----------------- (John C. Malone) Director of TCI Communications, Inc. ----------------- (Donne F. Fisher) /s/ Brendan R. Clouston President of TCI Communications, Inc. November 9, 1995 - ----------------------- (Principal Executive Officer) (Brendan R. Clouston) /s/ Gary K. Bracken Senior Vice President and November 9, 1995 ---------------------- Controller of TCI Communications, Inc. (Gary K. Bracken) (Principal Financial and Accounting Officer)
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