TELE COMMUNICATIONS INC /CO/
S-3, 1997-05-14
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>
 
     As filed with the Securities and Exchange Commission on May 13, 1997
                                               REGISTRATION NO. 333-____________

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                   FORM  S-3
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933



                           TELE-COMMUNICATIONS, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S>                                <C>                                                          <C>
Delaware                                       5619 DTC Parkway                                 84-1260157
(State or other jurisdiction of          Englewood, Colorado 80111-3000                         (I.R.S. Employer
 incorporation or organization)                (303) 267-5500                                   Identification No.)
                                    (Address, including zip code, and telephone number,
                             including area code, of registrant's principal executive offices)
 
 
                        ------------------------------
 
                            Stephen M. Brett, Esq.
                           Tele-Communications, Inc.
                               Terrace Tower II
                               5619 DTC Parkway
                        Englewood, Colorado 80111-3000
                                (303) 267-5500
           (Name, address, including zip code, and telephone number,
                  including area code, of agent for service)
 
                         ------------------------------
</TABLE>
 
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:  From time to time after the  effective date of the registration
statement.
     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, check the following box:  [X]

     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 effective 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.  [ ]

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF                                   AMOUNT           PROPOSED       PROPOSED MAXIMUM     AMOUNT OF
SECURITIES                                                TO BE           MAXIMUM       AGGREGATE OFFERING   REGISTRATION
TO BE REGISTERED                                     REGISTERED (1)    OFFERING PRICE        PRICE (2)           FEE
                                                                        PER SHARE (2)
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>              <C>                  <C>
Tele-Communications, Inc. Series A TCI Group
 Common Stock, par value $1.00 per share            5,042,017 shares         $  14.25       $71,848,742.25
                                                                                                               }   $32,981
Tele-Communications, Inc. Series A Liberty Media
Group Common Stock, par value $1.00 per share       1,890,757 shares         $19.5625       $36,987,933.81
 
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional shares of Tele-
Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per share,
and Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par
value $1.00 per share, as may be issued as a result of the anti-dilution
provisions contained in certain convertible notes issued by TCI UA, Inc.
described elsewhere in this Registration Statement.

(2)  Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Act on the basis of the average of the high and
low sales prices reported on the Nasdaq National Market on May 8, 1997.

  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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.
<PAGE>
 
                   Subject to Completion, dated May 13, 1997
  PROSPECTUS
                           TELE-COMMUNICATIONS, INC.

  Tele-Communications, Inc. Series A TCI Group Common Stock ($1.00 par value)
 Tele-Communications, Inc. Series A Liberty Media Group Common Stock ($1.00 par
 value)

  This Prospectus relates to shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, par value $1.00 per share (the "TCI Group Series A Common
Stock"), of Tele-Communications, Inc., a Delaware corporation (the "Company" or
"TCI"), and shares of Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share (the "LMG Series A Common Stock"), of
the Company, to be issued from time to time upon conversion of up to $30,000,000
aggregate principal amount of certain convertible notes (the "Notes") of TCI UA,
Inc. ("TCI UA"), an indirect, wholly-owned subsidiary of the Company, and the
offering and sale of such shares by the holders thereof (each a "Selling
Stockholder") from time to time thereafter (all such shares being hereinafter
referred to collectively as the "Shares").  See "Shares Being Offered" and
"Selling Stockholders."  As of the date of this Prospectus, the $30,000,000
aggregate principal amount of Notes are convertible at the current conversion
rate into an aggregate of approximately 5,042,017 shares of TCI Group Series A
Common Stock and approximately 1,890,757 shares of LMG Series A Group Common
Stock.

  The Company's common stock, par value $1.00 per share (the "TCI Common
Stock"), is comprised of six series: TCI Group Series A Common Stock, Tele-
Communications, Inc. Series B TCI Group Common Stock (the "TCI Group Series B
Common Stock" and, together with the TCI Group Series A Common Stock, the "TCI
Group Common Stock"), LMG Series A Common Stock, Tele-Communications, Inc.
Series B Liberty Media Group Common Stock (the "LMG Series B Common Stock" and,
together with the LMG Series A Common Stock, the "Liberty Media Group Common
Stock"), Tele-Communications, Inc. Series A Telephony Group Common Stock (the
"Telephony Group Series A Common Stock") and Tele-Communications, Inc. Series B
Telephony Group Common Stock (the "Telephony Group Series B Common Stock" and
together with the Telephony Group Series A Common Stock, the "Telephony Group
Common Stock").  As of the date of this Prospectus no shares of Telephony Group
Series A Common Stock or Telephony Group Series B Common Stock have been issued
and are outstanding.

  Both series of TCI Group Common Stock are identical in all respects, except
(i) each share of TCI Group Series B Common Stock has ten votes and each share
of TCI Group Series A Common Stock has one vote and (ii) each share of TCI Group
Series B Common Stock is convertible, at the option of the holder, into one
share of TCI Group Series A Common Stock.  Similarly, both series of Liberty
Media Group Common Stock are identical in all respects, except (i) each share of
LMG Series B Common Stock has ten votes and each share of LMG Series A Common
Stock has one vote and (ii) each share of LMG Series B Common Stock is
convertible, at the option of the holder, into one share of LMG Series A Common
Stock.  The shares of TCI Group Series A Common Stock and LMG Series A Common
Stock are not convertible into shares of TCI Group Series B Common Stock and LMG
Series B Common Stock, respectively.  See "Description of TCI Common Stock."

  Shares of the TCI Group Series A Common Stock, the TCI Group Series B Common
Stock, the LMG Series A Common Stock and the LMG Series B Common Stock are
traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbols "TCOMA," "TCOMB," "LBTYA" and "LBTYB," respectively.

  SEE "RISK FACTOR" ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES
OFFERED HEREBY.

  Each of the Shares may be offered for sale and sold by the Selling
Stockholders from time to time in varying amounts, including in block
transactions, on the Nasdaq National Market at then prevailing prices or in
private transactions at prices and on terms to be determined at the time of
sale.  The Shares may be sold by the Selling Stockholders directly, through an
underwritten offering, through agents designated from time to time or to or
through broker-dealers designated from time to time.  See "Plan of
Distribution."  To the extent required, the number and series of Shares to be
sold, the name of the Selling Stockholders, the purchase price, the public
offering price, if applicable, the name of any agent or broker-dealer, and any
applicable commissions, discounts or other items constituting compensation to
such underwriters, agents or broker-dealers with respect to a particular
offering will be set forth in a supplement or supplements to this Prospectus
(each, a "Prospectus Supplement").  The aggregate proceeds to the Selling
Stockholders from the sale of the Shares so offered will be the purchase price
of the Shares sold less (i) the aggregate commissions, discounts and other
compensation, if any, paid by the Selling Stockholders to underwriters, agents
or broker-dealers and (ii) certain other expenses of the offering and sale of
the Shares that will be the responsibility of the Selling Stockholders.  See
"Selling Stockholders."  The Selling Stockholders may also sell all or a portion
of the Shares pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), to the extent that such sales may be made in
compliance with such Rule.  See "Plan of Distribution."  The Company will not
receive any proceeds from the sale of the Shares.  The Company knows of no
selling arrangement between any underwriter, agent or broker-dealer and the
Selling Stockholders.

  The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of any of the Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any discount or commission received by them
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act.

    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.

             The date of this Prospectus is ________________, 1997.
<PAGE>
 
                             AVAILABLE INFORMATION

          The Company has filed with the Securities and Exchange Commission (the
     "Commission") a registration statement on Form S-3 (together with all
     amendments and exhibits, referred to as the "Registration Statement") under
     the Securities Act, with respect to the Shares.  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 pertaining to the
     Shares and the Company, reference is made to the Registration Statement.
     The Registration Statement, including any amendments, schedules and
     exhibits filed or incorporated by reference as a part thereof, is available
     for inspection and copying as set forth below.  Statements contained herein
     or in any document incorporated herein by reference concerning the
     provisions of any contract or other document are not necessarily complete
     and, in each instance, reference is made to the copy of such contract or
     other document filed as an exhibit to the Registration Statement or such
     other document.  Each such statement is qualified in its entirety by such
     reference.

          The Company is subject to the informational requirements of the
     Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
     accordance therewith files reports, proxy statements, information
     statements and other information with the Commission.  Such reports, proxy
     statements, information statements and other information (including the
     Registration Statement) filed with the Commission by the Company 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:  Suite 1400, 500 West Madison Street, Chicago, Illinois  60661-
     2511; and at Suite 1300, 7 World Trade Center, 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.  The Commission maintains a site on the World Wide Web
     that contains reports, proxy and information statements and other
     information regarding registrants (including the Company) that file
     electronically with the Commission.  The address of the Commission's Web
     site is http://www.sec.gov.

                    INCORPORATION OF DOCUMENTS BY REFERENCE

          The following documents have been filed by the Company with the
     Commission under the Exchange Act and are hereby incorporated into this
     Prospectus by reference and made a part hereof (Commission File No. 0-
     20421): (i) the Company's Annual Report on Form 10-K for the year ended
     December 31, 1996, as amended by Form 10-K/A (Amendment No. 1) (ii) the
     Company's Current Reports on Form 8-K, dated January 22, 1997 and March 5,
     1997 and (iii) the financial statements and notes thereto of VII Cable
     which appear in the Current Report on Form 8-K of the Company, dated June
     19, 1996.

          All documents filed by the Company 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 Shares described
     in this Prospectus 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 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 will provide without charge to each person, including any
     beneficial owner, to whom a Prospectus is delivered, upon the written or
     oral request of such person, a copy of any and all of the documents
     incorporated by reference herein, other than certain exhibits to such
     documents (unless such exhibits are specifically incorporated by reference
     into the documents that this Prospectus incorporates).  Such requests
     should be addressed to Stephen M. Brett, Esq., Executive Vice President and
     General Counsel, Tele-Communications, Inc., Terrace Tower II, 5619 DTC
     Parkway, Englewood, Colorado  80111-3000; telephone (303) 267-5500.

                                       2
<PAGE>
 
                                      RISK FACTOR

          The Company had net earnings of $278 million and $62 million for the
     years ended December 31, 1996 and 1994, respectively.  The Company incurred
     a net loss of $171 million for the year ended December 31, 1995.  The
     Company has been able to, and expects to continue to be able to, satisfy
     its debt service and other obligations as and when they become due.  The
     Company's operating cash flow (operating income before depreciation,
     amortization, compensation relating to options and to stock appreciation
     rights, adjustment to compensation relating to options and to stock
     appreciation rights and restructuring charges) ($2,276 million, $1,988
     million and $1,798 million for the years ended December 31, 1996, 1995 and
     1994, respectively) has historically been sufficient to cover its interest
     expense ($1,096 million, $1,010 million and $785 million for the years
     ended December 31, 1996, 1995 and 1994, respectively). The Company's
     interest coverage ratios for the years ended December 31, 1996, 1995 and
     1994 were 208%, 197% and 229%, respectively.  Operating cash flow is a
     measure of value and borrowing capacity within the cable television
     industry and is not intended to be a substitute for cash flows provided by
     operating activities, a measure of performance prepared in accordance with
     generally accepted accounting principles, and should not be relied upon as
     such.  Operating cash flow, as defined, does not take into consideration
     substantial costs of doing business, such as interest expense, and should
     not be considered in isolation to other measures of performance.

          Another measure of liquidity is net cash provided by operating
     activities as reflected in the Company's consolidated statements of cash
     flows.  Net cash provided by operating activities ($1,228 million, $957
     million and $908 million for the years ended December 31, 1996, 1995 and
     1994, respectively) reflects net cash from the operations of the Company
     available for the Company's liquidity needs after taking into consideration
     the aforementioned substantial costs of doing business not reflected in
     operating cash flow.  Amounts expended by the Company for its investing
     activities exceed net cash provided by operating activities.

                                  THE COMPANY

          The Company, through its subsidiaries and affiliates, is principally
     engaged in the construction, acquisition, ownership and operation of cable
     television systems and the provision of satellite-delivered video
     entertainment, information and home shopping programming services to
     various video distribution media, principally cable television systems.
     The Company is one of the largest providers of cable television services in
     the United States.  The Company also has investments in cable and
     telecommunications operations and television programming in certain
     international markets, as well as investments in companies and joint
     ventures involved in developing and providing programming for new
     television and telecommunications technologies.  The Company is organized
     into four principal business groups: Domestic Cable and Communications;
     Programming; International Cable and Programming; and Technology/Venture
     Capital.  The Company is a Delaware corporation and its principal executive
     offices are located at Terrace Tower II, 5619 DTC Parkway, Englewood,
     Colorado 80111-3000; telephone (303) 267-5500.

                              SHARES BEING OFFERED

          On July 9, 1986, the Company entered into a Stock Purchase Agreement
     (the "Naify Agreement") with Marshall Naify, Robert A. Naify, a corporation
     owned by them, certain members of their respective families and certain
     trusts established for the benefit of such persons and certain other
     members of their respective families (the "Naify Family"), pursuant to
     which the Company acquired from the Naify Family in December of 1986 all of
     the shares of common stock of United Artists Communications, Inc. ("UACI")
     owned by them, which represented approximately 55% of the UACI shares then
     outstanding.  The consideration paid for each share of UACI common stock
     acquired by the Company pursuant to the Naify Agreement was $18.498, of
     which $6.64 was paid in cash and the balance of $11.858 per share was
     represented by Notes.

          The Notes are general unsecured obligations of TCI UA, the principal
     amount of which is payable on December 12, 2021 and bears interest at the
     rate of 1.85% per annum until December 12, 2003 and no interest thereafter.
     The Notes are presently convertible at any time at the option of the holder
     into (i) one share of TCI Group Series A Common Stock, (ii) .375 of a share
     of LMG Series A Common Stock and (iii) one-tenth of a share of Series A
     Common Stock, $1.00 par value per share, of TCI Satellite Entertainment,
     Inc., a Delaware corporation which prior to December 4, 1996

                                       3
<PAGE>
 
     was a wholly owned subsidiary of TCI and is presently an independent
     publicly traded company, for each $5.95 principal amount of Notes, subject
     to adjustment under stated circumstances.  The shares of TCI Group Series A
     Common Stock and LMG Series A Common Stock issuable upon the conversion of
     the Notes are hereinafter referred to collectively as the "TCI Conversion
     Shares."

          As of April 28, 1997, Notes in the aggregate principal amount of
     approximately $207,856,030 are outstanding, which Notes are convertible at
     the current conversion rate into an aggregate of approximately 34,933,772
     shares of TCI Group Series A Common Stock and 13,100,153 shares of LMG
     Series A Common Stock (excluding fractional shares issuable upon conversion
     of any particular Note).  The names of the members of the Naify Family who
     currently hold the Notes, the aggregate principal amount of the Notes held
     by each such holder and the number of whole shares of TCI Group Series A
     Common Stock and LMG Series A Common Stock into which the Notes of such
     holder are convertible at the current conversion rate are set forth under
     "Selling Stockholders" below.  In accordance with the terms of the Naify
     Agreement, neither the Notes nor the TCI Conversion Shares may be
     transferred unless they are registered under the Securities Act or an
     exemption from registration is available.  The Notes have not been
     registered under the Securities Act and neither the Company nor TCI UA has
     any obligation to register the Notes.  The Naify Agreement provides the
     holders of the Notes with certain demand and incidental or "piggyback"
     registration rights with respect to the TCI Conversion Shares.
     Specifically, the demand registration rights permit holders of the Notes
     from time to time to require the Company to register TCI Conversion Shares
     under the Securities Act for sale in an underwritten public offering,
     except that the Company is not obligated to effect such registration more
     than once in any six month period or if, in order to comply with such
     request, the Company could be required to undergo a special interim audit
     (unless the parties requesting registration agree to pay all fees and
     expenses of such special interim audit).  The incidental registration
     rights permit the holders of the Notes to have their TCI Conversion Shares
     included in certain types of registration statements proposed to be filed
     by the Company.  The Company's agreement to register the Shares covered by
     this Prospectus as described below is contained in a letter agreement which
     has been filed as an Exhibit to the Registration Statement and is separate
     from the Company's obligation to register TCI Conversion Shares under the
     Naify Agreement.  The full text of the Naify Agreement has been filed as an
     Exhibit to the Registration Statement of which this Prospectus forms a
     part.  See "Available Information."

          The Company has agreed, for the benefit of the holders of the Notes,
     to register the TCI Conversion Shares to be issued from time to time upon
     conversion of up to $30,000,000 aggregate principal amount of the Notes and
     the resale of such shares from time to time by the holders thereof.  The
     Shares offered hereby represent the number of TCI Conversion Shares
     issuable upon conversion of such aggregate principal amount of Notes, as
     such number and type of shares may be increased or decreased as a result of
     adjustments to the conversion rate pursuant to the anti-dilution provisions
     of the Notes.  At the current conversion rate, approximately 5,042,017
     shares of TCI Group Series A Common Stock and approximately 1,890,757
     Shares of LMG Series A Common Stock are issuable upon conversion of
     $30,000,000 aggregate principal amount of the Notes.  The TCI Conversion
     Shares will be included in the Shares covered by this Prospectus on the
     basis of the order in which the Notes, up to an aggregate principal amount
     of $30,000,000, are converted.

                                       4
<PAGE>
 
                              SELLING STOCKHOLDERS

          A member of the Naify Family, or any person to whom a member of the
     Naify Family has transferred Notes in a transaction permitted by the Naify
     Agreement, for whose account Shares are being offered hereby is referred to
     herein as a "Selling Stockholder."  It is anticipated that, from time to
     time after the date hereof, record ownership of certain of the Notes that
     are currently held in trust for the benefit of members of the Naify Family
     will be transferred to the beneficiaries of the applicable trust and/or
     that record ownership of certain of the Notes may be transferred to living
     trusts of which the current record owner or (in the case of Notes currently
     held in trust) beneficial owner would be a trustee with sole control and
     complete discretion to revoke or amend such trust during such person's
     lifetime.  The table set forth below and the footnotes thereto provide the
     following information:  the names of the members of the Naify Family who
     currently hold Notes, the aggregate principal amount of the Notes held by
     each such holder, the number of whole shares of TCI Group Series A Common
     Stock and LMG Series A Common Stock into which the Notes of such holder are
     convertible at the current conversion rate and the number of shares of TCI
     Group Series A Common Stock and LMG Series A Common Stock beneficially
     owned as of April 28, 1997 by each such holder.  The TCI Conversion Shares
     to be included in the Shares covered by this Prospectus will be on the
     basis of the order in which the Notes, up to an aggregate principal amount
     of $30,000,000, are converted; therefore no estimate can be given as to the
     number of shares of TCI Group Series A Common Stock and LMG Series A Common
     Stock that will be held by each Selling Stockholder upon the termination of
     this offering.  However, to the extent required, the name of the Selling
     Stockholder in connection with any particular sale of Shares, the number of
     Shares to be sold and the number and (if one percent or more) the
     percentage of the outstanding shares of TCI Group Series A Common Stock or
     LMG Series A Common Stock to be owned by such Selling Stockholder after
     completion of any offering hereunder will be specified in a Prospectus
     Supplement.

<TABLE>
<CAPTION>
                                             NO. OF WHOLE                                                
                                               SHARES OF                                                             
                                               TCI GROUP                       NO. OF WHOLE 
                                               SERIES A        NO. OF WHOLE    SHARES OF LMG      NO. OF WHOLE 
                                                 COMMON       SHARES OF TCI      SERIES A         SHARES OF LMG 
                               AGGREGATE      STOCK INTO      GROUP SERIES A    COMMON STOCK         SERIES A
                                PRINCIPAL     WHICH NOTES      COMMON STOCK     INTO WHICH        COMMON STOCK
                               AMOUNT OF          ARE          BENEFICIALLY      NOTES ARE         BENEFICIALLY
NOTEHOLDER                     NOTES HELD     CONVERTIBLE        OWNED (1)      CONVERTIBLE          OWNED (1) 
- ----------                     ----------     -----------      ------------     -----------       --------------
<S>                          <C>              <C>           <C>                 <C>              <C>        
Marshall Naify               $ 53,099,889.75     8,924,351      9,279,699  (2)   3,346,631          4,228,084   (2)

Robert A. Naify as Trustee    133,559,215.23    22,446,926     23,176,843  (3)   8,417,597          8,688,156   (3)
 under the Robert A. Naify                                                                                     
 Living Trust dated                                                                                            
 February 8, 1991                                                                                              

Valerie Naify                     960,498.00       161,428        161,428           60,535             60,535  

Leslie C. Naify                 1,565,350.86       263,084        263,084           98,656             98,656  

Christie M. Naify               1,383,117.12       232,456        263,083  (4)      87,171             98,656   (4)

Robert J. Naify                 1,383,117.12       232,456        263,083  (5)      87,171             98,656   (5)

Marshall Naify, Robert A.       2,032,556.06       341,606        341,606          128,102            128,102  
 Naify and Georgette N.                                                                                        
 Rosekrans, Trustees of                                                                                        
 the Michael N. Naify                                                                                          
 testamentary trust for                                                                                        
 the benefit of Marshall                                                                                       
 Naify                                                                                                         

John M. Sherwood, as              182,233.74        30,627         30,627           11,485             11,485  
 Trustee of the Christie                                                                                       
 M. Naify 1981 Trust                                                                                           

John M. Sherwood, as              182,233.74        30,627         30,627           11,485             11,485  
 Trustee of the Robert J.                                                                                      
 Naify 1981 Trust                                                                                              

Christina C. Dierker as           112,364.67        18,884         18,884            7,081              7,081  
 Trustee of the Christina                                                                                      
 C. Dierker Trust Dated                                                                                        
 October 10, 1995                                                                                              
        
</TABLE>

                                       5
<PAGE>
 
<TABLE>
<S>                          <C>              <C>           <C>                 <C>              <C>        
 John M. Sherwood, as             139,734.67        23,484         23,484            8,806              8,806 
 Trustee of the Acela                                                                                          
 Cortese 1983 Trust               

John M. Sherwood, as              139,734.67        23,484         23,484            8,806              8,806  
 Trustee of the Christina                                                                                      
 E. Naify 1985 Trust                                                                                           

John M. Sherwood, as              114,619.43        19,263         19,263            7,223              7,223  
 Trustee of the Drew                                                                                           
 Michael Andrade 1986 Trust                                                                                    

John M. Sherwood and              132,856.16        22,328         22,328            8,373              8,373  
 Marsha J. Naify, as                                                                                           
 Trustees of the Marsha J.                                                                                     
 Naify Living Trust                                                                                            

John M. Sherwood, as              650,506.16       109,328        112,706           40,998             42,264  
 Trustee of the Michael S.                                                                                     
 Naify 1981 Trust                                                                                              

John M. Sherwood, as              472,006.16        79,328         82,706           29,748             31,014  
 Trustee of the Christina                                                                                      
 E. Naify 1981 Trust                                                                                           

Christina E. Naify                875,120.40       147,079        226,407  (6)      55,154             84,902   (6)
                                                                                                              
Marshall Naify, as Trustee        740,066.10       124,380        124,380           46,642             46,642 
 under the Michael Stephen                                                                                    
 Naify 1963 Trust                                                                                             
                                                                                                              
Richard R. Naify                3,833,900.00       644,352        737,002  (7)     241,632            277,611   (7)
                                                                                                              
Josephine Naify                 5,995,736.82     1,007,686      1,167,656  (7)     377,882            439,106   (7)

James Naify                       301,172.93        50,617         60,617           18,981             22,506
                             ---------------    ----------     ----------        ---------          ---------
- ---------------------
</TABLE>

  (1) The number of shares specified in this table as being beneficially owned
  by each Selling Stockholder assumes the conversion of all Notes beneficially
  owned by such Selling Stockholder, except as set forth in the footnotes.

  (2) This number includes the number of shares issuable upon conversion of
  Notes owned of record by Marshall Naify, Robert A. Naify and Georgette N.
  Rosekrans, as Trustees under the Michael N. Naify testamentary trust for the
  benefit of Marshall Naify (341,606 shares of TCI Group Series A Common Stock
  and 128,102 shares of LMG Series A Common Stock).  This number does not
  include, although Marshall Naify may be deemed to beneficially own, (i) the
  number of shares issuable upon conversion of Notes owned of record by Marshall
  Naify as Trustee under the Michael Stephen Naify 1963 Trust (124,380 shares of
  TCI Group Series A Common Stock and 46,642 shares of LMG Series A Common
  Stock) and (ii) approximately 97,708 shares of TCI Group Series A Common Stock
  and 38,413 shares of LMG Series A Common Stock held in the United Artists,
  Inc. Employee Stock Ownership Plan for the benefit of Marshall Naify.

  (3) This number does not include, although Robert A. Naify may be deemed to
  beneficially own, (i) the number of shares issuable upon conversion of Notes
  owned of record by Marshall Naify, Robert A. Naify and Georgette N. Rosekrans
  as Trustees under the Michael N. Naify testamentary trust for the benefit of
  Marshall Naify (341,606 shares of TCI Group Series A Common Stock and 128,102
  shares of LMG Series A Common Stock) and (ii) approximately 170,411 shares of
  TCI Group Series A Common Stock and 67,027 shares of LMG Series A Common Stock
  held in the United Artists, Inc. Employee Stock Ownership Plan for the benefit
  of Robert A. Naify.

  (4) This number includes the number of shares issuable upon conversion of
  Notes owned of record by the Christie M. Naify 1981 Trust (30,627 shares of
  TCI Group Series A Common Stock and 11,485 shares of LMG Series A Common
  Stock) of which Christie M. Naify is the sole beneficiary.

  (5) This number includes the number of shares issuable upon conversion of
  Notes owned of record by the Robert J. Naify 1981 Trust (30,627 shares of TCI
  Group Series A Common Stock and 11,485 shares of LMG Series A Common Stock) of
  which Robert J. Naify is the sole beneficiary.

  (6) This number includes the number of shares issuable upon conversion of
  Notes owned of record by John M. Sherwood as Trustee under the Christina E.
  Naify 1981 Trust (79,328 shares of TCI Group Series A Common Stock and 29,748
  shares of LMG Series A Common Stock) of which Christina E. Naify is sole
  beneficiary.

  (7) This number includes 92,650 shares of TCI Group Series A Common Stock and
  35,979 shares of LMG Series A Common Stock owned by Richard R. Naify and
  Josephine Naify as co-trustees of the Naify Family Trust f/b/o Richard R.
  Naify and Josephine Naify, dated September 16, 1993.

                                       6
<PAGE>
 
          Neither the Company nor any of its affiliates has had any material
     relationship with any member of the Naify Family within the past three
     years, except that Robert A. Naify has been a director of the Company since
     June 12, 1987. Any other material relationship between the Company or any
     of its affiliates, on the one hand, and a Selling Stockholder, on the
     other, within three years prior to the date of a sale by such Selling
     Stockholder hereunder will be described in the Prospectus Supplement
     relating to such sale.  The Company has agreed to bear all costs and
     expenses of registering the Shares under the Securities Act and certain
     state securities laws, including registration fees, its legal and
     accounting fees and expenses and photocopying costs.  The Selling
     Stockholders will bear all other expenses of the offering and sale of the
     Shares, including any underwriting discounts, selling commissions or other
     compensation to underwriters, agents, or broker-dealers, transfer fees or
     taxes, if any, and fees and expenses of counsel and other advisers, if any,
     to the Selling Stockholders.  The Company has agreed to indemnify the
     Selling Stockholders against certain liabilities, including civil
     liabilities under the Securities Act.

                              PLAN OF DISTRIBUTION

          The Shares may be offered for sale and sold by the Selling
     Stockholders from time to time in one or more public or private
     transactions, including block transactions, at a fixed price or prices,
     which may be changed, at market prices prevailing at the time of sale, at
     prices related to such prevailing market prices or at prices determined on
     a negotiated or competitive bid basis.  The Shares may be sold by the
     Selling Stockholders directly, through an underwritten offering, or through
     agents designated from time to time or to or through broker-dealers
     designated from time to time.  The Shares may be sold through a broker-
     dealer acting as agent or broker for the Selling Stockholders, or to a
     broker-dealer acting as principal.  In the latter case, the broker-dealer
     may then resell such Shares to the public at varying prices to be
     determined by such broker-dealer at the time of resale.

          If any Shares are sold in an underwritten offering, such Shares may be
     acquired by the underwriters for their own account and may be resold from
     time to time in one or more transactions, including negotiated
     transactions, at a fixed public offering price or at varying prices
     determined at the time of sale.  Unless otherwise indicated in the
     applicable Prospectus Supplement, the obligations of any underwriters to
     purchase Shares will be subject to certain conditions precedent, and the
     underwriters will be obligated to purchase all of the Shares specified in
     such Prospectus Supplement if any are purchased.

           The Company has been advised by the Selling Stockholders that they
     have not, as of the date of this Prospectus, entered into any arrangement
     with an underwriter, agent or broker-dealer for the sale of the Shares.

           The Selling Stockholders may also sell all or a portion of the Shares
     pursuant to Rule 144 promulgated under the Securities Act, to the extent
     that such sales may be made in compliance with such Rule.

          The Selling Stockholders and any agents or broker-dealers that
     participate with the Selling Stockholders in the distribution of any of the
     Shares may be deemed to be "underwriters" within the meaning of the
     Securities Act, and any discount or commission received by them and any
     profit on the resale of the Shares purchased by them may be deemed to be
     underwriting discounts or commissions under the Securities Act.

           In connection with a sale of Shares, the following information will,
     to the extent then required, be provided in the Prospectus Supplement
     relating to such sale:  the number of Shares to be sold, the purchase
     price, the public offering price, if applicable, the name of any
     underwriter, agent or broker-dealer, and any applicable commissions,
     discounts or other items constituting compensation to such underwriters,
     agents or broker-dealers with respect to the particular sale.

                                       7
<PAGE>
 
                      DESCRIPTION OF TCI COMMON STOCK

      The following description of certain terms of the TCI Common Stock does 
not purport to be complete and is qualified in its entirety by reference to the 
Restated Certificate of Incorporation, as amended, of TCI (the "TCI Charter"), 
which is an exhibit to the Registration Statement.

GENERAL

      The TCI Charter currently provides, among other things, that TCI is 
authorized to issue 3,602,375,096 shares of capital stock, including (i) 
3,550,000,000 shares of common stock, par value $1.00 per share, of which 
1,750,000,000 shares are designated TCI Group Series A Common Stock, 
150,000,000 shares are designated TCI Group Series B Common Stock, 750,000,000 
shares are designated LMG Series A Common Stock, 75,000,000 shares are 
designated LMG Series B Common Stock, 750,000,000 shares are designated 
Telephony Group Series A Common Stock and 75,000,000 shares are designated 
Telephony Group Series B Common Stock and (ii) 52,375,096 shares of preferred 
stock ("TCI Preferred Stock"), of which 700,000 shares are designated Class A 
Preferred Stock, par value $.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 as 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 as Convertible 
Preferred Stock, Series C (the "Series C Preferred Stock"), 1,000,000 shares 
are designated as Convertible Preferred Stock, Series D (the "Series D 
Preferred Stock"), 400,000 shares are designated as Redeemable Convertible 
Preferred Stock, Series E (the "Series E Preferred Stock"), 500,000 shares are 
designated Convertible Redeemable Participating Preferred Stock, Series F (the 
"Series F Preferred Stock"),  7,259,380 shares are designated as Redeemable 
Convertible TCI Group Preferred Stock, Series G (the "Series G Preferred 
Stock"), and 7,259,380 shares are designated as Redeemable Convertible Liberty 
Media Group Preferred Stock, Series H (the "Series H Preferred Stock"). 

      No shares of the Telephony Group Common Stock have been issued and are 
outstanding.  As of March 31, 1997, 598,204,963 shares of TCI Group Series A 
Common Stock, 84,647,065 shares of TCI Group Series B Common Stock, 228,749,797 
shares of LMG Series A Common Stock and 21,187,969 shares of LMG Series B 
Common Stock (in each case net of shares held by subsidiaries of TCI) had been 
issued and were outstanding and 116,853,196 shares of TCI Group Series A Common 
Stock were held by subsidiaries of TCI.  As of that date, 126,384,805 shares of 
TCI Group Series A Common Stock and 30,616,358 shares of LMG Series A Common 
Stock were reserved for issuance upon conversion, exchange or exercise of 
outstanding convertible or exchangeable securities and options.  In addition, 
TCI has reserved a number of shares of TCI Group Series A Common Stock equal to 
the number of shares of TCI Group Series B Common Stock outstanding and a 
number of shares of LMG Series A Common Stock equal to the number of shares of 
LMG Series B Common Stock outstanding, for issuance upon conversion, at the 
option of the holder, of  TCI Group Series B Common Stock and LMG Series B 
Common Stock, respectively.  Additionally, subsidiaries of TCI own shares of 
Series F Preferred Stock, which are convertible into an aggregate of 
416,528,172 shares of TCI Group Series A Common Stock.   As of March 31, 1997, 
1,620,026 shares of Class B Preferred Stock, 70,575 shares of Series C 
Preferred Stock, 997,222 shares of Series D Preferred Stock, 278,307 shares of 
Series F Preferred Stock, 6,693,117 shares of Series G Preferred Stock and 
6,693,117 shares of Series H Preferred Stock  had been issued and were 
outstanding.  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 and  
may be reissued as shares of another series of Series Preferred Stock, but not 
as Series E Preferred Stock.  All of the outstanding shares of Series F 
Preferred Stock are held by subsidiaries of TCI.  Approximately 33,901,240 
shares of Series Preferred Stock remain available for designation pursuant to 
the TCI Charter as of March 31, 1997.  The rights evidenced by the TCI Common 
Stock are subject to the prior preferences and rights of the TCI Preferred 
Stock.

                                       8
<PAGE>
 
CERTAIN DEFINITIONS

      As used herein, the following terms have the meanings specified below:

      "Appraisal Date" means, with respect to any determination of the Liberty 
Media Group Private Market Value or the Telephony Group Private Market Value, 
the last day of the calendar month preceding the month in which  the Selection 
Date occurs.

      "Appraiser" means each of the First Appraiser, the Second Appraiser and 
the Mutually Designated Appraiser.

      "Committed Acquisition Shares"  means (i) the shares of LMG Series A 
Common Stock that TCI had, prior to the record date for the LMG Distribution, 
agreed to issue, but as of such record date had not issued, and (ii) the shares 
of LMG Series A Common Stock that are issuable upon conversion, exercise or 
exchange of Convertible Securities that TCI  had, prior to the record date for 
the LMG Distribution, agreed to issue, but as of such record date had not 
issued, in each case including obligations of TCI to issue shares of TCI's 
Class A Common Stock, par value $1.00 per share (which has been redesignated 
TCI Group Series A Common Stock), which as a result of the LMG Distribution, 
constitute obligations to issue, among other securities, LMG Series A Common 
Stock or Convertible Securities which are convertible into or exercisable or 
exchangeable for LMG Series A 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 LMG Series A Common Stock and dividends or distributions of 
shares of LMG Series A Common Stock or LMG Series B Common Stock to holders of 
LMG Series A Common Stock and other reclassifications of the LMG Series A 
Common Stock, in each case occurring (or the record date for which occurs) 
after the LMG Distribution.  The shares of LMG Series A Common Stock issuable 
upon conversion of the Series H Preferred Stock will constitute Committed 
Acquisition Shares.

      "Convertible Securities" means any securities of TCI (other than any 
series of TCI Common Stock) that are convertible into, exchangeable for or 
evidence the right to purchase any shares of any series of TCI Common Stock, 
whether upon conversion, exercise, exchange, pursuant to antidilution 
provisions of such securities or otherwise.

      "Corporation Earnings (Loss) Attributable to the Liberty Media Group" 
means, for any period, 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 TCI attributed to the operations of the 
Liberty Media Group on a substantially consistent basis, including without 
limitation, corporate administrative costs, net interest and income taxes.
 
      "Corporation Earnings (Loss) Attributable to the TCI Group" means, for 
any period, 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 
TCI attributed to the operations of the TCI Group on a substantially consistent 
basis, including without limitation, corporate administrative costs, net 
interest and income taxes.

      "Corporation Earnings (Loss) Attributable to the Telephony Group" means, 
for any period, the net earnings or loss of the Telephony Group for such period 
determined on a basis consistent with the determination of the net earnings or 
loss of the Telephony Group for such period as presented in the combined 
financial statements of the Telephony Group for such period, including income 
and expenses of TCI attributed to the operations of the Telephony 

                                       9
<PAGE>
 
Group on a substantially consistent basis, including without limitation,
corporate administrative costs, net interest and income taxes.

      "DGCL" means the General Corporation Law of the State of Delaware.

      "Disposition" shall mean the sale, transfer, assignment or other 
disposition (whether by merger, consolidation, sale or contribution of assets 
or stock or otherwise) of properties or assets.

      "First Appraiser" means, with respect to any determination of the Liberty 
Media Group Private Market Value or the Telephony Group Private Market Value, 
an investment banking firm of recognized national standing selected by TCI to 
make such determination.

      "Higher Appraised Amount" means, with  respect to any determination of 
the Liberty Media Group Private Market Value or the Telephony Group Private 
Market Value, the higher of the respective final views of the First Appraiser 
and the Second Appraiser as to such private market value.

      "Independent Committee" shall mean a committee of the TCI Board all 
members of which are independent directors as determined under the rules of the 
Nasdaq National Market.

      The "Inter-Group Interest" of the TCI Group in the Liberty Media Group or 
the Telephony Group means any common stockholders' equity value of TCI 
attributable to the Liberty Media Group or the Telephony Group, as the case may 
be, that is not represented by outstanding shares of Liberty Media Group Common 
Stock or Telephony Group Common Stock, as the case may be.  The TCI Group's 
Inter-Group Interest in the Liberty Media Group is represented by the Number of 
Shares Issuable with Respect to the Liberty Media Group Inter-Group Interest 
and the TCI Group's Inter-Group Interest in the Telephony Group is represented 
by the Number of Shares Issuable with Respect to the Telephony Group 
Inter-Group Interest.

      The "Liberty Media Group" means as of any date of determination thereof:

      (i)the interest of TCI 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) 
      and their respective properties and assets;
 
      (ii)all assets and liabilities of TCI or any of its subsidiaries to the 
      extent attributed to any of the properties or assets referred to in 
      clause (i) 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 (i) of this 
      sentence);
 
      (iii)all assets and properties contributed or otherwise transferred to 
      the Liberty Media Group from the TCI Group; and

      (iv)the interest of TCI or any of its subsidiaries in the businesses, 
      assets and liabilities acquired by TCI or any of its subsidiaries for the 
      Liberty Media Group, as determined by the Board of Directors of TCI (the 
      "TCI Board");

provided that (a) 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 (i) 
of the definition of "Number of Shares Issuable with Respect to the Liberty 
Media Group Inter-Group Interest," or in other securities of TCI 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 

                                       10
<PAGE>
 
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 Liberty
Media Group Inter-Group Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and the denominator of which
is equal to the Liberty Media Group Outstanding Interest Fraction in effect
immediately prior to the record date for such dividend or other distribution and
(b) 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 TCI pays a dividend or makes any other
distribution with respect to shares of Liberty Media Group Common Stock payable
in securities of TCI 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 (a) 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. TCI 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.

      The "Liberty Media Group Inter-Group Interest Fraction" means a fraction 
the numerator of which is the Number of Shares Issuable with Respect to the 
Liberty Media Group Inter-Group Interest and the denominator of which is the 
sum of such Number of Shares Issuable with Respect to the Liberty Media Group 
Inter-Group Interest and the aggregate number of shares of Liberty Media Group 
Common Stock outstanding.

      "Liberty Media Group Net Proceeds" shall mean, as of any date, with 
respect to any Disposition of any of the properties and assets of the Liberty 
Media Group, an amount, if any, equal to the gross proceeds of such Disposition 
after any payment of, or reasonable provision for, (a) any taxes payable by TCI 
in respect of such Disposition or in respect of any resulting dividend or
redemption pursuant to clause (i) or (ii), respectively, of the second paragraph
under "-Conversion and Redemption-Mandatory Dividend, Redemption or Conversion
of Liberty Media Group Common Stock" (or which would have been payable but for
the utilization of tax benefits attributable to the TCI Group or the Telephony
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Liberty
Media Group, including, without limitation, any indemnity or guarantee
obligations incurred in connection with the Disposition or any liabilities for
future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends and other obligations (without duplication of
amounts allocated for the satisfaction of TCI's obligations with respect to Pre-
Distribution Convertible Securities and Committed Acquisition Shares issuable
which are included in the determination of the Adjusted Liberty Media Group
Outstanding Interest Fraction) in respect of TCI Preferred Stock attributed to
the Liberty Media Group. For purposes of this definition, any properties and
assets of the Liberty Media Group remaining after such Disposition shall
constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as can be supported by such properties and
assets. To the extent the proceeds of any Disposition include any securities or
other property other than cash, the TCI Board shall determine the value of such
securities or property, including for the purpose of determining the equivalent
value thereof if the TCI Board determines to pay a dividend or redemption price
in cash or securities or other property as provided in the penultimate paragraph
under "-Conversion and Redemption-Mandatory Dividend, Redemption or Conversion
of Liberty Media Group Common Stock."

      The "Liberty Media Group 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 

                                       11
<PAGE>
 
sum of such aggregate number of shares of Liberty Media Group Common Stock
outstanding and the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest.

      The "LMG Distribution" means the distribution paid by TCI on August 10, 
1995 of one-fourth of one share of LMG Series A Common Stock on each 
outstanding share of TCI Group Series A Common Stock and one-fourth of
one share of LMG Series B Common Stock on each outstanding share of TCI Group 
Series B Common Stock to holders of record on August 4, 1995.

      "Lower Appraised Amount" means, with respect to any determination of the 
Liberty Media Group Private Market Value or the Telephony Group Private Market 
Value, the lower of the respective final views of the First Appraiser and the 
Second Appraiser as to such private market value.

      "Market Capitalization" of any class or series of capital stock of TCI on 
any trading day shall mean the product of (i) the Market Value of one share of 
such class or series on such trading day and (ii) the number of shares of such 
class or series outstanding on such trading day.

      "Market Value" of any class or series of capital stock of TCI on any day 
shall mean the average of the high and low reported sales prices regular way of 
a share of such class or series on such day (if such day is a trading day, and 
if such day is not a trading day, on the trading day immediately preceding such 
day) or in case no such reported sale takes place on such trading day the 
average of the reported closing bid and asked prices regular way of a share of 
such class or series on such trading day, in either case on the Nasdaq National 
Market, or if the shares of such class or series are not quoted on the Nasdaq 
National Market on such trading day, the average of the closing bid and asked 
prices of a share of such class or series in the over-the-counter market on 
such trading day as furnished by any New York Stock Exchange member firm 
selected from time to time by TCI, 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 TCI Board; provided that for purposes of determining the ratios 
described under "-Conversion and Redemption-Conversion of  Liberty Media Group 
Common Stock at the Option of  TCI," "-Conversion of Telephony Group Common 
Stock at the Option of TCI," "-Mandatory Dividend, Redemption or Conversion of 
Liberty Media Group Common Stock," and "-Mandatory Dividend, Redemption or 
Conversion of Telephony Group Common Stock" and as described under 
"-Liquidation Rights," (a) the "Market Value" of any share of any series of TCI 
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 TCI 
Common Stock shall be reduced by the fair market value of the per share amount 
of such dividend or distribution as determined by the TCI Board and (b) the 
"Market Value" of any share of any series of TCI 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 TCI Common Stock or (ii) the "ex" date or any similar date for any 
dividend or distribution with respect to any such series of TCI Common Stock in 
shares of such series of TCI Common Stock shall be appropriately adjusted to 
reflect such subdivision, combination, dividend or distribution; and provided, 
further, that to the extent that any assets or properties of the TCI Group are 
transferred to the Telephony Group prior to there being any shares of Telephony 
Group Series A Common Stock or Telephony Group Series B Common Stock issued and 
outstanding, the Market Value of a share of Telephony Group Series A Common 
Stock shall be as determined in good faith by the TCI Board for purposes of 
determining the increase in the Number of Shares Issuable in Respect of the 
Telephony Group Inter-Group Interest.

      "Mutually Appraised Amount" means, with respect to any determination of 
the Liberty Media Group Private Market Value or the Telephony Group Private 
Market Value, the determination by the Mutually Designated Appraiser of such 
private market value.

      "Mutually Designated Appraiser" shall mean, if required with respect to 
any determination of the Liberty Media Group Private Market Value or the 
Telephony Group Private Market Value, the investment banking firm of recognized 
national standing jointly designated by the First Appraiser and the Second 
Appraiser to make such determination.

                                       12
<PAGE>
 
      The "Number of Shares Issuable with Respect to the Liberty Media Group 
Inter-Group Interest" is currently zero and will from time to time be

            (i)   adjusted as appropriate to reflect subdivisions (by stock 
      split or otherwise) and combinations (by reverse stock split or 
      otherwise) of the LMG Series A Common Stock and dividends or 
      distributions of shares of LMG Series A Common Stock or LMG Series B
      Common Stock to holders of LMG Series A Common Stock and other
      reclassifications of LMG Series A Common Stock,

            (ii)  decreased (but not to less than zero) by (a) the aggregate 
      number of shares of LMG Series A Common Stock issued or sold by TCI after 
      the Distribution other than Committed Acquisition Shares, the proceeds of 
      which are attributed to the TCI Group, (b) the aggregate number of shares 
      of LMG Series A 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, (c) the aggregate number of shares of Liberty Media Group Common 
      Stock issued or delivered by TCI as a dividend or distribution to holders 
      of TCI Group Series A Common Stock and TCI Group Series B Common Stock, 
      (d) the aggregate number of shares of Liberty Media Group Common Stock 
      issued or delivered upon the conversion, exercise or exchange of any 
      Convertible Securities (other than Pre-Distribution Convertible 
      Securities and Convertible Securities which are convertible into or 
      exercisable or exchangeable for Committed Acquisition Shares) issued or 
      delivered by TCI after the Distribution as a dividend or distribution or 
      by reclassification or exchange to holders of TCI Group Series A Common 
      Stock and TCI Group Series B Common Stock and (e) the aggregate number of 
      shares of LMG Series A Common Stock (rounded, if necessary, to the 
      nearest whole number), equal to the aggregate fair value (as determined 
      by the TCI Board) of assets or properties attributed to the Liberty Media 
      Group that are transferred from the Liberty Media Group to the TCI Group 
      in consideration of a reduction in the Number of Shares Issuable with 
      Respect to the Liberty Media Group Inter-Group Interest, divided by the 
      Market Value of one share of LMG Series A Common Stock as of the date of 
      such transfer, and

            (iii) increased by (a) the aggregate number of any shares of LMG 
      Series A Common Stock and LMG Series B Common Stock which are retired or 
      otherwise cease to be outstanding following their purchase with funds 
      attributed to the TCI Group, (b) a number (rounded, if necessary, to the 
      nearest whole number), equal to the fair value (as determined by the TCI 
      Board) of assets or properties theretofore attributed to the TCI Group 
      that are contributed to the Liberty Media Group in consideration of an 
      increase in the Number of Shares Issuable with Respect to the Liberty 
      Media Group Inter-Group Interest, divided by the Market Value of one 
      share of LMG Series A Common Stock as of the date of such contribution 
      and (c) the aggregate number of shares of LMG Series A Common Stock and 
      LMG Series B 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."

TCI will not issue or sell shares of LMG Series B Common Stock in respect of a 
reduction in the Number of Shares Issuable with Respect to the Liberty Media 
Group Inter-Group Interest.  Whenever a change in the Number of Shares Issuable 
with Respect to the Liberty Media Group Inter-Group Interest occurs, TCI will 
prepare and file a statement of such change with the Secretary of TCI.

      "Number of Shares Issuable with Respect to the Telephony Group 
Inter-Group Interest" shall initially be that number of shares of Telephony 
Group Common Stock which represents 100% of the common stockholders' equity 
value of TCI attributable to the Telephony Group (which may be issued as shares 
of Telephony Group Series A Common Stock or Telephony Group Series B Common 
Stock), as determined by the TCI Board prior to the first issuance of shares of 
Telephony Group Common Stock, and shall from time to time thereafter, as 
applicable, be

                                       13
<PAGE>
 
            (i)   adjusted as appropriate to reflect subdivisions (by stock 
      split or otherwise) and combinations (by reverse stock split or 
      otherwise) of the Telephony Group Series A Common Stock and Telephony 
      Group Series B Common Stock and dividends or distributions of shares of 
      Telephony Group Series A Common Stock or Telephony Group Series B Common 
      Stock to holders of Telephony Group Series A Common Stock and Telephony 
      Group Series B Common Stock and other reclassifications of the Telephony 
      Group Series A Common Stock and Telephony Group Series B Common Stock,

            (ii)  decreased (but not to less than zero) by (a) the aggregate 
      number of shares of Telephony Group Series A Common Stock or Telephony 
      Group Series B Common Stock issued or sold by TCI the proceeds of which 
      are attributed to the TCI Group, (b) the aggregate number of shares of 
      Telephony Group Series A Common Stock or Telephony Group Series B Common 
      Stock issued or delivered upon conversion, exercise or exchange of 
      Convertible Securities, the proceeds of which are attributed to the TCI 
      Group, (c) the aggregate number of shares of Telephony Group Series A 
      Common Stock or Telephony Group Series B Common Stock issued or delivered 
      by TCI as a dividend or distribution to holders of TCI Group Series A 
      Common Stock and TCI Group Series B Common Stock, (d) the aggregate 
      number of shares of Telephony Group Series A Common Stock or Telephony 
      Group Series B Common Stock issued or delivered upon the conversion, 
      exercise or exchange of any Convertible Securities issued or delivered by 
      TCI as a dividend or distribution or by reclassification or exchange to 
      holders of TCI Group Series A Common Stock and TCI Group Series B Common 
      Stock and (e) the aggregate number of shares of Telephony Group Series A 
      Common Stock and Telephony Group Series B Common Stock (rounded, if 
      necessary, to the nearest whole number), equal to the aggregate fair 
      value (as determined by the TCI Board) of assets or properties attributed 
      to the Telephony Group that are transferred from the Telephony Group to 
      the TCI Group in consideration of a reduction in the Number of Shares 
      Issuable with Respect to the Telephony Group Inter-Group Interest, 
      divided by the Market Value of one share of Telephony Group Series A 
      Common Stock as of the date of such transfer, and
 
            (iii) increased by (a) the aggregate number of any shares of 
      Telephony Group Series A Common Stock and Telephony Group Series B Common 
      Stock which are retired or otherwise cease to be outstanding following 
      their purchase with funds attributed to the TCI Group, (b) a number 
      (rounded, if necessary, to the nearest whole number), equal to the fair 
      value (as determined by the TCI Board) of assets or properties, 
      theretofore attributed to the TCI Group that are contributed to the 
      Telephony Group in consideration of an increase in the Number of Shares 
      Issuable with Respect to the Telephony Group Inter-Group Interest, 
      divided by the Market Value of one share of Telephony Group Series A 
      Common Stock as of the date of such contribution and (c) the aggregate 
      number of shares of Telephony Group Series A Common Stock and Telephony 
      Group Series B 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."

      Whenever a change in the Number of Shares Issuable with Respect to the 
Telephony Group Inter-Group Interest occurs, TCI shall prepare and file a 
statement of such change with the Secretary of TCI.

      "Pre-Distribution Convertible Securities" means Convertible Securities 
that were outstanding on the record date for the LMG Distribution and were, 
prior to such date, convertible into or exercisable or exchangeable for shares 
of TCI's Class A Common Stock, par value $1.00 per share (which has been 
redesignated TCI Group Series A Common Stock).

      "Qualifying Subsidiary" shall mean a subsidiary of TCI in which (x) TCI's 
ownership and voting interest is sufficient to satisfy the requirements of the 
Internal Revenue Service for a tax free distribution of TCI's interest in such 
subsidiary to the holders of Telephony Group Series A Common Stock and 
Telephony Group Series B Common Stock or (y) TCI owns, directly or indirectly, 
all of the issued and outstanding capital stock.

                                       14
<PAGE>
 
      "Related Business Transaction" shall mean any Disposition of all or 
substantially all of the properties and assets of the Liberty Media Group or 
the Telephony Group, as the case may be, in which TCI receives as proceeds of 
such Disposition primarily equity securities (including, without limitation, 
capital stock, convertible securities, partnership or limited partnership 
interests and other types of equity securities, without regard to the voting 
power or contractual or other management or governance rights related to such 
equity securities) of the purchaser or acquiror of such assets and properties 
of the Liberty Media Group or the Telephony Group, as the case may be, any 
entity which succeeds (by merger, formation of a joint venture enterprise or 
otherwise) to such assets and properties of the Liberty Media Group or the 
Telephony Group, as the case may be, or a third party issuer, which purchaser, 
acquiror or other issuer is engaged or proposes to engage primarily in one or 
more businesses similar or complementary to the businesses conducted by the
Liberty Media Group or the Telephony Group, as the case may be, prior to such 
Disposition, as determined in good faith by the TCI Board.

      "Second Appraiser" means, with respect to any determination of the 
Liberty Media Group Private Market Value or the Telephony Group Private Market 
Value, an investment banking firm of recognized national standing selected by 
the Independent Committee to make such determination.

      "Selection Date" means, with respect to any determination of the Liberty 
Media Group Private Market Value or the Telephony Group Private Market Value, 
the date upon which the Second Appraiser for such determination is selected by 
the Independent Committee.

      The "TCI Group" means as of any date of determination thereof:

            (i)   the interest of TCI or any of its subsidiaries in all of the 
      businesses in which TCI 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  TCI or any of 
      its subsidiaries, other than any businesses, assets or liabilities of the 
      Liberty Media Group or the Telephony Group;

            (ii)  a proportionate interest in the businesses, assets and 
      liabilities of the Liberty Media Group equal to the Liberty Media Group 
      Inter-Group Interest Fraction as of such date and a proportionate 
      interest in the businesses, assets and liabilities of the Telephony Group 
      equal to the Telephony Group Inter-Group Interest Fraction as of such 
      date;

            (iii) 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 (i) of the definition of "Number of Shares Issuable with 
      Respect to the Liberty Media Group Inter-Group Interest," or in other 
      securities of TCI  attributed to the Liberty Media Group, for which 
      provision will be made as described in the second 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 Liberty 
      Media Group Inter-Group Interest Fraction in effect immediately prior to 
      the record date for such dividend or other distribution and the 
      denominator of which is equal to the Liberty Media Group Outstanding 
      Interest Fraction in effect immediately prior to the record date for such 
      dividend or other distribution;

            (iv)  from and after any dividend or other distribution with 
      respect to shares of Telephony Group Common Stock (other than a dividend 
      or other distribution payable in shares of Telephony Group Common Stock, 
      with respect to which adjustment will be made as described in clause (i) 
      of the definition of "Number of Shares Issuable with Respect to the 
      Telephony Group Inter-Group Interest, or in other securities of TCI 
      attributed to the Telephony 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 Telephony Group equal to 
      the 

                                       15
<PAGE>
 
      aggregate amount of such kind of assets or properties so paid in 
      respect of such dividend or distribution with respect to shares of 
      Telephony Group Common Stock multiplied by a fraction the numerator of 
      which is equal to the Telephony Group Inter-Group Interest Fraction in 
      effect immediately prior to the record date for such dividend or other 
      distribution and the denominator of which is equal to the Telephony Group 
      Outstanding Interest Fraction in effect immediately prior to the record 
      date for such dividend or other distribution; and

            (v)   any assets or properties transferred from the Liberty Media 
      Group or the Telephony Group to the TCI Group;

provided that, from and after any contribution or transfer of any assets or 
properties from the TCI Group to the Liberty Media Group or the Telephony 
Group, the TCI Group 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 or the Telephony 
Group, as applicable, described in clause (ii) above). If TCI pays a dividend 
or makes any other distribution with respect to shares of Liberty Media Group 
Common Stock payable in other securities of TCI 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 (iii) 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.  If Telephony Group Common 
Stock is issued and TCI pays a dividend or makes any other distribution with 
respect to shares of Telephony Group Common Stock payable in other securities 
of TCI attributed to the Telephony 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 (iv) 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 Telephony 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 distribution in respect of such securities so deemed to be held by the 
TCI Group.  TCI may also, to the extent any such other securities constitute 
Convertible Securities which are at the time convertible, exercisable or 
exchangeable, cause such Convertible Securities deemed to be held by the TCI 
Group to be deemed to be converted, exercised or exchanged (and to the extent 
the terms of such Convertible Securities require payment or delivery of 
consideration in order to effect such conversion, exercise or exchange, the TCI 
Group 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 or Telephony Group, as applicable. 

      "Telephony Group" shall mean, as of any date that any shares of Telephony 
Group Common Stock have been issued and continue to be outstanding:
 
            (i)   the interest of TCI or of any of its subsidiaries in TCI 
      Telephony Services, Inc., a Delaware corporation and an indirect wholly 
      owned subsidiary of TCI, or any of its subsidiaries (including any 
      successor thereto by merger, consolidation or sale of all or 
      substantially all of its assets, whether or not in connection with a 
      Related Business Transaction) and their respective properties and assets;
 
            (ii)  all assets and liabilities of TCI or any of its subsidiaries 
      to the extent attributed to any of the properties or assets referred to 
      in clause (i) of this sentence, whether or not such assets or liabilities 
      are assets and liabilities of TCI Telephony Services, Inc. (together with 
      its consolidated subsidiaries) or any of its subsidiaries (or a successor 
      as described in clause (i) of this sentence);
 
            (iii) all assets and properties contributed or otherwise 
      transferred to the Telephony Group from the TCI Group; and

                                       16
<PAGE>
 
            (iv)  the interest of TCI or any of its subsidiaries in the 
      businesses, assets and liabilities acquired by TCI or any of its 
      subsidiaries for the Telephony Group, as determined by the TCI Board;
 
provided that (a) from and after any dividend or other distribution with 
respect to any shares of Telephony Group Common Stock (other than a dividend or 
other distribution payable in shares of Telephony Group Common Stock, with 
respect to which adjustment shall be made as provided in clause (i) of the 
definition of "Number of Shares Issuable with Respect to the Telephony Group 
Inter-Group Interest," or in other securities of TCI attributed to the 
Telephony Group for which provision shall be made as set forth in the 
penultimate sentence of this definition), the Telephony Group shall no longer 
include an amount of assets or properties equal to the aggregate amount of such 
kind of assets or properties so paid in respect of shares of Telephony Group
Common Stock multiplied by a fraction the numerator of which is equal to the
Telephony Group Inter-Group Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and the denominator of which
is equal to the Telephony Group Outstanding Interest Fraction in effect
immediately prior to the record date for such dividend or other distribution and
(b) from and after any transfer of assets or properties from the Telephony
Group to the TCI Group, the Telephony Group shall no longer include the assets
or properties so transferred. If TCI shall pay a dividend or make any other
distribution with respect to shares of Telephony Group Common Stock payable in
securities of TCI attributed to the Telephony Group other than Telephony Group
Common Stock, the TCI Group shall be deemed to hold an amount of such other
securities equal to the amount so distributed multiplied by the fraction
specified in clause (i) of this definition (determined as of a time immediately
prior to the record date for such dividend or other distribution), and to the
extent interest or dividends are paid or other distributions are made on such
other securities so distributed to the holders of Telephony Group Common Stock,
the Telephony Group shall no longer include a corresponding ratable amount of
the kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group. TCI may also,
to the extent any such other securities constitute Convertible Securities which
are at the time convertible, exercisable or exchangeable, cause such Convertible
Securities deemed to be held by the TCI Group to be deemed to be converted,
exercised or exchanged (and to the extent the terms of such Convertible
Securities require payment or delivery of consideration in order to effect such
conversion, exercise or exchange, the Telephony Group shall in such case include
an amount of the kind of properties or assets required to be paid or delivered
as such consideration for the amount of the Convertible Securities deemed
converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities shall no longer be
deemed to be held by the TCI Group or attributed to the Telephony Group.

      "Telephony Group Inter-Group Interest Fraction" means, as of any date, a 
fraction the numerator of which is the Number of Shares Issuable with Respect 
to the Telephony Group Inter-Group Interest as of such date and the denominator 
of which is the sum of (a) such Number of Shares Issuable with Respect to the 
Telephony Group Inter-Group Interest as of such date and (b) the aggregate 
number of shares of Telephony Group Common Stock outstanding as of such date.

    "Telephony Group Net Proceeds" shall mean, as of any date, with respect 
to any Disposition of any of the properties and assets of the Telephony Group, 
an amount, if any, equal to the gross proceeds of such Disposition after any 
payment of, or reasonable provision for, (a) any taxes payable by TCI in respect
of such Disposition or in respect of any resulting dividend or redemption
pursuant to clause (i) or (ii), respectively, of the second paragraph under "-
Conversion and Redemption-Mandatory Dividend, Redemption or Conversion of
Telephony Group Common Stock" (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the Liberty Media
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Telephony
Group, including, without limitation, any indemnity or guarantee obligations
incurred in connection with the Disposition or any liabilities for future
purchase price adjustments and any preferential amounts plus any accumulated and
unpaid dividends and other obligations in respect of TCI Preferred Stock
attributed to the Telephony Group. For purposes of this definition, any
properties and assets of the Telephony Group remaining after such Disposition
shall constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as can be supported by such properties and
assets. To the extent the proceeds of any Disposition include any

                                       17
<PAGE>
 
securities or other property other than cash, the TCI Board shall 
determine the value of such securities or property, including for the purpose 
of determining the equivalent value thereof if the TCI Board determines to pay 
a dividend or redemption price in cash or securities or other property as 
provided in the third paragraph under "-Conversion and Redemption-Mandatory 
Dividend, Redemption or Conversion of Telephony Group Common Stock."

      "Telephony Group Outstanding Interest Fraction" means, as of any date, a 
fraction the numerator of which is the aggregate number of shares of Telephony 
Group Common Stock outstanding on such date and the denominator of which is the 
sum of (a) such aggregate number of shares of Telephony Group Series A Common 
Stock outstanding on such date and (b) the Number of Shares Issuable with 
Respect to the Telephony Group Inter-Group Interest as of such date.

VOTING RIGHTS  

      Holders of TCI Group Series A Common Stock are entitled to one vote for 
each share of such stock held, holders of TCI Group Series B Common Stock are 
entitled to ten votes for each share of such stock held, holders of LMG Series 
A Common Stock are entitled to one vote for each share of such stock held and 
holders of LMG Series B Common Stock are entitled to ten votes for each share 
of such stock held, on all matters presented to such stockholders.  If the 
Telephony Group Common Stock is issued, holders of Telephony Group Series A 
Common Stock will be entitled to one vote for each share of such stock held and 
holders of Telephony Group Series B Common Stock will be entitled to ten votes 
for each share of such stock held, on all matters presented to such 
stockholders.  Except as may otherwise be required by the laws of the State of 
Delaware or, with respect to any class of TCI Preferred Stock or any series of 
such a class, in the TCI Charter (including any resolution or resolutions 
providing for the establishment of such class or series pursuant to authority 
vested in the TCI Board by the TCI Charter), the holders of TCI Group Common 
Stock, the holders of Liberty Media Group Common Stock, the holders of 
Telephony Group Common Stock, if any, and the holders of each class or series 
of TCI Preferred Stock, if any, entitled to vote thereon will vote as one class 
for all purposes.  See " - Anti-Takeover Considerations."

      None of the holders of TCI Group Series A Common Stock, TCI Group Series 
B Common Stock, LMG Series A Common Stock or LMG Series B Common Stock have, 
and, if Telephony Group Common Stock is issued, none of the holders of 
Telephony Group Series A Common Stock or Telephony Group Series B Common Stock 
would have, any rights to vote as a separate class or series on any matter 
coming before the stockholders of TCI, except with respect to certain limited 
class and series voting rights provided under the DGCL.  Under the DGCL, the 
approval of the holders of a majority of the outstanding shares of any class of 
capital stock of a corporation, voting separately as a class, is required to 
approve any amendment to the charter that would alter or change the powers, 
preferences or special rights of the shares of such class so as to affect them 
adversely, provided that, if any amendment would alter or change the powers, 
preferences or special rights of one or more series of the class so as to 
affect them adversely, but would not so affect the entire class, then only the 
shares of the series so affected by the amendment would be entitled to vote 
thereon separately as a class.

DIVIDENDS

      Subject to the prior payment of dividends on, and other rights of, any of 
the outstanding shares of TCI Preferred Stock, dividends may be paid as 
determined by the TCI Board (i) on the TCI Group Common Stock out of the lesser 
of (x) the TCI Group Available Dividend Amount and (y) funds of TCI legally 
available therefor under the DGCL, (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 TCI legally available therefor under the DGCL, and (iii) on the 
Telephony Group Common Stock, if issued, out of the lesser of (x) the Telephony 
Group Available Dividend Amount and (y) funds of TCI legally available therefor 
under the DGCL.  Under the DGCL, the amount of the funds of TCI legally 
available for the payment of dividends on any series of TCI Common Stock is 
determined on the basis of the entire corporation and not just the TCI Group, 
the Liberty Media Group or the Telephony Group.  Consequently, the amount of 
legally available funds will be reduced by the amount of any net losses of the 
TCI Group, the Liberty Media Group or the Telephony Group 

                                       18
<PAGE>
 
and any dividends or distributions on, or repurchases of, the TCI Group Common
Stock, the Liberty Media Group Common Stock or, if issued, the Telephony Group
Common Stock, if any, and any dividends or distributions on, or repurchases of,
the TCI Group Common Stock, the Liberty Media Group Common Stock or, if issued,
the Telephony Group Common Stock, if any, and dividends on, or certain
repurchases of, TCI Preferred Stock. Certain loan agreements to which certain
subsidiaries of TCI 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" means, as of any date, either 
(i) the excess of (a) an amount equal to the total assets of the TCI Group less 
the total liabilities (not including preferred stock) of the TCI Group as of 
such date over (b) the aggregate par value of, or any greater amount determined 
to be capital in respect of, all outstanding shares of TCI Group Common Stock
and each class or series of TCI Preferred Stock attributed to the TCI Group or
(ii) in case there is no such excess, an amount equal to the Corporation
Earnings (Loss) Attributable to the TCI Group (if positive) for the fiscal year
in which such date occurs and/or the preceding fiscal year. The "Corporation
Earnings (Loss) Attributable to the TCI Group," for any period, means the net
earnings or loss of the TCI Group for such period, including income and expenses
of TCI attributed to the operations of the TCI Group on a substantially
consistent basis, including, without limitation, corporate administrative costs,
net interest and income taxes. The TCI Group Available Dividend Amount is
intended to be similar to the amount that would be legally available for the
payment of dividends on the TCI Group Common Stock under the DGCL if the TCI
Group were a separate Delaware corporation. There can be no assurance that there
will be a TCI Group Available Dividend Amount.

      The "Telephony Group Available Dividend Amount" means, as of any date, 
the product of the Telephony Group Outstanding Interest Fraction and either (i) 
the excess of (a) an amount equal to the total assets of the Telephony Group 
less the total liabilities (not including preferred stock) of the Telephony 
Group as of such date over (b) the aggregate par value of, or any greater 
amount determined to be capital in respect of, all outstanding shares of 
Telephony Group Common Stock and each class or series of TCI Preferred Stock 
attributed to the Telephony Group or (ii) in case there is no such excess, an 
amount equal to the Corporation Earnings (Loss) Attributable to the Telephony 
Group (if positive) for the  fiscal year in which such date occurs and/or the 
preceding fiscal year.  The "Corporation Earnings (Loss) Attributable to the 
Telephony Group," for any period, means the net earnings or loss of the 
Telephony Group for such period determined on a basis consistent with the 
determination of the net earnings or loss of the Telephony Group for such 
period as presented in the combined financial statements of the Telephony 
Group, including income and expenses of TCI attributed to the operations of the 
Telephony Group on a substantially consistent basis, including, without 
limitation, corporate administrative costs, net interest and income taxes.  The 
Telephony Group Available Dividend Amount is intended to be similar to the 
amount that would be legally available for the payment of dividends on the 
Telephony Group Common Stock under the DGCL if the Telephony Group were a 
separate Delaware corporation.  There can be no assurance that there will be a 
Telephony Group Available Dividend Amount.

      The "Liberty Media Group Available Dividend Amount" means, as of any 
date, the product of the Liberty Media Group Outstanding Interest Fraction and 
either (i) the excess of (a) an amount equal to the total assets of the Liberty 
Media Group less the total liabilities (not including preferred stock) of the 
Liberty Media Group as of such date over (b) the aggregate par value of, or any 
greater amount determined to be capital in respect of, all outstanding shares 
of Liberty Media Group Common Stock and each class or series of TCI Preferred 
Stock attributed to the Liberty Media Group or (ii) in case there is no such 
excess, an amount equal to the Corporation Earnings (Loss) Attributable to the 
Liberty Media Group (if positive) for the fiscal year in which such date occurs 
and/or the preceding fiscal year.  The "Corporation 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, including income and expenses of TCI 
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 

                                       19
<PAGE>
 
Media Group were a separate Delaware corporation. There is no assurance that
there will be a Liberty Media Group Available Dividend Amount.

      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 TCI Group Series A Common Stock or the TCI Group Series B Common 
Stock will be paid only on both series, in equal amounts per share; any 
dividends paid on the LMG Series A Common Stock or the LMG Series B Common 
Stock will be paid only on both series, in equal amounts per share; and, if 
Telephony Group Common Stock is issued, any dividends paid on the Telephony 
Group Series A Common Stock or the Telephony Group Series B Common Stock will 
be paid only on both series, in equal amounts per share.

      The TCI Board, subject to the provisions described above and under 
"-Share Distributions" below, has the authority and discretion to declare and 
pay dividends on the TCI Group Common Stock, the Liberty Media Group Common 
Stock or, if issued, the Telephony Group Common Stock, in equal or unequal 
amounts, notwithstanding the relationship between the TCI Group Available 
Dividend Amount,  the Liberty Media Group Available Dividend Amount  and the 
Telephony Group Available Dividend Amount , the respective amounts of prior 
dividends declared on, or liquidation rights of, the TCI Group Common Stock, 
the Liberty Media Group Common Stock or, if issued, the Telephony 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 Liberty 
Media Group 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 in the Liberty Media Group) 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 Liberty Media Group Inter-Group Interest 
Fraction and the denominator of which is the Liberty Media Group Outstanding 
Interest Fraction.

      If Telephony Group Common Stock is issued, at the time of any dividend or 
other distribution on the outstanding shares of Telephony Group Common Stock 
(including any dividend of Telephony Group Net Proceeds from the Disposition of 
all or substantially all of the properties and assets of the Telephony Group as 
described under "-Conversion and Redemption-Mandatory Dividend, Redemption or 
Conversion of Telephony Group Common Stock"), the TCI Group will (if at such 
time there is an Inter-Group Interest in the Telephony Group) be credited, and 
the Telephony Group will be charged (in addition to the charge for the dividend 
or other distribution paid or distributed in respect of outstanding shares of 
Telephony 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 Telephony Group Common Stock times (ii) a 
fraction the numerator of which is the Telephony Group Inter-Group Interest 
Fraction and the denominator of which is the Telephony Group Outstanding 
Interest Fraction.  

SHARE DISTRIBUTIONS

      DISTRIBUTIONS ON TCI GROUP COMMON STOCK.   If at any time after the 
LMG Distribution and the initial issuance of shares of Telephony Group Common 
Stock a distribution is to be made with respect to the TCI Group Common Stock 
in TCI Group Common Stock, Liberty Media Group Common Stock, Telephony Group 
Common Stock, or any other securities of TCI or any other person (a "share 
distribution"), such share distribution will be declared and paid only as 
follows:

            (i)   a share distribution consisting of shares of TCI Group Series 
      A Common Stock (or Convertible Securities convertible into or exercisable 
      or exchangeable for shares of TCI Group Series A 

                                       20
<PAGE>
 
      Common Stock) to holders of TCI Group Series A Common Stock and TCI Group
      Series B Common Stock, on an equal per share basis; or consisting of
      shares of TCI Group Series B Common Stock (or Convertible Securities
      convertible into or exercisable or exchangeable for shares of TCI Group
      Series B Common Stock) to holders of TCI Group Series A Common Stock and
      TCI Group Series B Common Stock, on an equal per share basis; or
      consisting of shares of TCI Group Series A Common Stock (or Convertible
      Securities convertible into or exercisable or exchangeable for shares of
      TCI Group Series A Common Stock) to holders of TCI Group Series A Common
      Stock and, on an equal per share basis, shares of TCI Group Series B
      Common Stock (or like Convertible Securities convertible into or
      exercisable or exchangeable for shares of TCI Group Series B Common Stock)
      to holders of TCI Group Series B Common Stock;

            (ii)  a share distribution consisting of shares of LMG Series A 
      Common Stock (or Convertible Securities convertible into or exercisable 
      or exchangeable for shares of LMG Series A Common Stock) to holders of TCI
      Group Series A Common Stock and TCI Group Series B Common Stock, on an
      equal per share basis; provided that the sum of (A) the aggregate number
      of shares of LMG Series A Common Stock to be so issued (or the number of
      such shares which would be issuable upon conversion, exercise or exchange
      of any Convertible Securities to be so issued) and (B) the number of
      shares of such series that are subject to issuance upon conversion,
      exercise or exchange of any Convertible Securities then outstanding that
      are attributed to the TCI Group (other than Pre-Distribution Convertible
      Securities and other than Convertible Securities convertible into or
      exercisable or exchangeable for Committed Acquisition Shares) is less than
      or equal to the Number of Shares Issuable with Respect to the Liberty
      Media Group Inter-Group Interest;

            (iii) a share distribution consisting of shares of Telephony Group 
      Series A Common Stock (or Convertible Securities convertible into or 
      exercisable or exchangeable for shares of Telephony Group Series A Common 
      Stock) to holders of TCI Group Series A Common Stock and TCI Group Series 
      B Common Stock, on an equal per share basis; or consisting of shares of 
      Telephony Group Series B Common Stock (or Convertible Securities 
      convertible into or exercisable or exchangeable for shares of Telephony 
      Group Series B Common Stock) to holders of TCI Group Series A Common 
      Stock and TCI Group Series B Common Stock, on an equal per share basis; 
      or consisting of shares of Telephony Group Series A Common Stock (or 
      Convertible Securities convertible into or exercisable or exchangeable 
      for shares of Telephony Group Series A Common Stock) to holders of TCI 
      Group Series A Common Stock and, on an equal per share basis, shares of 
      Telephony Group Series B Common Stock (or like Convertible Securities 
      convertible into or exercisable or exchangeable for shares of Telephony 
      Group Series B Common Stock) to holders of TCI Group Series B Common 
      Stock; provided that the sum of (A) the aggregate number of shares of 
      Telephony Group Series A Common Stock and Telephony Group Series B 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 Telephony 
      Group Series A Common Stock that are subject to issuance upon conversion, 
      exercise or exchange of any Convertible Securities then outstanding that 
      are attributed to the TCI Group is less than or equal to the Number of 
      Shares Issuable with Respect to the Telephony Group Inter-Group Interest; 
      and

            (iv)  a share distribution consisting of any class or series of 
      securities of TCI or any other person other than TCI Group Common Stock, 
      Liberty Media Group Common Stock or Telephony Group Common Stock (or 
      Convertible Securities convertible into or exercisable or exchangeable 
      for shares of TCI Group Common Stock, Liberty Media Group Common Stock or 
      Telephony Group Common Stock), either on the basis of a distribution of 
      identical securities, on an equal per share basis, to holders of TCI 
      Group Series A Common Stock and TCI Group Series B Common Stock or on the 
      basis of a distribution of one class or series of securities to holders 
      of TCI Group Series A Common Stock and another class or series of 
      securities to holders of TCI Group Series 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 

                                       21
<PAGE>
 
      provisions, with holders of shares of TCI Group Series 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, designation,
      conversion, redemption and share distribution provisions between the TCI
      Group Series A Common Stock and the TCI Group Series B Common Stock),
      provided that if the securities so distributed constitute capital stock of
      a subsidiary of TCI, 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 TCI Group Series
      A Common Stock and the TCI Group Series B Common Stock, and provided in
      each case that such distribution is otherwise made on an equal per share
      basis.

      TCI will not reclassify, subdivide or combine the TCI Group Series A 
Common Stock without reclassifying, subdividing or combining the TCI Group 
Series B Common Stock, on an equal per share basis, and TCI will not 
reclassify, subdivide or combine the TCI Group Series B Common Stock without 
reclassifying, subdividing or combining the TCI Group Series A 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 the caption "-Conversion and Redemption" with respect to the 
redemptions and other distributions referred to therein):

            (i)   a share distribution consisting of shares of LMG Series A 
      Common Stock (or Convertible Securities convertible into or exercisable 
      or exchangeable for shares of LMG Series A Common Stock) to holders of 
      LMG Series A Common Stock and LMG Series B Common Stock, on an equal per 
      share basis; or consisting of shares of LMG Series B Common Stock (or 
      Convertible Securities convertible into or exercisable or exchangeable 
      for shares of LMG Series B Common Stock) to holders of LMG Series A 
      Common Stock and LMG Series B Common Stock, on an equal per share basis; 
      or consisting of shares of LMG Series A Common Stock (or Convertible 
      Securities convertible into or exercisable or exchangeable for shares of 
      LMG Series A Common Stock) to holders of LMG Series A Common Stock and, 
      on an equal per share basis, shares of LMG Series B Common Stock (or like 
      Convertible Securities convertible into or exercisable or exchangeable 
      for shares of LMG Series B Common Stock) to holders of LMG Series B 
      Common Stock; and

            (ii)  a share distribution consisting of any class or series of 
      securities of TCI or any other person other than as described in the 
      immediately preceding clause (i) and other than TCI Group Common Stock or 
      Telephony Group Common Stock (or Convertible Securities convertible into 
      or exercisable or exchangeable for shares of TCI Group Series A Common 
      Stock, TCI Group Series B Common Stock, Telephony Group Series A Common 
      Stock or Telephony Group Series B Common Stock), either on the basis of a 
      distribution of identical securities, on an equal per share basis, to 
      holders of LMG Series A Common Stock and LMG Series B Common Stock or on 
      the basis of a distribution of one class or series of securities to 
      holders of LMG Series A Common Stock and another class or series of 
      securities to holders of LMG Series 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 shares of 
      LMG Series 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, designation, conversion, redemption and share distribution 
      provisions between the LMG Series A Common Stock and the LMG Series B 
      Common Stock), provided that if the securities so distributed constitute 
      capital stock of a subsidiary of TCI, 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 LMG Series A Common Stock and the LMG Series B Common Stock, 
      and provided in each case that such distribution is otherwise made on an 
      equal per share basis.

                                       22
<PAGE>
 
      TCI will not reclassify, subdivide or combine the LMG Series A Common 
Stock without reclassifying, subdividing or combining the LMG Series B Common 
Stock, on an equal per share basis, and TCI will not reclassify, subdivide or 
combine the LMG Series B Common Stock without reclassifying, subdividing or 
combining the LMG Series A Common Stock, on an equal per share basis.

      DISTRIBUTIONS ON TELEPHONY GROUP COMMON STOCK.  If Telephony Group 
Common Stock is issued, and if at any time a share distribution is to be made 
with respect to the Telephony Group Common Stock, such share distribution will 
be declared and paid only as follows (or as described under the caption 
"-Conversion and Redemption" with respect to the redemptions and other 
distributions referred to therein):

            (i)   a share distribution consisting of shares of Telephony Group 
      Series A Common Stock (or Convertible Securities convertible into or 
      exercisable or exchangeable for shares of Telephony Group Series A Common 
      Stock) to holders of Telephony Group Series A Common Stock and Telephony 
      Group Series B Common Stock, on an equal per share basis; or consisting 
      of shares of Telephony Group Series B Common Stock (or Convertible 
      Securities convertible into or exercisable or exchangeable for shares of 
      Telephony Group Series B Common Stock) to holders of Telephony Group
      Series A Common Stock and Telephony Group Series B Common Stock, on an
      equal per share basis; or consisting of shares of Telephony Group Series A
      Common Stock (or Convertible Securities convertible into or exercisable or
      exchangeable for shares of Telephony Group Series A Common Stock) to
      holders of Telephony Group Series A Common Stock and, on an equal per
      share basis, shares of Telephony Group Series B Common Stock (or like
      Convertible Securities convertible into or exercisable or exchangeable for
      shares of Telephony Group Series B Common Stock) to holders of Telephony
      Group Series B Common Stock; and

            (ii)  a share distribution consisting of any class or series of 
      securities of TCI or any other person other than as described in the 
      immediately preceding clause (i) and other than TCI Group Common Stock or 
      Liberty Media Group Common Stock (or Convertible Securities convertible 
      into or exercisable or exchangeable for shares of TCI Group Common Stock 
      or Liberty Media Group Common Stock), either on the basis of a 
      distribution of identical securities, on an equal per share basis, to 
      holders of Telephony Group Series A Common Stock and Telephony Group 
      Series B Common Stock or on the basis of a distribution of one class or 
      series of securities to holders of Telephony Group Series A Common Stock 
      and another class or series of securities to holders of Telephony Group 
      Series 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 
      shares of Telephony Group Series 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, designation, conversion, 
      redemption and share distribution provisions between the Telephony Group 
      Series A Common Stock and the Telephony Group Series B Common Stock), 
      provided that if the securities so distributed constitute capital stock 
      of a subsidiary of TCI, 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 
      Telephony Group Series A Common Stock and the Telephony Group Series B 
      Common Stock, and provided in each case that such distribution is 
      otherwise made on an equal per share basis.

      Because under the TCI Charter the Telephony Group is not permitted to 
have an Inter-Group Interest in either the TCI Group or the Liberty Media 
Group, no distributions on the Telephony Group Common Stock of shares of TCI 
Group Common Stock (or related Convertible Securities) or Liberty Media Group 
Common Stock (or related Convertible Securities) are permitted.

      TCI will not reclassify, subdivide or combine the Telephony Group Series 
A Common Stock without reclassifying, subdividing or combining the Telephony 
Group Series B Common Stock, on an equal per share basis, and 

                                       23
<PAGE>
 
TCI will not reclassify, subdivide or combine the Telephony Group Series B
Common Stock without reclassifying, subdividing or combining the Telephony Group
Series A Common Stock, on an equal per share basis.

CONVERSION AND REDEMPTION

      CONVERSION AT THE OPTION OF THE HOLDER.  Each share of TCI Group 
Series B Common Stock is convertible, at the option of the holder thereof, into 
one share of TCI Group Series A Common Stock.  Each share of LMG Series B 
Common Stock is convertible, at the option of the holder thereof, into one 
share of LMG Series A Common Stock.   If Telephony Group Common Stock is 
issued, each share of Telephony Group Series B Common Stock would be 
convertible, at the option of the holder thereof, into one share of Telephony 
Group Series A Common Stock.  Shares of TCI Group Series A Common Stock are not 
convertible into shares of TCI Group Series B Common Stock; shares of LMG 
Series A Common Stock are not convertible into shares of LMG Series B Common 
Stock; and, if Telephony Group Common Stock is issued, shares of Telephony 
Group Series A Common Stock would not be convertible into shares of Telephony 
Group Series B Common Stock.

      CONVERSION OF LIBERTY MEDIA GROUP COMMON STOCK AT THE OPTION OF  TCI.  
The TCI Board may at any time declare that (i) all of the outstanding shares of 
LMG Series A Common Stock will be converted into a number (or fraction) of 
fully paid and nonassessable shares of TCI Group Series A Common Stock equal to 
the Liberty Media Group Optional Conversion Ratio, and (ii) all of the 
outstanding shares of LMG Series B Common Stock will be converted into a number 
(or fraction) of fully paid and nonassessable shares of TCI Group Series B 
Common Stock equal to the Liberty Media Group Optional Conversion Ratio.  As 
more fully described below, the Liberty Media Group Optional Conversion Ratio 
is the ratio of the private market value of a share of Liberty Media Group 
Common Stock determined by appraisal to the public trading price of a share of 
TCI Group Common Stock.

      Under the TCI Charter, the "Liberty Media Group 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 TCI Group Series A Common Stock 
over the 20-trading day period ending on the trading day preceding the 
Appraisal Date.  The Liberty Media Group Common Stock Per Share Value will 
equal the quotient obtained by dividing the Liberty Media Group Private Market 
Value by the Adjusted Outstanding Shares of Liberty Media Group Common Stock, 
which will be determined in the manner described below.

      The "Liberty Media Group Private Market Value" means an amount equal to 
the private market value of the Liberty Media Group as of the Appraisal Date.  
In the event that TCI determines to establish the Liberty Media Group Private 
Market Value, TCI shall designate the First Appraiser and the Independent 
Committee shall designate the Second Appraiser.  Not later than 20 days after 
the Selection Date, the First Appraiser and the Second Appraiser 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 Appraised Amount is not more than 
120% of 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 the Mutually Designated 
Appraiser to determine such private market value.  The Mutually Designated 
Appraiser will not be provided with any of the work of the First Appraiser and 
the Second Appraiser.  The Mutually Designated Appraiser will, no later than 
the 20th day after the date the Mutually Designated Appraiser is designated, 
determine 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 

                                       24
<PAGE>
 
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 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 Liberty Media Group 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 TCI determines to convert shares of LMG Series A Common Stock into TCI 
Group Series A Common Stock and shares of LMG Series B Common Stock into TCI 
Group Series B Common Stock at the Liberty Media Group Optional Conversion 
Ratio, such conversion will occur on a conversion date on or prior to the 120th 
day following the Appraisal Date.  If TCI determines not to undertake such 
conversion, TCI may at any time thereafter undertake to reestablish the Liberty 
Media Group Common Stock Per Share Value as of a subsequent date.

      CONVERSION OF TELEPHONY GROUP COMMON STOCK AT THE OPTION OF TCI.  If 
Telephony Group Common Stock is issued, the TCI Board may at any time declare 
that (i) all of the outstanding shares of Telephony Group Series A Common Stock 
will be converted into a number (or fraction) of fully paid and nonassessable 
shares of TCI Group Series A Common Stock equal to the Telephony Group Optional 
Conversion Ratio, and (ii) all of the outstanding shares of Telephony Group 
Series B Common Stock will be converted into a number (or fraction) of fully 
paid and nonassessable shares of TCI Group Series B Common Stock equal to the 
Telephony Group Optional Conversion Ratio.  As more fully described below, the 
Telephony Group Optional Conversion Ratio is the ratio of the private market 
value of a share of Telephony Group Common Stock determined by appraisal to the 
public trading price of a share of TCI Group Common Stock.

      Under the TCI Charter, the "Telephony Group Optional Conversion Ratio" 
means the quotient (calculated to the nearest five decimal places) obtained by 
dividing (x) the Telephony Group Common Stock Per Share Value by (y) 

                                       25
<PAGE>
 
the average Market Value of one share of TCI Group Series A Common Stock over
the 20-trading day period ending on the trading day preceding the Appraisal
Date. The Telephony Group Common Stock Per Share Value will equal the quotient
obtained by dividing the Telephony Group Private Market Value by the Adjusted
Outstanding Shares of Telephony Group Common Stock, which will be determined in
the manner provided below.

      The "Telephony Group Private Market Value" means an amount equal to the 
private market value of the Telephony Group as of the Appraisal Date.  In the 
event that TCI determines to establish the Telephony Group Private Market 
Value, TCI shall designate the First Appraiser and the Independent Committee 
shall designate the Second Appraiser.  Not later than 20 days after the 
Selection Date, the First Appraiser and the Second Appraiser will each 
determine its initial view as to the private market value of the Telephony 
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 Appraised Amount is not more than 
120% of the Lower Appraised Amount, the Telephony 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 the Mutually Designated 
Appraiser to determine such private market value.  The Mutually Designated 
Appraiser will not be provided with any of the work of the First Appraiser and 
the Second Appraiser.  The Mutually Designated Appraiser will, no later than 
the 20th day after the date the Mutually Designated Appraiser is designated,
determine the Mutually Appraised Amount, and the Telephony 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 Telephony 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 Telephony Group as of the Appraisal Date based upon the amount a willing 
purchaser would pay to a willing seller, in an arm's-length transaction, if it 
were acquiring the Telephony Group, as if the Telephony Group were a publicly 
traded non-controlled corporation and the purchaser was acquiring all of the 
capital stock of such corporation and without consideration of any potential 
regulatory constraints limiting the potential purchasers of the Telephony Group 
other than that which would have existed if the Telephony Group were a publicly 
traded non-controlled entity.  

      Following the determination of the Telephony Group Private Market Value, 
the investment banking firms whose final views of the private market value of 
the Telephony Group were used in the calculation of the Telephony Group Private 
Market Value will determine the Adjusted Outstanding Shares of Telephony Group 
Common Stock together with any further appropriate adjustments to the Telephony 
Group Private Market Value resulting from such determination.  The "Adjusted 
Outstanding Shares of Telephony Group Common Stock" 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 Telephony Group Common Stock outstanding, 
the Number of Shares Issuable with Respect to the Telephony Group Inter-Group 
Interest, and the number of shares of Telephony Group Common Stock issuable 
upon the conversion, exercise or exchange of those Convertible Securities the 
holders of which would derive an economic benefit from conversion, exercise or 
exchange of such Convertible Securities which exceeds the economic benefit of 
not converting, exercising or exchanging such Convertible Securities.  The 
"Telephony Group Common Stock Per Share Value" means the quotient obtained by 
dividing the Telephony Group Private Market Value by the Adjusted Outstanding 
Shares of Telephony Group Common Stock, provided that if such investment 
banking firms do not agree on the determinations 

                                       26
<PAGE>
 
provided for in this paragraph, the Telephony 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 TCI determines to convert shares of Telephony Group Series A Common 
Stock into TCI Group Series A Common Stock and shares of Telephony Group Series 
B Common Stock into TCI Group Series B Common Stock at the Telephony Group 
Optional Conversion Ratio, such conversion will occur on a conversion date on 
or prior to the 120th day following the Appraisal Date.  If TCI determines not 
to undertake such conversion, TCI may at any time thereafter undertake to 
reestablish the Telephony Group Common Stock Per Share Value as of a subsequent 
date.

      Any such conversion would dilute the interests of holders of TCI Group 
Common Stock and would preclude holders of Telephony Group Common Stock from 
retaining their interest in a security reflecting separately the business of 
the Telephony Group.

      MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF LIBERTY MEDIA GROUP 
COMMON STOCK.  Upon the Disposition, in one transaction or a series of 
related transactions by TCI 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 TCI is required, on or prior to the 85th trading day 
following the consummation of such Disposition, to take one of the actions 
listed in the following paragraph.  This requirement does not apply to a 
Disposition (a) in connection with the Disposition by TCI of all of TCI's 
properties and assets in one transaction or a series of related transactions in 
connection with the liquidation, dissolution or winding up of TCI, (b) by 
dividend, other distribution or redemption in accordance with any
provision described under "-Redemption of Liberty Media Group Common Stock in 
Exchange for Stock of Subsidiary," "-Dividends," "-Share Distributions," or 
"-Liquidation Rights,"  (c) to any person, entity or group which TCI, directly 
or indirectly, after giving effect to the Disposition, controls or (d) in 
connection with a Related Business Transaction.  For these purposes, 
"substantially all of the properties and assets of the Liberty Media Group" 
means a portion of such properties and assets that represents at least 80% of 
the then-current market value (as determined by the TCI Board) of the 
properties and assets of the Liberty Media Group as of such date.
 
      The action TCI is required to take is to either:

            (i)   subject to the limitations described under "-Dividends," 
declare and pay a dividend in cash and/or securities or other property (other 
than a dividend or distribution of TCI 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 
penultimate paragraph under this caption "-Mandatory Dividend, Redemption or 
Conversion of Liberty Media Group Common Stock"), in an aggregate amount equal 
to the product of the Liberty Media Group Outstanding Interest Fraction as of 
the record date for determining the holders entitled to receive such dividend 
and the Liberty Media Group Net Proceeds;

            (ii)  provided that there are assets of TCI 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, then:

                  (A)   if such Disposition involves all (not merely 
            substantially all) of the properties and assets of the Liberty 
            Media Group, redeem all outstanding shares of LMG Series A Common 
            Stock and LMG Series B Common Stock in exchange for cash and/or 
            securities or other property (other than TCI Common Stock) in an 
            aggregate amount equal to the product of the Adjusted Liberty Media 
            Group Outstanding Interest Fraction as of the date of such 
            redemption and the Liberty Media Group Net Proceeds, such aggregate 
            amount to be allocated (subject to the provisions described in the 
            last sentence of the penultimate paragraph under this caption) to 
            shares of LMG Series A Common Stock and LMG Series B 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 LMG Series A Common Stock and each 
            share of LMG Series B Common Stock is the same); or

                                       27
<PAGE>
 
                  (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 TCI Common Stock) equal to the product of the Liberty 
            Media Group Outstanding Interest Fraction as of the date shares are 
            selected for redemption and the Liberty Media Group Net Proceeds of 
            such Disposition to the redemption of outstanding shares of LMG 
            Series A Common Stock and LMG Series B Common Stock, such aggregate 
            amount to be allocated (subject to the provisions described in the 
            last sentence of the penultimate paragraph under this caption) to 
            shares of LMG Series A Common Stock and LMG Series B 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 LMG Series A 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 LMG Series A Common Stock and each 
            share of LMG Series B Common Stock is the same); or

            (iii) convert (A) each outstanding share of LMG Series A Common 
      Stock into a number (or fraction) of fully paid and nonassessable shares 
      of TCI Group Series A Common Stock and (B) each outstanding share of LMG 
      Series B Common Stock into a number (or fraction) of fully paid and 
      nonassessable shares of TCI Group Series B 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 LMG Series A Common
      Stock to the Market Value of one share of TCI Group Series A Common Stock
      during the ten-trading day period referred to in clause (ii)(B) of this
      paragraph.

      
      The "Adjusted Liberty Media Group 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 Liberty Media Group 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.

      TCI may elect to pay the dividend or redemption price referred to in 
clause (i) or (ii) of the second paragraph under this caption "-Mandatory 
Dividend, Redemption or Conversion or Liberty Media Group Common Stock" either 
in the same form as the proceeds of the Disposition were received or in any 
other combination of cash or securities or other property (other than Common 
Stock) that the TCI Board determines will have an aggregate market value on a 
fully distributed basis, of not less than the amount of the Liberty Media Group 
Net Proceeds.  If the dividend or redemption price is paid in the form of 
securities of an issuer other than TCI, the TCI Board 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 
LMG Series A Common Stock and another class or series of securities to holders 
of LMG Series B 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 LMG 
Series 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, designation, 
conversion, redemption and share distribution provisions between the LMG Series 
A Common Stock and the LMG Series B Common Stock), provided that if such 
securities constitute capital stock of a subsidiary of TCI, 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 LMG Series A Common Stock and the LMG Series B 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 

                                       28
<PAGE>
 
single class of securities without distinction between the shares received by
the holders of LMG Series A Common Stock and LMG Series B 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 Liberty Media Group 
Inter-Group Interest Fraction and the denominator of which is the Liberty Media 
Group Outstanding Interest Fraction.

      MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF TELEPHONY GROUP COMMON 
STOCK.  If Telephony Group Common Stock is issued, upon the Disposition in 
one transaction or a series of related transactions by TCI and its subsidiaries 
of all or substantially all of the properties and assets of the Telephony Group 
to any one or more persons, entities or groups, TCI is required, on or prior to 
the 85th trading day following the consummation of such Disposition, to take 
one of the actions listed in the following paragraph.  This requirement does 
not apply to a Disposition (a) in connection with the Disposition by TCI of all 
of TCI's properties and assets in one transaction or a series of related 
transactions in connection with the liquidation, dissolution or winding up of 
TCI, (b) by dividend, other distribution or redemption in accordance with any 
provision described under "-Redemption of Telephony Group Common Stock in 
Exchange for Stock of Subsidiary" "-Dividends," "-Share Distributions," or 
"-Liquidation Rights," (c) to any person, entity or group which TCI, directly 
or indirectly, after giving effect to the Disposition, controls or (d) in 
connection with a Related Business Transaction.  For these purposes, 
"substantially all of the properties and assets of the Telephony Group" means a 
portion of such properties and assets that represents at least 80% of the 
then-current market value (as determined by the TCI Board) of the properties 
and assets of the Telephony Group as of such date. 

      The action TCI is required to take is to either:

            (i)   subject to the limitations described above under 
      "-Dividends," declare and pay a dividend in cash and/or securities or 
      other property (other than a dividend or distribution of TCI Common 
      Stock) to the holders of the outstanding shares of Telephony Group Common 
      Stock equally on a share for share basis (subject to the provisions 
      described in the last sentence of the third paragraph under this caption 
      "-Mandatory Dividends, Redemption or Conversion of Telephony Group Common 
      Stock," in an aggregate amount equal to the product of the Telephony 
      Group Outstanding Interest Fraction as of the record date for determining 
      the holders entitled to receive such dividend and the Telephony Group Net 
      Proceeds;

            (ii)  provided that there are assets of TCI legally available 
      therefor and the Telephony Group Available Dividend Amount would have 
      been sufficient to pay a dividend in lieu thereof as described in clause 
      (i) of this paragraph, then:

                   (A)  if such Disposition involves all (not merely 
            substantially all) of the properties and assets of the Telephony 
            Group, redeem all outstanding shares of Telephony Group Series A 
            Common Stock and Telephony Group Series B Common Stock in exchange 
            for cash and/or securities or other property (other than TCI Common 
            Stock) in an aggregate amount equal to the product of the Telephony 
            Group Outstanding Interest Fraction as of the date of such 
            redemption and the Telephony Group Net Proceeds, such aggregate 
            amount to be allocated (subject to the provisions described in the 
            last sentence of the following paragraph) to shares of Telephony 
            Group Series A Common Stock and Telephony Group Series B 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 Telephony Group Series A Common Stock 
            and each share of Telephony Group Series B Common Stock is the 
            same); or 

                  (B)   if such Disposition involves substantially all (but not 
            all) of the properties and assets of the Telephony Group, apply an 
            aggregate amount of cash and/or securities or other property (other 

                                       29
<PAGE>
 
            than TCI Common Stock) equal to the product of the Telephony Group 
            Outstanding Interest Fraction as of the date shares are selected 
            for redemption and the Telephony Group Net Proceeds of such 
            Disposition to the redemption of outstanding shares of Telephony 
            Group Series A Common Stock and Telephony Group Series B Common 
            Stock, such aggregate amount to be allocated (subject to the 
            provisions described in the last sentence of the following 
            paragraph) to shares of Telephony Group Series A Common Stock and 
            Telephony Group Series B 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 Telephony Group Series A 
            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 
            Telephony Group Series A Common Stock and each share of Telephony 
            Group Series B Common Stock is the same); or

            (iii) convert (A) each outstanding share of Telephony Group Series 
A Common Stock into a number (or fraction) of fully paid and nonassessable 
shares of TCI Group Series A Common Stock and (B) each outstanding share of 
Telephony Group Series B Common Stock into a number (or fraction) of fully paid 
and nonassessable shares of TCI Group Series B 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 Telephony Group Series A Common 
Stock to the Market Value of one share of TCI Group Series A Common Stock 
during the ten-trading day period referred to in clause (ii)(B) of this 
paragraph.

      TCI may elect to pay the dividend or redemption price referred to in 
clause (i) or (ii) of the second paragraph under this caption "-Mandatory 
Dividend, Redemption or Conversion of Telephony Group Common Stock" either in 
the same form as the proceeds of the Disposition were received or in any other 
combination of cash or securities or other property (other than Common Stock) 
that the TCI Board determines will have an aggregate market value on a fully 
distributed basis, of not less than the amount of the Telephony Group Net 
Proceeds.  If the dividend or redemption price is paid in the form of 
securities of an issuer other than TCI, the TCI Board 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 
Telephony Group Series A Common Stock and another class or series of securities 
to holders of Telephony Group Series B 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 Telephony Group Series 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, designation, conversion, redemption 
and share distribution provisions between the Telephony Group Series A Common 
Stock and the Telephony Group Series B Common Stock), provided that if such 
securities constitute capital stock of a subsidiary of TCI, 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 Telephony Group Series A Common Stock and the Telephony Group 
Series B 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 Telephony Group Series A Common Stock and Telephony Group 
Series B Common Stock.  The Related Business Transaction exception would enable 
TCI to enter into transactions in which the properties or assets of the 
Telephony Group may be considered to be "disposed of" in exchange for equity 
securities of an entity engaged or proposing to engage in similar or 
complementary business areas to those of the Telephony Group while maintaining 
the capital structure and delineation of business groups of the Telephony 
Group.

      At the time of any dividend made as a result of a Disposition referred to 
above, the TCI Group will be credited, and the Telephony Group will be charged 
(in addition to the charge for the dividend paid in respect of outstanding 
shares 

                                       30
<PAGE>
 
of Telephony 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 Telephony Group Inter-Group Interest Fraction and 
the denominator of which is the Telephony Group Outstanding Interest Fraction.

      The option to convert the Telephony Group Common Stock into TCI Group 
Common Stock in the event of a Disposition provides TCI with additional 
flexibility by allowing TCI to deliver consideration in the form of shares of 
TCI Group Common Stock rather than cash or securities or other properties.  
This alternative could be used, for example, in circumstances when TCI did not 
have sufficient legally available assets under the DGCL to pay the full amount 
of an otherwise required dividend or redemption or when TCI desired to retain 
such proceeds.

      If less than substantially all of the properties and assets of the 
Telephony Group were disposed of by TCI in one transaction, TCI would not be 
required to pay a dividend on, redeem or convert the outstanding shares of 
Telephony Group Common Stock, even if an additional transaction were 
consummated at a later time in which additional properties and assets of the 
Telephony Group were disposed of by TCI, which, together with the properties 
and assets disposed of in the first transaction, would have constituted 
substantially all of the properties and assets of the Telephony Group at the 
time of the first transaction, unless such transactions constituted a series of 
related transactions.  The second transaction, however, could trigger such a 
requirement if, at the time of the second transaction, the properties and 
assets disposed of in such transaction constituted at least substantially all 
of the properties and assets of the Telephony Group at such time.  If less than 
substantially all of the properties and assets of the Telephony Group were 
disposed of by TCI, the holders of the Telephony Group Common Stock would not 
be entitled to receive any dividend or have their shares redeemed or converted 
for TCI Group Common Stock, although the TCI Board could determine, in its sole 
discretion, to pay a dividend on the Telephony Group Common Stock in an amount 
related to the proceeds of such Disposition.  

      REDEMPTION OF LIBERTY MEDIA GROUP COMMON STOCK IN EXCHANGE FOR STOCK OF 
SUBSIDIARY.  At any time at which all of the assets and liabilities 
attributed to the Liberty Media Group are and continue to be held directly or
indirectly by any one or more corporations all of the capital stock of which is 
owned by  TCI (the "Liberty Media Group Subsidiaries"), the TCI Board may, 
subject to the availability of assets of  TCI 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 equal to the product of the Adjusted Liberty Media Group 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 TCI Board may determine either to (i) 
redeem shares of LMG Series A Common Stock and LMG Series B 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 LMG Series A Common Stock and LMG Series B Common Stock, with holders of 
shares of LMG Series B Common Stock receiving the class or series having the 
higher relative voting rights, or (ii) redeem shares of LMG Series A Common 
Stock and LMG Series B 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 TCI 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.

      REDEMPTION OF TELEPHONY GROUP COMMON STOCK IN EXCHANGE FOR STOCK OF 
SUBSIDIARY.  If Telephony Group Common Stock is issued, at any time at which 
all of the assets and liabilities attributed to the Telephony Group have become 
and continue to be held directly or indirectly by any one or more corporations 
that are Qualifying Subsidiaries (the "Telephony Group Subsidiaries"), the TCI 
Board may, subject to the availability of assets of TCI legally available 
therefor, redeem on a pro rata basis, all of the outstanding shares of 
Telephony Group Common Stock in exchange for an aggregate number of 
outstanding, fully paid and nonassessable shares of common stock of each 
Telephony Group 

                                       31
<PAGE>
 
Subsidiary equal to the product of the Telephony Group Outstanding Interest
Fraction and the number of outstanding shares of common stock of each Telephony
Group Subsidiary that is owned by TCI.

      In effecting such a redemption, the TCI Board may determine either to (i) 
redeem shares of Telephony Group Series A Common Stock and Telephony Group 
Series B Common Stock in exchange for shares of separate classes or series of 
common stock of each Telephony Group Subsidiary with relative voting rights and 
related differences in designation, conversion, redemption and share 
distribution provisions not greater than the corresponding differences in 
voting rights, designation, conversion, redemption and share distribution 
provisions between the Telephony Group Series A Common Stock and Telephony 
Group Series B Common Stock, with holders of shares of Telephony Group Series B 
Common Stock receiving the class or series having the higher relative voting 
rights, or (ii) redeem shares of Telephony Group Series A Common Stock and 
Telephony Group Series B Common Stock in exchange for shares of a single class 
of common stock of each Telephony Group Subsidiary without distinction between 
the shares distributed to the holders of the two series of Telephony Group 
Common Stock. 

      CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES.  Unless the 
provisions of any class or series of Convertible Securities which are 
convertible into or exercisable or exchangeable for shares of Telephony Group 
Common Stock provide specifically to the contrary, after any conversion date or 
redemption date on which all outstanding shares of Telephony Group Common Stock 
were converted or redeemed, any share of Telephony Group Common Stock that is 
issued on conversion, exercise or exchange of any such Convertible Securities 
will, immediately upon issuance pursuant to such conversion, exercise or 
exchange and without any notice or any other action on the part of TCI or the 
TCI Board or the holder of such share of Telephony Group Common Stock, be 
redeemed in exchange for, to the extent assets of TCI are legally available 
therefor, the amount of $.01 per share in cash.

      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 TCI or the TCI Board 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 that are convertible
into or exercisable or exchangeable for shares of Liberty Media Group Common
Stock and which are created, established or otherwise first authorized for
issuance subsequent to the record date for the LMG 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 and without any notice or any other
action on the part of TCI or the TCI Board or the holder of such share of
Liberty Media 

                                       32
<PAGE>
 
Group Common Stock, be redeemed in exchange for, to the extent assets of TCI 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," TCI will announce publicly by press release (i) the Liberty 
Media Group Net Proceeds, (ii) the number of outstanding shares of LMG Series A 
Common Stock and LMG Series B Common Stock, (iii) the number of shares of LMG 
Series A Common Stock and LMG Series B 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 Liberty Media Group Outstanding Interest 
Fraction as of a recent date preceding the date of such notice and (v) the 
Adjusted Liberty Media Group Outstanding Interest Fraction as of a recent date 
preceding the date of such notice.  Not earlier than the 26th trading day and 
not later than the 30th trading day following the consummation of such 
Disposition, TCI will announce publicly by press release which of the actions 
described in clause (i), (ii) or (iii) of the second paragraph under 
"-Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common 
Stock" it has irrevocably determined to take.

      If TCI determines to pay a dividend described in clause (i) of the second 
paragraph under the caption  "-Mandatory Dividend, Redemption or Conversion of 
Liberty Media Group Common Stock," TCI will, not later than the 30th trading 
day following the consummation of such Disposition, cause to be given to each 
holder of outstanding shares of LMG Series A Common Stock and LMG Series B 
Common Stock, a notice setting forth (i) the record date for determining 
holders entitled to receive such dividend, which will be not earlier than the 
40th trading day and not later than the 50th trading day following the 
consummation of such Disposition, (ii) the anticipated payment date of such 
dividend (which will not be more than 85 trading days following the 
consummation of such Disposition), (iii) the kind of shares of capital stock, 
cash and/or other securities or property to be distributed in respect of shares 
of Liberty Media Group Common Stock, (iv) the Liberty Media Group Net Proceeds, 
(v) the Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice, and (vi) the number of outstanding shares of
LMG Series A Common Stock and LMG Series B Common Stock and the number of shares
of LMG Series A Common Stock and LMG Series B Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof.

      If TCI determines to undertake a redemption of shares of Liberty Media 
Group Common Stock following a Disposition of all (not merely substantially 
all) of the properties and assets of the Liberty Media Group as described in 
clause (ii)(A) of the second paragraph under the caption "-Mandatory Dividend, 
Redemption or Conversion of Liberty Media Group Common Stock," TCI will cause 
to be given to each holder of outstanding shares of LMG Series A Common Stock 
and LMG Series B Common Stock, a notice setting forth (i) a statement that all 
shares of Liberty Media Group Common Stock outstanding on the redemption date 
will be redeemed, (ii) the redemption date (which will not be more than 85 
trading days following the consummation of such Disposition), (iii) the kind of 
shares of capital stock, cash and/or other securities or property to be paid as 
a redemption price in respect of shares of Liberty Media Group Common Stock 
outstanding on the redemption date, (iv) the Liberty Media Group Net Proceeds, 
(v) the Adjusted Liberty Media Group Outstanding Interest Fraction as of a 
recent date preceding the date of such notice, (vi) the place or places where 
certificates for shares of Liberty Media Group Common Stock, properly endorsed 
or assigned for transfer (unless TCI waives such requirement), are to be 
surrendered for delivery of certificates for shares of such capital stock, cash 
and/or other securities or property, and (vii) the number of outstanding shares 
of LMG Series A Common Stock and LMG Series B Common Stock and the number of 
shares of LMG Series A Common Stock and LMG Series B 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). Such notice 
will be sent not less than 35 trading days nor more than 45 trading days prior 
to the redemption date.

                                       33
<PAGE>
 
      If TCI determines to undertake a redemption of 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 second paragraph under the caption "-Mandatory Dividend, 
Redemption or Conversion of Liberty Media Group Common Stock," TCI will, not 
later than the 30th trading day following the consummation of such Disposition, 
cause to be given to each holder of record of outstanding shares of LMG Series 
A Common Stock and LMG Series B Common Stock a notice setting forth (i) a date 
not earlier than the 40th trading day and not later than the 50th trading day 
following the consummation of such Disposition which will be the date on which 
shares of the Liberty Media Group Common Stock then outstanding will be 
selected for redemption, (ii) the anticipated redemption date (which will not 
be more than 85 trading days following the consummation of such Disposition), 
(iii) the kind of shares of capital stock, cash and/or other securities or 
property to be paid as a redemption price in respect of shares of Liberty Media 
Group Common Stock selected for redemption, (iv) the Liberty Media Group Net 
Proceeds, (v) the Liberty Media Group Outstanding Interest Fraction as of a 
recent date preceding the date of such notice, (vi) the number of outstanding 
shares of LMG Series A Common Stock and LMG Series B Common Stock and the 
number of shares of LMG Series A Common Stock and LMG Series B Common Stock 
into or for which outstanding Convertible Securities are then convertible, 
exercisable or exchangeable and the conversion, exercise or exchange prices 
thereof and (vii) a statement that TCI 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 referred to in clause (i) of this 
sentence.  Promptly following the date referred to in clause (i) of the 
preceding sentence, but not earlier than the 40th trading day and not later 
than the 50th trading day following the consummation of such Disposition, TCI 
will cause to be given to each holder of shares of LMG Series A Common Stock 
and LMG Series B Common Stock to be redeemed, a notice setting forth (i) the 
number of shares of LMG Series A Common Stock and LMG Series B Common Stock 
held by such holder to be redeemed, (ii) a statement that such shares of LMG 
Series A Common Stock and LMG Series B 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 TCI 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 TCI pro rata among the holders of Liberty Media Group Common Stock
or by such other method as may be determined by the TCI Board to be equitable.

      In the event of any conversion as described above under the caption 
"-Conversion of Liberty Media Group Common Stock at the Option of TCI" or as 
described in clause (iii) of the second paragraph under "-Mandatory Dividend, 
Redemption or Conversion of Liberty Media Group Common Stock," TCI will cause 
to be given to each holder of outstanding shares of LMG Series A Common Stock 
and LMG Series B Common Stock a notice setting forth (i) a statement that all 
outstanding shares of Liberty Media Group Common Stock will be converted, (ii) 
the conversion date (which will not be more than 85 trading days following the 
consummation of such Disposition in the event of a conversion pursuant to the 
provisions described under "-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 a conversion pursuant to the 
provisions described under "-Conversion of Liberty Media Group Common Stock at 
the Option of TCI"), (iii) the per share number (or fraction) of shares of TCI 
Group Series A Common Stock or TCI Group Series B Common Stock, as applicable, 
to be received with respect to each share of LMG Series A Common Stock or LMG 
Series B Common Stock, including details as to the calculation thereof, (iv) 
the place or places where certificates for shares of Liberty Media Group Common 
Stock, properly endorsed or assigned for transfer (unless TCI waives such 
requirement), are to be surrendered, and (v) the number of outstanding shares 
of LMG Series A Common Stock and LMG Series B Common Stock, the number of 
Committed Acquisition Shares issuable and the number of shares of LMG Series A 
Common Stock and LMG Series B Common Stock into or for which outstanding 
Convertible Securities are then convertible, exercisable or exchangeable and 
the conversion, exercise or exchange prices thereof.  Such notice will be sent 
not less than 35 trading days nor more than 45 trading days prior to the 
conversion date.

                                       34
<PAGE>
 
      If TCI determines to redeem shares of LMG Series A Common Stock and LMG 
Series B Common Stock as described above under the caption "-Redemption of 
Liberty Media Group Common Stock in Exchange for Stock of Subsidiary," TCI will 
promptly cause to be given to each holder of LMG Series A Common Stock and LMG 
Series B Common Stock 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 Liberty Media Group Outstanding 
Interest Fraction as of a recent date preceding the date of such notice, (iv) 
the place or places where certificates for shares of Liberty Media Group Common 
Stock, properly endorsed or assigned for transfer (unless TCI waives such 
requirement), are to be surrendered for delivery of certificates for shares of 
common stock of the Liberty Media Group Subsidiaries, and  (v) the number of 
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock 
and the number of shares of LMG Series A Common Stock and LMG Series B Common 
Stock into or for which outstanding Convertible Securities are then 
convertible, exercisable or exchangeable and the conversion, exercise or 
exchange prices thereof.  Such notice will be sent not less than 35 trading 
days nor more than 45 trading days prior to the redemption date.

      In each case in which a notice is required to be given to holders of 
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock 
in accordance with the preceding five paragraphs (other than a notice to 
holders of shares selected for redemption), notice shall also be given, within 
the required time period, to each holder of Convertible Securities that are 
convertible into or exercisable or exchangeable for shares of either such 
series (unless provision for such notice is otherwise made pursuant to the 
terms of such Convertible Securities), which notice shall include, in addition 
to all of the information set forth in the corresponding notice to holders of 
Liberty Media Group Common Stock, a statement to the effect that the holders of 
such Convertible Securities will be entitled to receive the dividend, 
participate in the redemption of shares following a Disposition or in the 
selection of shares for redemption, participate in the conversion of shares or 
participate in the redemption of shares in exchange for stock of the Liberty 
Media Group Subsidiaries only if such holder appropriately converts, exercises 
or exchanges such Convertible Securities on or prior to the record date for the 
dividend, redemption date, date fixed for selection of shares to be redeemed or 
conversion date, as applicable, set forth in such notice.  In the case of a 
redemption or conversion of shares of Liberty Media Group Common Stock, the 
notice to holders of Convertible Securities shall also state what, if anything, 
such holders will be entitled to receive pursuant to the terms of such 
Convertible Securities or, if applicable, the provision described under 
"-Conversion and Redemption-Certain Provisions Respecting Convertible 
Securities" if such holders convert, exercise or exchange such Convertible
Securities following the redemption date or conversion date, as applicable.

      All notices required to be given in accordance with the preceding 
paragraphs will be sent to a holder by first-class mail, postage prepaid, at 
the holder's address as the same appears on the transfer books of TCI.  Neither 
the failure to mail any 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.

      TCI 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), TCI 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, TCI will, if such fraction is not issued or 
delivered to such holder, pay a cash adjustment in respect of such fraction in 
an amount equal to the fair market value of such fraction on the fifth trading 
day prior to the date such payment is to be made (without interest).  For 
purposes of the preceding sentence, "fair market value" of any fraction will be 
(i) in the case of any fraction of a share of capital stock of TCI, 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 TCI Board.

                                       35
<PAGE>
 
      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 TCI'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 TCI will 
specify certificates for such shares, properly endorsed or assigned for 
transfer (unless TCI waives such requirement).  TCI will as soon as practicable 
after 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, TCI will issue and deliver a new certificate 
for the shares of Liberty Media Group Common Stock not redeemed.  TCI 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 the caption "-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 TCI as being held for the
satisfaction of TCI'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, of Liberty Media Group
Common Stock, TCI 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 Group Common Stock represented by such certificates have been converted or
redeemed, notwithstanding the failure to surrender such certificates.

      TCI 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.  TCI will not, however, be required to pay 
any tax that may be payable in respect 

                                       36
<PAGE>
 
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 TCI the amount of any such tax, or has established to the satisfaction of TCI
that such tax has been paid.

      Provisions substantially the same as those described under this caption 
"-General Conversion and Redemption Provisions," apply in the event of a 
Disposition of all or substantially all of the properties and assets of the 
Telephony Group and a determination of TCI to pay a dividend on or undertake a 
partial or complete redemption of the Telephony Group Common Stock following 
such Disposition, in the event of any conversion of the Telephony Group Common 
Stock as described under the caption "-Conversion of Telephony Group Common 
Stock at the Option of TCI" or "-Mandatory Dividend, Redemption or Conversion 
of Telephony Group Common Stock," and in the event of a redemption of the 
Telephony Group Common Stock in exchange for stock of one or more subsidiaries 
as described under the caption "-Redemption of Telephony Group Common Stock in 
Exchange for Stock of Subsidiary."

LIQUIDATION RIGHTS

      In the event of a liquidation, dissolution or winding up of TCI, whether 
voluntary or involuntary, after payment or provision for payment of the debts 
and other liabilities of TCI and subject to the prior payment in full of the 
preferential amounts to which any class or series of TCI 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 TCI 
remaining for distribution to its common stockholders equal to 100% multiplied 
by the average daily ratio (expressed as a decimal) of W/Z for the 20-trading 
day period ending on the trading day prior to the date of the public 
announcement of such liquidation, dissolution or winding up, (ii) the holders 
of the shares of Liberty Media Group Common Stock will share equally, on a 
share for share basis, in a percentage of the funds of TCI remaining for 
distribution to its common stockholders equal to 100% multiplied by the average 
daily ratio (expressed as a decimal) of X/Z for such 20-trading day period and 
(iii) if Telephony Group Common Stock is issued, the holders of the shares of 
Telephony Group Common Stock will share equally, on a share for share basis, in 
a percentage of the funds of TCI remaining for distribution to its common 
stockholders equal to 100% multiplied by the average daily ratio (expressed as 
a decimal) of Y/Z for such 20-trading day period, where W is the aggregate 
Market Capitalization of the TCI Group Series A Common Stock and the TCI Group 
Series B Common Stock, X is the aggregate Market Capitalization of the LMG  
Series A Common Stock and the LMG Series B Common Stock, Y is the aggregate
Market Capitalization of the Telephony Group Series A Common Stock and the
Telephony Group Series B Common Stock, and Z is the aggregate Market
Capitalization of the TCI Group Series A Common Stock, the TCI Group Series B
Common Stock, the LMG Series A Common Stock, the LMG Series B Common Stock, the
Telephony Group Series A Common Stock and the Telephony Group Series B Common
Stock. Neither a consolidation, merger nor sale of assets will be construed to
be a "liquidation," "dissolution" or "winding up" of TCI.

      No holder of Liberty Media Group Common Stock or, if issued, Telephony 
Group Common Stock will have any special right to receive specific assets of 
the Liberty Media Group or the Telephony Group, as the case may be, in the case 
of any dissolution, liquidation or winding up of TCI.  

DETERMINATIONS BY THE TCI BOARD

      The TCI Charter provides that any determinations made by the TCI Board 
under any provision described under "Description of TCI Common Stock" will be 
final and binding on all stockholders of TCI, 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 TCI Board.  TCI will prepare a statement of any such determination by the 
TCI Board respecting the fair market value of any properties, assets or 
securities and will file such statement with the Secretary of TCI.

                                       37
<PAGE>
 
PREEMPTIVE RIGHTS

      Holders of the TCI Group Common Stock and the Liberty Media Group Common 
Stock do not have, and if the Telephony Group Common Stock is issued, holders 
of the Telephony Group Common Stock would 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 TCI.

ANTI-TAKEOVER CONSIDERATIONS 

      The DGCL, the TCI Charter and TCI's Bylaws contain provisions which may 
serve to discourage or make more difficult a change in control of TCI without 
the support of the TCI Board 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
TCI 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 TCI and any of its "interested
stockholders."

      The TCI Charter also contains certain provisions which could make a 
change in control of TCI more difficult.  For example, the TCI Charter 
requires, subject to the rights, if any, of any class or series of TCI 
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 TCI 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

                                       38
<PAGE>
 
has been approved by 75% of the members of the TCI Board (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 TCI or (iii) the dissolution of TCI. "Voting
Securities" is currently defined as the TCI Group Common Stock, the Liberty
Media Group Common Stock, the Telephony Group Common Stock, if issued, and any
class or series of TCI Preferred Stock entitled to vote generally with the
holders of TCI Common Stock on matters submitted to stockholders for a vote. The
TCI Charter also provides for a TCI Board 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 TCI Board. The holders of
TCI Group Common Stock, Liberty Media Group Common Stock, Telephony Group Common
Stock, if issued, Class B Preferred Stock, Series C Preferred Stock, Series G
Preferred Stock and Series H Preferred Stock, voting together as a single class,
vote in elections for directors. (The holders of TCI's Series F Preferred Stock
are by the terms thereof entitled to vote in the election of directors; however,
the DGCL prohibits the voting of such shares because such shares are held by
subsidiaries of TCI.) Stockholders of TCI do not have cumulative voting rights.

      The TCI Charter authorizes the issuance of 50,000,000 shares of Series 
Preferred Stock, of which 33,901,240 remain available for issuance as of March 
31, 1997.  Under the TCI Charter, the TCI Board is authorized, without further 
action by the stockholders of TCI, to establish the preferences, limitations 
and relative rights of the Series Preferred Stock.  In addition, 1,900,000,000 
shares of TCI Group Common Stock, 825,000,000 shares of Liberty Media Group 
Common Stock and 825,000,000 shares of Telephony Group Common Stock are 
currently authorized by the TCI Charter, of which 1,100,294,776 shares of the 
TCI Group Common Stock (as of March 31, 1997), 575,062,234 shares of the 
Liberty Media Group Common Stock (as of March 31, 1997) and all 825,000,000 
shares of Telephony Group Common Stock remain available for issuance (without 
taking into consideration shares to be reserved for issuance upon conversion, 
exchange or exercise of outstanding convertible or exchangeable securities and 
options).  The issue and sale of shares of TCI Group Common Stock, Liberty 
Media Group Common Stock, Telephony Group Common Stock and/or Series Preferred 
Stock could occur in connection with an attempt to acquire control of TCI, and 
the terms of such shares of Series Preferred Stock could be designed in part to 
impede the acquisition of such control. 

      The TCI 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 TCI Charter or the addition or insertion of other provisions therein.

      The TCI Charter and TCI'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 TCI Preferred Stock, upon the call of the Secretary of 
TCI 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 TCI Board. Subject to the
rights of any class or series of TCI Preferred Stock, TCI'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 TCI, at TCI'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 TCI's Voting Securities entitled
to vote at the meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (3) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (4) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Commission had each proposed nominee
been nominated, or intended to be nominated, by the TCI Board; and (5) the
consent of each nominee to serve as a director of TCI if so elected. Any actions
to remove directors is required to be 

                                       39
<PAGE>
 
for "cause" (as defined in the TCI 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.
      
                               LEGAL MATTERS

      The validity of the Shares will be passed upon for the Company by Stephen 
M. Brett, Esq., Executive Vice President and General Counsel of the Company.

                                  EXPERTS

      The consolidated balance sheets of Tele-Communications, Inc. and 
subsidiaries as of December 31, 1996 and 1995, and the related consolidated 
statements of operations, stockholders' equity, and cash flows for each of the 
years in the three-year period ended December 31, 1996, and all related 
financial statement schedules, which appear in  the December 31, 1996 Annual 
Report on Form 10-K of Tele-Communications, Inc., have been incorporated by 
reference herein and in the Registration Statement in reliance upon the 
reports, dated March 24, 1997, 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 combined balance sheets of TCI Group as of December 31, 1996 and 
1995, and the related combined statements of operations, equity, and cash flows 
for each of the years in the three-year period ended December 31, 1996, which 
appear in the December 31, 1996 Annual Report on Form 10-K of 
Tele-Communications, Inc., have been incorporated by reference herein and in 
the Registration Statement in reliance upon the report, dated March 24, 1997, 
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 combined financial statements above refers to the effects of not 
consolidating TCI Group's interest in Liberty Media Group for all periods that 
TCI Group has an interest in Liberty Media Group.

      The combined balance sheets of Liberty Media Group as of December 31, 
1996 and 1995, and the related combined statements of operations, equity, and 
cash flows for each of the years in the three-year period ended  December 31, 
1996, which appear in  the December 31, 1996 Annual Report on Form 10-K of 
Tele-Communications, Inc., have been incorporated by reference herein and in 
the Registration Statement in reliance upon the report, dated March 24, 1997, 
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 consolidated balance sheet of Telewest Communications plc and 
subsidiaries as of December 31, 1996 and 1995, and the related consolidated 
statements of operations and cash flows for each of the years in the three-year 
period ended December 31, 1996, which appear in the December 31, 1996 Annual
Report on Form 10-K of Tele-Communications, Inc., have been incorporated by
reference herein and in the Registration Statement in reliance upon the report,
dated March 11, 1997, of KPMG Audit Plc, chartered accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.

      The consolidated balance sheets of Sprint Spectrum Holding Company, L.P. 
and subsidiaries, development stage enterprises, as of December 31, 1996 and 
1995 and the related consolidated statements of operations, changes in 
partners' capital and cash flows for each of the two years in the period ended 
December 31, 1996, for the period from October 24, 1994 (date of inception) to 
December 31, 1994 and for the cumulative period from October 24, 1994 (date of 
inception) to December 31, 1996, incorporated in this prospectus by reference 
from Tele-Communications, Inc. Annual Report on Form 10-K for the year ended 
December 31, 1996 have been audited by Deloitte & Touche LLP, independent 
auditors, as stated in their report (which expresses an unqualified opinion and 
includes an explanatory paragraph referring to the developmental stage of 
Sprint Spectrum Holding Company, L.P. and subsidiaries), which is incorporated 
herein by reference, and have been so incorporated in reliance upon the report 
of such firm given upon their authority as experts in accounting and auditing.

                                       40
<PAGE>
 
      The financial statements of American PCS, L.P., not separately presented 
in this Prospectus, have been audited by Price Waterhouse LLP, independent 
accountants, whose report thereon has been incorporated by reference herein.  
Such financial statements, to the extent they have been included in the 
financial statements of Sprint Spectrum Holding Company, L.P., have been so 
included in the Annual Report on Form 10-K of Tele-Communications, Inc. in 
reliance on their report given on the authority of said firm as experts in 
auditing and accounting.

      The combined financial statements of VII Cable which appear in TCI's 
Current Report on Form 8-K dated June 19, 1996, have been incorporated by 
reference herein in reliance on the report dated February 14, 1996 of Price 
Waterhouse LLP, independent accountants, given on the authority of said firm as 
experts in auditing and accounting.

                                       41
<PAGE>
 
      NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY 
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ANY PROSPECTUS 
SUPPLEMENT IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR 
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN 
AUTHORIZED BY THE COMPANY.  NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY 
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY 
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED OR 
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS 
DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH 
DATE.  THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER 
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE 
SPECIFICALLY OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY 
JURISDICTION 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.
                                                    
                       -----------------------------

                               TABLE OF CONTENTS
                                                                      Page
                                                                      ----

Available Information........................................................2
Incorporation of Documents by
   Reference................................................................ 2
Risk Factor..................................................................3
The Company................................................................. 3
Shares Being Offered........................................................ 3
Selling Stockholders.........................................................5
Plan of Distribution........................................................ 7
Description of TCI Common Stock............................................. 8
Legal Matters.............................................................. 40
Experts.................................................................... 40




                           TELE-COMMUNICATIONS, INC.




                 Tele-Communications, Inc. Series A TCI Group
                        Common Stock ($1.00 par value)

                      Tele-Communications, Inc. Series A
                       Liberty Media Group Common Stock
                               ($1.00 par value)

                                                          
                 -----------------------------------------


                                PROSPECTUS


                                                          
                 -----------------------------------------




                                             , 1997
                       ----------------------



================================================================================
<PAGE>
 
                                   PART II
                   INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

      All of the expenses in connection with the distribution of the Shares are 
set forth below and will be borne by the Registrant.  Except for the 
registration fee, all expenses are estimated.



       Registration Fee.............................................$32,981.00
       Blue Sky Fees and Expenses (including counsel fees)..........  1,000.00
       Legal Fees and Expenses...................................... 18,000.00
       Accounting Fees and Expenses................................. 10,000.00
       Miscellaneous................................................  1,000.00
                                                                   -----------

             Total..................................................$62,981.00
                                                                   -----------

ITEM 15.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

      Section 145 of the Delaware General Corporation Law provides, generally, 
that a corporation shall have the power to indemnify any person who was or is a 
party or is threatened to be made a party to any threatened, pending or 
completed action, suit or proceeding (except actions by or in the right of the 
corporation) by reason of the fact that such person is or was a director, 
officer, employee or agent of the corporation against all expenses, judgments, 
fines and amounts paid in settlement actually and reasonably incurred by such 
person in connection with such action, suit or proceeding if such person acted 
in good faith and in a manner such person reasonably believed to be in or not 
opposed to the best interests of the corporation and, with respect to any 
criminal action or proceeding, had no reasonable cause to believe his or her 
conduct was unlawful.  A corporation may similarly indemnify such person for 
expenses actually and reasonably incurred by such person in connection with the 
defense or settlement of any action or suit by or in the right of the 
corporation, provided such person acted in good faith and in a manner he or she 
reasonably believed to be in or not opposed to the best interests of the 
corporation, and, in the case of claims, issues and matters as to which such 
person shall have been adjudged liable to the corporation, provided that a 
court shall have determined, upon application, that, despite the adjudication 
of liability but in view of all of the circumstances of the case, such person 
is fairly and reasonably entitled to indemnity for such expenses which such 
court shall deem proper.

      Section 102(b)(7) of the Delaware General Corporation Law provides, 
generally, that the certificate of incorporation may contain a provision 
eliminating or limiting the personal liability of a director to the corporation 
or its stockholders for monetary damages for breach of fiduciary duty as a 
director, provided that such provision may not eliminate or limit the liability 
of a director (i) for any breach of the director's duty of loyalty to the 
corporation or its stockholders, (ii) for acts or omissions not in good faith 
or which involve intentional misconduct or a knowing violation of law, (iii) 
under section 174 of Title 8 of the Delaware General Corporation Law, or (iv) 
for any transaction from which the director derived an improper personal 
benefit.  No such provision may eliminate or limit the liability of a director 
for any act or omission occurring prior to the date when such provision became 
effective.

      Article V, Section E of the Company's Restated Certificate of 
Incorporation provides as follows:

      "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 

                                      II-1
<PAGE>
 
            limitation, right or protection of a director of the Corporation 
            existing at the time of such repeal or modification.

      2.    Indemnification.
            ---------------

            (a)   RIGHT TO INDEMNIFICATION.  The Corporation shall 
            indemnify and hold harmless, to the fullest extent permitted by 
            applicable law as it presently exists or may hereafter be amended, 
            any person who was or is made or is threatened to be made a party 
            or is otherwise involved in any action, suit or proceeding, whether 
            civil, criminal, administrative or investigative (a "proceeding") 
            by reason of the fact that he, or a person for whom he is the legal 
            representative, is or was a director or officer of the Corporation 
            or is or was serving at the request of the Corporation as a 
            director, officer, employee or agent of another corporation or of a 
            partnership, joint venture, trust, enterprise or nonprofit entity, 
            including service with respect to employee benefit plans, against 
            all liability and loss suffered and expenses (including attorneys' 
            fees) reasonably incurred by such person.  Such right of 
            indemnification shall inure whether or not the claim asserted is 
            based on matters which antedate the adoption of this Section E.  
            The Corporation shall be required to indemnify a person in 
            connection with a proceeding (or part thereof) initiated by such 
            person only if the proceeding (or part thereof) was authorized by 
            the Board of Directors of the Corporation.

            (b)   PREPAYMENT OF EXPENSES.  The Corporation shall pay the 
            expenses (including attorneys' fees) incurred in defending any 
            proceeding in advance of its final disposition, provided, however, 
            that the payment of expenses incurred by a director or officer in 
            advance of the final disposition of the proceeding shall be made 
            only upon receipt of an undertaking by the director or officer to 
            repay all amounts advanced if it should be ultimately determined 
            that the director or officer is not entitled to be indemnified 
            under this paragraph or otherwise.

            (c)   CLAIMS.  If a claim for indemnification or payment of 
            expenses under this paragraph is not paid in full within 60 days 
            after a written claim therefor has been received by the 
            Corporation, the claimant may file suit to recover the unpaid 
            amount of such claim and, if successful in whole or in part, shall 
            be entitled to be paid the expense of prosecuting such claim.  In 
            any such action the Corporation shall have the burden of proving 
            that the claimant was not entitled to the requested indemnification 
            or payment of expenses under applicable law.

            (d)   NON-EXCLUSIVITY OF RIGHTS.  The rights conferred on any 
            person by this paragraph shall not be exclusive of any other rights 
            which such person may have or hereafter acquire under any statute, 
            provision of this Certificate, the Bylaws, agreement, vote of 
            stockholders or disinterested directors or otherwise.

            (e)   OTHER INDEMNIFICATION.  The Corporation's obligation, if 
            any, to indemnify any person who was or is serving at its request 
            as a director, officer, employee or agent of another corporation, 
            partnership, joint venture, trust, enterprise or nonprofit entity 
            shall be reduced by any amount such person may collect as 
            indemnification from such other corporation, partnership, joint 
            venture, trust, enterprise or nonprofit entity.

      3.    Amendment or Repeal.
            -------------------

            Any repeal or modification of the foregoing provisions of this 
            Section E shall not adversely affect any right or protection 
            hereunder of any person in respect of any act or omission occurring 
            prior to the time of such repeal or modification."

                                      II-2
<PAGE>
 
      Article II, Section 2.9 of the Company's Bylaws also contains an 
indemnity provision, requiring the Company to indemnify members of the Board of 
Directors and officers of the Company and their respective heirs, personal 
representatives and successors in interest for or on account of any action 
performed on behalf of the Company, to the fullest extent provided by the laws 
of the State of Delaware and the Company's Restated Certificate of 
Incorporation, as then or thereafter in effect.

      The Company has also entered into indemnification agreements with each of 
its directors (each director, an "indemnitee").  The indemnification agreements 
provide (i) for the prompt indemnification to the fullest extent permitted by 
law against any and all expenses, including attorneys' fees and all other 
costs, expenses and obligations paid or incurred in connection with 
investigating, defending, being a witness or participating in (including on 
appeal), or in preparing for ("Expenses"), any threatened, pending or completed 
action, suit or proceeding, or any inquiry or investigation ("Claim"), related 
to the fact that such indemnitee is or was a director, officer, employee, agent 
or fiduciary of the Company or is or was serving at the Company's request as a 
director, officer, employee, trustee, agent or fiduciary of another 
corporation, partnership, joint venture, employee benefit plan, trust or other 
enterprise, or by reason of anything done or not done by a director or officer 
in any such capacity, and against any and all judgments, fines, penalties and 
amounts paid in settlement (including all interest, assessments and other 
charges paid or payable in connection therewith) of any Claim, unless the 
Reviewing Party (one or more members of the Board of Directors or other person 
appointed by the Board of Directors, who is not a party to the particular 
claim, or independent legal counsel) determines that such indemnification is 
not permitted under applicable law and (ii) for the prompt advancement of 
Expenses, and for reimbursement to the Company if the Reviewing Party 
determines that such indemnitee is not entitled to such indemnification under 
applicable law.  In addition, the indemnification agreements provide (i) a 
mechanism through which an indemnitee may seek court relief in the event the 
Reviewing Party determines that the indemnitee would not be permitted to be 
indemnified under applicable law (and therefore is not entitled to 
indemnification or expense advancement under the indemnification agreement) and 
(ii) indemnification against all expenses (including attorneys' fees), and 
advancement thereof if requested, incurred by the indemnitee in seeking to 
collect an indemnity claim or advancement of expenses from the Company or 
incurred in seeking to recover under a directors' and officers' liability 
insurance policy, regardless of whether successful or not.  Furthermore, the 
indemnification agreements provide that after there has been a "change in 
control" in the Company (as defined in the indemnification agreements), other 
than a change in control approved by a majority of directors who were directors 
prior to such change, then, with respect to all determinations regarding a 
right to indemnity and the right to advancement of Expenses, the Company will 
seek legal advice only from independent legal counsel selected by the 
indemnitee and approved by the Company.

      The indemnification agreements impose upon the Company the burden of 
proving that an indemnitee is not entitled to indemnification in any particular 
case and negate certain presumptions that may otherwise be drawn against an 
indemnitee seeking indemnification in connection with the termination of 
actions in certain circumstances.  Indemnitees' rights under the 
indemnification agreements are not exclusive of any other rights they may have 
under Delaware law, the Company's Bylaws or otherwise.  Although not requiring 
the maintenance of directors' and officers' liability insurance, the 
indemnification agreements require that an indemnitee be provided with the 
maximum coverage available for any director or officer of the Company if there 
is such a policy.

      The Company may purchase liability insurance policies covering its 
directors and officers.

      In addition, the Selling Stockholders have agreed to indemnify the 
Company, its directors and officers and each person, if any, who controls the 
Company within the meaning of either the Securities Act or the Securities 
Exchange Act of 1934, as amended, against certain liabilities, including civil 
liabilities under the Securities Act, in connection with certain actions 
arising out of the sale of the Shares registered hereby.

                                      II-3
<PAGE>
 
ITEM 16. EXHIBITS

Exhibits     Description
             -----------

4.1         Restated Certificate of Incorporation of the Company, dated August 
            4, 1994, as amended on August 4, 1994, August 16, 1994, October 11, 
            1994, October 21, 1994, January 26, 1995, August 3, 1995, August 3, 
            1995, January 25, 1996 and January 25, 1996 (Incorporated herein by 
            reference to Exhibit 3.1 of Company's Annual Report on Form 10-K 
            for the year ended December 31, 1995 (Commission File No. 
            0-20421)).

4.2         Certificate of Amendment to the Restated Certificate of 
            Incorporation of the Company, dated April 7, 1997.

4.3         Bylaws of the Company as adopted June 16, 1994 (Incorporated herein 
            by reference to Exhibit 3.2 of the Company's Annual Report on Form 
            10-K for the year ended December 31, 1994, as amended by Form 
            10-K/A (Commission File No. 0-20421)).

4.4         Specimen Stock Certificate for the Tele-Communications, Inc. Series 
            A TCI Group Common Stock, par value $1.00 per share (Incorporated 
            herein by reference to Exhibit 4.3 of Company's registration 
            statement on Form 8-A, as amended by Form 8-A/A (Amendments No. 1 
            and 2) Commission File No. 0-20421).

4.5         Specimen Stock Certificate for Tele-Communications, Inc. Series A 
            Liberty Media Group Common Stock, par value $1.00 per share 
            (Incorporated herein by reference to Exhibit 4.5 of Company's 
            registration statement on Form 8-A, as amended by Form 8-A/A 
            (Amendments No. 1 and 2) Commission File No. 0-20421).

5           Opinion of Stephen M. Brett, Esq.

23.1        Consent of KPMG Peat Marwick LLP.

23.2        Consent of KPMG Peat Marwick LLP.

23.3        Consent of KPMG Peat Marwick LLP.

23.4        Consent of KPMG Audit Plc.

23.5        Consent of Deloitte & Touche LLP.

23.6        Consent of Price Waterhouse LLP.

23.7        Consent of Price Waterhouse LLP.

23.8        Consent of Stephen M. Brett, Esq. (included in Exhibit 5).

24          Powers of Attorney (included on Page II-8).

99.1        Letter agreement, dated May 7, 1997, between Tele-Communications, 
            Inc. and the Selling Stockholders.

                                      II-4
<PAGE>
 
99.2        Stock Purchase Agreement, dated as of July 9, 1986, among 
            Tele-Communications, Inc. and certain shareholders of United 
            Artists Communications, Inc. (Incorporated herein by reference to 
            Exhibit 99.3 of Tele-Communications, Inc.'s Post-effective Amendment
            No. 2 to Form S-4 Registration Statement on Form S-3 (Registration
            No. 33-54263) as filed with the Commission on December 22, 1994).


                                      II-5
<PAGE>
 

ITEM 17. UNDERTAKINGS

      The undersigned Registrant hereby undertakes:

      (1)  To file, during any period in which offers or sales are being made, 
a post-effective amendment to this registration statement:

            (i)  To include any prospectus required by section 10(a)(3) of the 
Securities Act of 1933;

            (ii)  To reflect in the prospectus any facts or events arising 
      after the effective date of the registration statement (or the most 
      recent post-effective amendment thereof) which, individually or in the 
      aggregate, represent a fundamental change in the information set forth in 
      the registration statement.  Notwithstanding the foregoing, any increase 
      or decrease in volume of securities offered (if the total dollar value of 
      securities offered would not exceed that which was registered) and any 
      deviation from the low or high end of the estimated maximum offering 
      range may be reflected in the form of the prospectus filed with the 
      Commission pursuant to Rule 424(b) if, in the aggregate, the changes in 
      volume and price represent no more than a 20% change in the maximum 
      aggregate offering price set forth in the "Calculation of Registration 
      Fee" table in the effective registration statement; and 

            (iii)  To include any material information with respect to the plan 
      of distribution not previously disclosed in the registration statement or 
      any material change to such information in the registration statement;

Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if 
          -------
the information required to be included in a post-effective amendment by those 
paragraphs is contained in periodic reports filed by the Registrant pursuant to 
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are 
incorporated by reference in the registration statement.

      (2)  That, for the purpose of determining any liability under the 
Securities Act of 1933, each such post-effective amendment shall be deemed to 
be a new registration statement relating to the securities offered therein, and 
the offering of such securities at that time shall be deemed to be the initial 
bona fide offering thereof.

      (3)  To remove from registration by means of a post-effective amendment 
any of the securities being registered which remain unsold at the termination 
of the offering.

      (4)  That, for purposes of determining any liability under the Securities 
Act of 1933, each filing of the Registrant's annual report pursuant to section 
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is 
incorporated by reference in the registration statement shall be deemed to be a 
new registration statement relating to the securities offered therein, and the 
offering of such securities at that time shall be deemed to be the initial bona 
fide offering thereof.

      Insofar as indemnification for liabilities arising under the Securities 
Act of 1933 may be permitted to directors, officers and controlling persons of 
the Registrant pursuant to the provisions described under Item 15 above, or 
otherwise, the Registrant has been advised that in the opinion of the 
Securities and Exchange Commission such indemnification is against public 
policy as expressed in the Securities Act of 1933 and is, therefore, 
unenforceable.  In the event that a claim for indemnification against such 
liabilities (other than the payment by the Registrant of expenses incurred or 
paid by a director, officer or controlling person of the Registrant in the 
successful defense of any action, suit or proceeding) is asserted by such 
director, officer or controlling person in connection with the securities being 
registered, the Registrant will, unless in the opinion of its counsel the 
matter has been settled by controlling precedent, submit to a court of 
appropriate jurisdiction the question whether such indemnification by it is 
against public policy as expressed in the Securities Act of 1933 and will be 
governed by the final adjudication of such issue.

                                      II-6
<PAGE>
 
SIGNATURES

      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 
Registration Statement to be signed on its behalf by the undersigned, thereunto 
duly authorized, in the City of Greenwood Village, State of Colorado, on May 
13, 1997.


                              TELE-COMMUNICATIONS, INC.



                              By:   /s/ Stephen M. Brett              
                                 -------------------------------------
                                 Name:  Stephen M. Brett
                                Title:  Executive Vice President

                                      II-7
<PAGE>
 
                            POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears 
below constitutes and appoints Stephen M. Brett, Esq. and Elizabeth M. 
Markowski, 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 (which 
persons constitute a majority of the Board of Directors) in the capacities and 
on the dates indicated:

Signature                 Title                             Date
                                                            ----


/s/ John C. Malone           Chairman of the Board,     May 13, 1997
- -----------------------------
(John C. Malone)              Chief Executive Officer
                              and Director                  
                              (Principal Executive
                              Officer)

/s/ Donne F. Fisher           Director                  May 13, 1997
- ------------------------------
(Donne F. Fisher)             

/s/ John W. Gallivan          Director                  May 13, 1997
- -----------------------------
(John W. Gallivan)

                              Director       
- -----------------------------
(Kim Magness)

/s/ Robert A. Naify           Director                  February 18, 1997
- -----------------------------
(Robert A. Naify)

/s/ Jerome H. Kern            Director                  May 13, 1997
- -----------------------------
(Jerome H. Kern)

/s/ Tony Coelho               Director                  May 13, 1997
- ------------------------------
(Tony Coelho)

/s/ J. C. Sparkman            Director                  May 13, 1997
- ------------------------------
(J .C. Sparkman)

                              Director       
- ------------------------------
(Paul Gould)

/s/ Bernard W. Schotters      Senior Vice President of TCI  May 13, 1997
- -------------------------     Communications, Inc.         
(Bernard W. Schotters)        (Principal Financial Officer) 
                              

/s/ Gary K. Bracken           Senior Vice President of TCI  May 13, 1997
- ----------------------------  Communications, Inc.         
(Gary K. Bracken)             (Principal Accounting Officer)
                              

                                      II-8
<PAGE>
 
                               EXHIBIT INDEX


4.1         Restated Certificate of Incorporation of the Company, dated August 
            4, 1994, as amended on August 4, 1994, August 16, 1994, October 11, 
            1994, October 21, 1994, January 26, 1995, August 3, 1995, August 3, 
            1995, January 25, 1996 and January 25, 1996 (Incorporated herein by 
            reference to Exhibit 3.1 of Company's Annual Report on Form 10-K 
            for the year ended December 31, 1995 (Commission File No. 
            0-20421)).

4.2         Certificate of Amendment to the Restated Certificate of 
            Incorporation of the Company, dated April 7, 1997.


4.3         Bylaws of the Company as adopted June 16, 1994 (Incorporated herein 
            by reference to Exhibit 3.2 of the Company's Annual Report on Form 
            10-K for the year ended December 31, 1994, as amended by Form 
            10-K/A (Commission File No. 0-20421)).

4.4         Specimen Stock Certificate for the Tele-Communications, Inc. Series 
            A TCI Group Common Stock, par value $1.00 per share (Incorporated 
            herein by reference to Exhibit 4.3 of Company's registration 
            statement on Form 8-A, as amended by Form 8-A/A (Amendments No. 1 
            and 2) Commission File No. 0-20421).

4.5         Specimen Stock Certificate for Tele-Communications, Inc. Series A 
            Liberty Media Group Common Stock, par value $1.00 per share 
            (Incorporated herein by reference to Exhibit 4.5 of Company's 
            registration statement on Form 8-A, as amended by Form 8-A/A 
            (Amendments No. 1 and 2) Commission File No. 0-20421).


5           Opinion of Stephen M. Brett, Esq.

23.1        Consent of KPMG Peat Marwick LLP.

23.2        Consent of KPMG Peat Marwick LLP.

23.3        Consent of KPMG Peat Marwick LLP.

23.4        Consent of KPMG Audit Plc.

23.5        Consent of Deloitte & Touche LLP.

23.6        Consent of Price Waterhouse LLP.

23.7        Consent of Price Waterhouse LLP.

23.8        Consent of Stephen M. Brett, Esq. (included in Exhibit 5).

24          Powers of Attorney (included on Page II-8).

99.1        Letter agreement, dated May 7, 1997, between Tele-Communications, 
            Inc. and the Selling Stockholders.

99.2        Stock Purchase Agreement, dated as of July 9, 1986, among 
            Tele-Communications, Inc. and certain shareholders of United 
            Artists Communications, Inc. (Incorporated herein by reference to 
            Exhibit 99.3 of Tele-Communications, Inc.'s Post-effective 
            Amendment No. 2 to Form S-4 Registration Statement on Form S-3 
            (Registration No. 33-54263) as filed with the Commission on 
            December 22, 1994).

<PAGE>
 
                                                                     EXHIBIT 4.2
                           CERTIFICATE OF AMENDMENT
                                    TO THE
                     RESTATED CERTIFICATE OF INCORPORATION
                                      OF
                           TELE-COMMUNICATIONS, INC.

     TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:

     FIRST: That the Restated Certificate of Incorporation of the Corporation is
hereby amended as follows:

(i) the first paragraph of Article IV of the Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:

                               "AUTHORIZED STOCK

     The total number of shares of capital stock which the Corporation shall
have authority to issue is three billion six hundred two million three hundred
seventy-five thousand ninety-six (3,602,375,096) shares, which shall be divided
into the following classes:

           (a) Three billion five hundred fifty million (3,550,000,000) shares
     shall be of a class designated Common Stock, par value $1.00 per share
     ("Common Stock"), such class to be divided into series as provided in
     Section E of this Article IV;

           (b) Seven hundred thousand (700,000) shares shall be of a class
     designated Class A Preferred Stock, par value $.01 per share ("Class A
     Preferred Stock");

           (c) One million six hundred seventy-five thousand ninety-six
     (1,675,096) shares shall be of a class designated Class B 6% Cumulative
     Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share
     ("Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock");
     and

           (d) Fifty million (50,000,000) shares shall be of a class designated
     Series Preferred Stock, par value $.01 per share ("Series Preferred
     Stock"), such class to be issuable in series as provided in Section D of
     this Article IV.

     The Class A Preferred Stock, the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and the Series Preferred Stock are
collectively referred to as "Preferred Stock.""
<PAGE>
 
(ii) Section E of Article IV of the Restated Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:

                                  "SECTION E

          SERIES A TCI GROUP COMMON STOCK, SERIES B TCI GROUP COMMON
               STOCK, SERIES A LIBERTY MEDIA GROUP COMMON STOCK,
                  SERIES B LIBERTY MEDIA GROUP COMMON STOCK,
                   SERIES A TELEPHONY GROUP COMMON STOCK AND
                     SERIES B TELEPHONY GROUP COMMON STOCK

     One billion seven hundred fifty million (1,750,000,000) shares of Common
Stock shall be of a series designated Tele-Communications, Inc. Series A TCI
Group Common Stock (the "Series A TCI Group Common Stock"), one hundred fifty
million (150,000,000) shares of Common Stock shall be of a series designated
Tele-Communications, Inc. Series B TCI Group Common Stock (the "Series B TCI
Group Common Stock"), seven hundred fifty million (750,000,000) shares of Common
Stock shall be of a series designated Tele-Communications, Inc. Series A Liberty
Media Group Common Stock (the "Series A Liberty Media Group Common Stock"),
seventy-five million (75,000,000) shares of Common Stock shall be of a series
designated Tele-Communications, Inc. Series B Liberty Media Group Common Stock
(the "Series B Liberty Media Group Common Stock"), seven hundred fifty million
(750,000,000) shares of Common Stock shall be of a series designated Tele-
Communications, Inc. Series A Telephony Group Common Stock (the "Series A
Telephony Group Common Stock") and seventy five million (75,000,000) shares of
Common Stock shall be of a series designated Tele-Communications, Inc. Series B
Telephony Group Common Stock (the "Series B Telephony Group Common Stock").

     Each share of Series A TCI Group Common Stock and each share of Series B
TCI Group Common Stock shall, except as otherwise provided in this Section E, be
identical in all respects and shall have equal rights, powers and privileges.

     Each share of Series A Liberty Media Group Common Stock and each share of
Series B Liberty Media Group Common Stock shall, except as otherwise provided in
this Section E, be identical in all respects and shall have equal rights, powers
and privileges.

     Each share of Series A Telephony Group Common Stock and each share of
Series B Telephony Group Common Stock shall, except as otherwise provided in
this Section E, be identical in all respects and shall have equal rights, powers
and privileges.

                                       2
<PAGE>
 
1.   Voting Rights.
     ------------- 

     Holders of Series A TCI Group Common Stock shall be entitled to one vote
for each share of such stock held, holders of Series B TCI Group Common Stock
shall be entitled to ten votes for each share of such stock held, holders of
Series A Liberty Media Group Common Stock shall be entitled to one vote for each
share of such stock held, holders of Series B Liberty Media Group Common Stock
shall be entitled to ten votes for each share of such stock held, holders of
Series A Telephony Group Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Series B Telephony Group Common Stock
shall be entitled to ten votes for each share of such stock held, on all matters
presented to such stockholders.  Except as may otherwise be required by the laws
of the State of Delaware or, with respect to any class of Preferred Stock or any
series of such a class, in this Certificate (including any resolution or
resolutions providing for the establishment of such class or series pursuant to
authority vested in the Board of Directors by this Certificate), the holders of
shares of Series A TCI Group Common Stock, the holders of shares of Series B TCI
Group Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A Telephony Group Common Stock, the holders of
shares of Series B Telephony Group Common Stock and the holders of shares of
each class or series of Preferred Stock, if any, entitled to vote thereon, shall
vote as one class with respect to the election of directors and with respect to
all other matters to be voted on by stockholders of the Corporation (including,
without limitation, any proposed amendment to this Certificate that would
increase the number of authorized shares of Common Stock or any series thereof
or of any other class or series of stock or decrease the number of authorized
shares of any class or series of stock (but not below the number of shares
thereof then outstanding)), and no separate vote or consent of the holders of
shares of Series A TCI Group Common Stock, the holders of shares of Series B TCI
Group Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A Telephony Group Common Stock, the holders of
shares of Series B Telephony Group Common Stock, or the holders of shares of any
such class or series of Preferred Stock shall be required for the approval of
any such matter.

2.   Conversion Rights.
     ----------------- 

     (a) Conversion of Series B TCI Group Common Stock into Series A TCI Group
Common Stock.  Each share of Series B TCI Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Series A TCI
Group Common Stock.  Any such conversion may be effected by any holder of Series
B TCI Group Common Stock by surrendering such holder's certificate or
certificates for the Series B TCI Group Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
B TCI Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B TCI Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Group Common Stock to be issued.  If so required
by the Corporation, any certificate for shares surrendered for conversion shall
be accompanied by

                                       3
<PAGE>
 
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Series A TCI Group Common Stock to which such holder
shall be entitled as herein provided. Such conversion shall be deemed to have
been made at the close of business on the date of receipt by the Corporation or
any such transfer agent of the certificate or certificates, notice and, if
required, instruments of transfer referred to above, and the person or persons
entitled to receive the Series A TCI Group Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or holders of
such Series A TCI Group Common Stock on that date. A number of shares of Series
A TCI Group Common Stock equal to the number of shares of Series B TCI Group
Common Stock outstanding from time to time shall be set aside and reserved for
issuance upon conversion of shares of Series B TCI Group Common Stock. Shares of
Series A TCI Group Common Stock shall not be convertible into shares of Series B
TCI Group Common Stock.

     (b) Conversion of Series B Liberty Media Group Common Stock into Series A
Liberty Media Group Common Stock. Each share of Series B Liberty Media Group
Common Stock shall be convertible, at the option of the holder thereof, into one
share of Series A Liberty Media Group Common Stock. Any such conversion may be
effected by any holder of Series B Liberty Media Group Common Stock by
surrendering such holder's certificate or certificates for the Series B Liberty
Media Group Common Stock to be converted, duly endorsed, at the office of the
Corporation or any transfer agent for the Series B Liberty Media Group Common
Stock, together with a written notice to the Corporation at such office that
such holder elects to convert all or a specified number of shares of Series B
Liberty Media Group Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Series A Liberty Media Group Common Stock to be issued. If so required by the
Corporation, any certificate for shares surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder of such shares or the duly authorized representative
of such holder. Promptly thereafter, the Corporation shall issue and deliver to
such holder or such holder's nominee or nominees, a certificate or certificates
for the number of shares of Series A Liberty Media Group Common Stock to which
such holder shall be entitled as herein provided. Such conversion shall be
deemed to have been made at the close of business on the date of receipt by the
Corporation or any such transfer agent of the certificate or certificates,
notice and, if required, instruments of transfer referred to above, and the
person or persons entitled to receive the Series A Liberty Media Group Common
Stock issuable on such conversion shall be treated for all purposes as the
record holder or holders of such Series A Liberty Media Group Common Stock on
that date. A number of shares of Series A Liberty Media Group Common Stock equal
to the number of shares of Series B Liberty Media Group Common Stock outstanding
from time to time shall be set aside and reserved for issuance upon conversion
of shares of Series B Liberty Media Group Common Stock. Shares of Series A
Liberty Media Group Common Stock shall not be convertible into shares of Series
B Liberty Media Group Common Stock.

                                       4
<PAGE>
 
     (c) Conversion of Series B Telephony Group Common Stock into Series A
Telephony Group Common Stock. Each share of Series B Telephony Group Common
Stock shall be convertible, at the option of the holder thereof, into one share
of Series A Telephony Group Common Stock. Any such conversion may be effected by
any holder of Series B Telephony Group Common Stock by surrendering such
holder's certificate or certificates for the Series B Telephony Group Common
Stock to be converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Series B Telephony Group Common Stock, together with a
written notice to the Corporation at such office that such holder elects to
convert all or a specified number of shares of Series B Telephony Group Common
Stock represented by such certificate and stating the name or names in which
such holder desires the certificate or certificates for Series A Telephony Group
Common Stock to be issued. If so required by the Corporation, any certificate
for shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
of such shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Series A Telephony Group Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Series A Telephony Group Common Stock issuable on such conversion
shall be treated for all purposes as the record holder or holders of such Series
A Telephony Group Common Stock on that date. A number of shares of Series A
Telephony Group Common Stock equal to the number of shares of Series B Telephony
Group Common Stock outstanding from time to time shall be set aside and reserved
for issuance upon conversion of shares of Series B Telephony Group Common Stock.
Shares of Series A Telephony Group Common Stock shall not be convertible into
shares of Series B Telephony Group Common Stock.

     (d) Conversion of Series A Liberty Media Group Common Stock into Series A
TCI Group Common Stock and Series B Liberty Media Group Common Stock into Series
B TCI Group Common Stock at the Option of the Corporation. (i) At the option of
the Corporation by action of its Board of Directors, (A) all shares of Series A
Liberty Media Group Common Stock shall be convertible into a number (or
fraction) of fully paid and nonassessable shares of Series A TCI Group Common
Stock equal to the Liberty Media Group Optional Conversion Ratio, and (B) all
shares of Series B Liberty Media Group Common Stock shall be convertible into a
number (or fraction) of fully paid and nonassessable shares of Series B TCI
Group Common Stock equal to the Liberty Media Group Optional Conversion Ratio.

     (ii) For purposes of this paragraph 2(d), the "Liberty Media Group Optional
Conversion Ratio" shall mean the quotient (calculated to the nearest five
decimal places) obtained by dividing (A) the Liberty Media Group Common Stock
Per Share Value by (B) the average Market Value of one share of Series A TCI
Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.

                                       5
<PAGE>
 
     (iii) In the event that the Corporation determines to establish the Liberty
Media Group Private Market Value, the Corporation shall designate the First
Appraiser, and the Independent Committee shall designate the Second Appraiser.
Not later than 20 days after the Selection Date, the First Appraiser and the
Second Appraiser shall each determine its initial view as to the private market
value of the Liberty Media Group as of the Appraisal Date and shall consult with
one another with respect thereto. Not later than the 30th day after the
Selection Date, the First Appraiser and the Second Appraiser shall each have
determined its final view as to such private market value. If the Higher
Appraised Amount is not more than 120% of the Lower Appraised Amount, the
Liberty Media Group Private Market Value (subject to any adjustment provided in
subparagraph (iv) of this paragraph 2(d)) shall be the average of those two
amounts. If the Higher Appraised Amount is more than 120% of the Lower Appraised
Amount, the First Appraiser and the Second Appraiser shall agree upon and
jointly designate the Mutually Designated Appraiser to determine such private
market value. The Mutually Designated Appraiser shall not be provided with any
of the work of the First Appraiser and Second Appraiser. The Mutually Designated
Appraiser shall, no later than the 20th day after the date the Mutually
Designated Appraiser is designated, determine the Mutually Appraised Amount, and
the Liberty Media Group Private Market Value (subject to any adjustment provided
in subparagraph (iv) of this paragraph 2(d)) shall be (A) if the Mutually
Appraised Amount is between the Lower Appraised Amount and the Higher Appraised
Amount, (I) the average of (1) the Mutually Appraised Amount and (2) the Lower
Appraised Amount or the Higher Appraised Amount, whichever is closer to the
Mutually Appraised Amount, or (II) the Mutually Appraised Amount, if neither the
Lower Appraised Amount nor the Higher Appraised Amount is closer to the Mutually
Appraised Amount, or (B) if the Mutually Appraised Amount is greater than the
Higher Appraised Amount or less than the Lower Appraised Amount, the average of
the Higher Appraised Amount and the Lower Appraised Amount. For these purposes,
if any such Appraiser expresses its final view of the private market value of
the Liberty Media Group as a range of values, such Appraiser's final view of
such private market value shall be deemed to be the midpoint of such range of
values.

     (iv) Following the determination of the Liberty Media Group Private Market
Value, the Appraiser or Appraisers whose final views of the private market value
of the Liberty Media Group were used in the calculation of the Liberty Media
Group Private Market Value shall determine the Adjusted Outstanding Shares of
Liberty Media Group Common Stock together with any further appropriate
adjustments to the Liberty Media Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of Liberty Media Group Common
Stock" shall mean a number, as determined by such Appraiser(s) as of the
Appraisal Date, equal to the sum of the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock
outstanding, the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest, the number of Committed Acquisition Shares issuable,
the number of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock issuable upon the conversion, exercise or
exchange of all Pre-Distribution Convertible Securities and the number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock issuable upon the conversion, exercise or exchange of those
Convertible Securities (other than Pre-Distribution Convertible Securities and

                                       6
<PAGE>
 
other than Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares) the holders of which would derive
an economic benefit from conversion, exercise or exchange of such Convertible
Securities which exceeds the economic benefit of not converting, exercising or
exchanging such Convertible Securities. The "Liberty Media Group Common Stock
Per Share Value" shall mean the quotient obtained by dividing the Liberty Media
Group Private Market Value by the Adjusted Outstanding Shares of Liberty Media
Group Common Stock, provided that if such Appraiser(s) do not agree on the
determinations provided for in this subparagraph (iv), the Liberty Media Group
Common Stock Per Share Value shall be the average of the quotients so obtained
on the basis of the respective determinations of such firms.

     (v) If the Corporation determines to convert shares of Series A Liberty
Media Group Common Stock into Series A TCI Group Common Stock and shares of
Series B Liberty Media Group Common Stock into Series B TCI Group Common Stock
at the Liberty Media Group Optional Conversion Ratio, such conversion shall
occur on a Conversion Date on or prior to the 120th day following the Appraisal
Date. If the Corporation determines not to undertake such conversion, the
Corporation may at any time thereafter undertake to reestablish the Liberty
Media Group Common Stock Per Share Value as of a subsequent date.

     (vi) The Corporation shall not convert shares of Series A Liberty Media
Group Common Stock into shares of Series A TCI Group Common Stock without
converting shares of Series B Liberty Media Group Common Stock into shares of
Series B TCI Group Common Stock, and the Corporation shall not convert shares of
Series B Liberty Media Group Common Stock into shares of Series B TCI Group
Common Stock without converting shares of Series A Liberty Media Group Common
Stock into shares of Series A TCI Group Common Stock. The Series A Liberty Media
Group Common Stock and the Series B Liberty Media Group Common Stock shall also
be convertible at the option of the Corporation in accordance with paragraph
5(b)(iii) of this Section E.

     (e) Conversion of Series A Telephony Group Common Stock into Series A TCI
Group Common Stock and Series B Telephony Group Common Stock into Series B TCI
Group Common Stock at the Option of the Corporation. (i) At the option of the
Corporation by action of its Board of Directors, (A) all shares of Series A
Telephony Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series A TCI Group Common Stock equal to
the Telephony Group Optional Conversion Ratio, and (B) all shares of Series B
Telephony Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series B TCI Group Common Stock equal to
the Telephony Group Optional Conversion Ratio.

     (ii) For purposes of this paragraph 2(e), the "Telephony Group Optional
Conversion Ratio" shall mean the quotient (calculated to the nearest five
decimal places) obtained by dividing (A) the Telephony Group Common Stock Per
Share Value by (B) the average Market Value of one share of Series A TCI Group
Common Stock over the 20-Trading Day period ending on the Trading Day preceding
the Appraisal Date.

                                       7
<PAGE>
 
     (iii) In the event that the Corporation determines to establish the
Telephony Group Private Market Value, the Corporation shall designate the First
Appraiser, and the Independent Committee shall designate the Second Appraiser.
Not later than 20 days after the Selection Date, the First Appraiser and the
Second Appraiser shall each determine its initial view as to the private market
value of the Telephony Group as of the Appraisal Date and shall consult with one
another with respect thereto. Not later than the 30th day after the Selection
Date, the First Appraiser and the Second Appraiser shall each have determined
its final view as to such private market value. If the Higher Appraised Amount
is not more than 120% of the Lower Appraised Amount, the Telephony Group Private
Market Value (subject to any adjustment provided in subparagraph (iv) of this
paragraph 2(e)) shall be the average of those two amounts. If the Higher
Appraised Amount is more than 120% of the Lower Appraised Amount, the First
Appraiser and the Second Appraiser shall agree upon and jointly designate the
Mutually Designated Appraiser to determine such private market value. The
Mutually Designated Appraiser shall not be provided with any of the work of the
First Appraiser and Second Appraiser. The Mutually Designated Appraiser shall,
no later than the 20th day after the date the Mutually Designated Appraiser is
designated, determine the Mutually Appraised Amount and the Telephony Group
Private Market Value (subject to any adjustment provided in subparagraph (iv) of
this paragraph 2(e)) shall be (A) if the Mutually Appraised Amount is between
the Lower Appraised Amount and the Higher Appraised Amount, (I) the average of
(1) the Mutually Appraised Amount and (2) the Lower Appraised Amount or the
Higher Appraised Amount, whichever is closer to the Mutually Appraised Amount,
or (II) the Mutually Appraised Amount, if neither the Lower Appraised Amount nor
the Higher Appraised Amount is closer to the Mutually Appraised Amount, or (B)
if the Mutually Appraised Amount is greater than the Higher Appraised Amount or
less than the Lower Appraised Amount, the average of the Higher Appraised Amount
and the Lower Appraised Amount. For these purposes, if any such Appraiser
expresses its final view of the private market value of the Telephony Group as a
range of values, such Appraiser's final view of such private market value shall
be deemed to be the midpoint of such range of values.

     (iv) Following the determination of the Telephony Group Private Market
Value, the Appraiser or Appraisers whose final views of the private market value
of the Telephony Group were used in the calculation of the Telephony Group
Private Market Value shall determine the Adjusted Outstanding Shares of
Telephony Group Common Stock together with any further appropriate adjustments
to the Telephony Group Private Market Value resulting from such determination.
The "Adjusted Outstanding Shares of Telephony Group Common Stock" shall mean a
number, as determined by such Appraiser(s) as of the Appraisal Date, equal to
the sum of the number of shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock outstanding, the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest, and the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock issuable upon the conversion, exercise or exchange of those
Convertible Securities the holders of which would derive an economic benefit
from conversion, exercise or exchange of such Convertible Securities which
exceeds the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Telephony Group Common Stock Per Share Value" shall
mean the quotient obtained by dividing the Telephony Group Private Market Value
by the Adjusted Outstanding Shares of Telephony Group Common Stock, provided

                                       8
<PAGE>
 
that if such Appraiser(s) do not agree on the determinations provided for in
this subparagraph (iv), the Telephony Group Common Stock Per Share Value shall
be the average of the quotients so obtained on the basis of the respective
determinations of such firms.

     (v) If the Corporation determines to convert shares of Series A Telephony
Group Common Stock into Series A TCI Group Common Stock and shares of Series B
Telephony Group Common Stock into Series B TCI Group Common Stock at the
Telephony Group Optional Conversion Ratio, such conversion shall occur on a
Conversion Date on or prior to the 120th day following the Appraisal Date. If
the Corporation determines not to undertake such conversion, the Corporation may
at any time thereafter undertake to reestablish the Telephony Group Common Stock
Per Share Value as of a subsequent date.

     (vi) The Corporation shall not convert shares of Series A Telephony Group
Common Stock into shares of Series A TCI Group Common Stock without converting
shares of Series B Telephony Group Common Stock into shares of Series B TCI
Group Common Stock, and the Corporation shall not convert shares of Series B
Telephony Group Common Stock into shares of Series B TCI Group Common Stock
without converting shares of Series A Telephony Group Common Stock into shares
of Series A TCI Group Common Stock. The Series A Telephony Group Common Stock
and the Series B Telephony Group Common Stock shall also be convertible at the
option of the Corporation in accordance with paragraph 6(b)(iii) of this Section
E.

3.   Dividends.
     --------- 

     (a) Dividends on Series A TCI Group Common Stock and Series B TCI Group
Common Stock. Dividends on the Series A TCI Group Common Stock and the Series B
TCI Group Common Stock may be declared and paid only out of the lesser of (i)
assets of the Corporation legally available therefor and (ii) the TCI Group
Available Dividend Amount. Subject to paragraph 4 of this Section E, whenever a
dividend is paid to the holders of Series A TCI Group Common Stock, the
Corporation shall also pay to the holders of Series B TCI Group Common Stock a
dividend per share equal to the dividend per share paid to the holders of Series
A TCI Group Common Stock, and whenever a dividend is paid to the holders of
Series B TCI Group Common Stock, the Corporation shall also pay to the holders
of Series A TCI Group Common Stock a dividend per share equal to the dividend
per share paid to the holders of Series B TCI Group Common Stock.

     (b) Dividends on Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock. Dividends on the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock may be declared
and paid only out of the lesser of (i) assets of the Corporation legally
available therefor and (ii) the Liberty Media Group Available Dividend Amount.
Subject to paragraph 4 and the last sentence of paragraph 5(b) of this Section
E, whenever a dividend is paid to the holders of Series A Liberty Media Group
Common Stock, the Corporation shall also pay to the holders of Series B Liberty
Media Group Common Stock a dividend per share equal to the dividend per share
paid to the holders of Series A Liberty Media

                                       9
<PAGE>
 
Group Common Stock, and whenever a dividend is paid to the holders of Series B
Liberty Media Group Common Stock, the Corporation shall also pay to the holders
of Series A Liberty Media Group Common Stock a dividend per share equal to the
dividend per share paid to the holders of Series B Liberty Media Group Common
Stock.

     (c) Dividends on Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock. Dividends on the Series A Telephony Group Common
Stock and the Series B Telephony Group Common Stock may be declared and paid
only out of the lesser of (i) assets of the Corporation legally available
therefor and (ii) the Telephony Group Available Dividend Amount. Subject to
paragraph 4 and the last sentence of paragraph 6(b) of this Section E, whenever
a dividend is paid to the holders of Series A Telephony Group Common Stock, the
Corporation shall also pay to the holders of Series B Telephony Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A Telephony Group Common Stock, and whenever a dividend is paid to the
holders of Series B Telephony Group Common Stock, the Corporation shall also pay
to the holders of Series A Telephony Group Common Stock a dividend per share
equal to the dividend per share paid to the holders of Series B Telephony Group
Common Stock.

     (d) Discrimination Between or Among Series of Common Stock. The Board of
Directors, subject to the provisions of paragraph 3(a), 3(b) and 3(c) of this
Section E, shall have the authority and discretion to declare and pay dividends
on (i) the Series A TCI Group Common Stock and Series B TCI Group Common Stock,
(ii) the Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock, or (iii) the Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, in equal or unequal amounts,
notwithstanding the relationship between the TCI Group Available Dividend
Amount, the Liberty Media Group Available Dividend Amount and the Telephony
Group Available Dividend Amount, the respective amounts of prior dividends
declared on, or the liquidation rights of, the Series A TCI Group Common Stock
and Series B TCI Group Common Stock, the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, or the Series A Telephony
Group Common Stock and the Series B Telephony Group Common Stock, or any other
factor.

4.   Share Distributions.
     ------------------- 

     The Corporation may declare and pay a distribution consisting of shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock,
Series A Telephony Group Common Stock, Series B Telephony Group Common Stock or
any other securities of the Corporation or any other Person (hereinafter
sometimes called a "share distribution") to holders of the Common Stock only in
accordance with the provisions of this paragraph 4.

     (a) Distributions on Series A TCI Group Common Stock and Series B TCI Group
Common Stock. If at any time a share distribution is to be made with respect to
the Series A TCI

                                       10
<PAGE>
 
Group Common Stock or Series B TCI Group Common Stock, such share distribution
may be declared and paid only as follows:

           (i)   a share distribution consisting of shares of Series A TCI Group
     Common Stock (or Convertible Securities convertible into or exercisable or
     exchangeable for shares of Series A TCI Group Common Stock) to holders of
     Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
     equal per share basis; or consisting of shares of Series B TCI Group Common
     Stock (or Convertible Securities convertible into or exercisable or
     exchangeable for shares of Series B TCI Group Common Stock) to holders of
     Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
     equal per share basis; or consisting of shares of Series A TCI Group Common
     Stock (or Convertible Securities convertible into or exercisable or
     exchangeable for shares of Series A TCI Group Common Stock) to holders of
     Series A TCI Group Common Stock and, on an equal per share basis, shares of
     Series B TCI Group Common Stock (or like Convertible Securities convertible
     into or exercisable or exchangeable for shares of Series B TCI Group Common
     Stock) to holders of Series B TCI Group Common Stock;

           (ii)  subsequent to the Liberty Media Group Distribution, a share
     distribution consisting of shares of Series A Liberty Media Group Common
     Stock (or Convertible Securities convertible into or exercisable or
     exchangeable for shares of Series A Liberty Media Group Common Stock) to
     holders of Series A TCI Group Common Stock and Series B TCI Group Common
     Stock, on an equal per share basis; provided that the sum of (A) the
     aggregate number of shares of Series A Liberty Media Group Common Stock to
     be so issued (or the number of such shares which would be issuable upon
     conversion, exercise or exchange of any Convertible Securities to be so
     issued) and (B) the number of shares of such series that are subject to
     issuance upon conversion, exercise or exchange of any Convertible
     Securities then outstanding that are attributed to the TCI Group (other
     than Pre-Distribution Convertible Securities and other than Convertible
     Securities convertible into or exercisable or exchangeable for Committed
     Acquisition Shares) is less than or equal to the Number of Shares Issuable
     with Respect to the Liberty Media Group Inter-Group Interest;

           (iii) a share distribution consisting of shares of Series A Telephony
     Group Common Stock (or Convertible Securities convertible into or
     exercisable or exchangeable for shares of Series A Telephony Group Common
     Stock) to holders of Series A TCI Group Common Stock and Series B TCI Group
     Common Stock, on an equal per share basis; or consisting of shares of
     Series B Telephony Group Common Stock (or Convertible Securities
     convertible into or exercisable or exchangeable for shares of Series B
     Telephony Group Common Stock) to holders of Series A TCI Group Common Stock
     and Series B TCI Group Common Stock, on an equal per share basis; or
     consisting of shares of Series A Telephony Group Common Stock (or
     Convertible Securities convertible into or exercisable or exchangeable for
     shares of Series A Telephony Group Common Stock) to holders of Series A TCI
     Group Common Stock and, on an equal per share basis, shares of Series B
     Telephony Group Common Stock (or like Convertible Securities convertible
     into or exercisable or

                                       11
<PAGE>
 
     exchangeable for shares of Series B Telephony Group Common Stock) to
     holders of Series B TCI Group Common Stock; provided that the sum of (A)
     the aggregate number of shares of Series A Telephony Group Common Stock and
     Series B Telephony Group Common Stock to be so distributed (or the number
     of such shares of Series A Telephony Group Common Stock and Series B
     Telephony Group Common Stock which would be issuable upon conversion,
     exercise or exchange of any Convertible Securities to be so distributed)
     and (B) the number of shares of Series A Telephony Group Common Stock and
     Series B Telephony Group Common Stock that are subject to issuance upon
     conversion, exercise or exchange of any Convertible Securities then
     outstanding that are attributed to the TCI Group, is less than or equal to
     the Number of Shares Issuable with Respect to the Telephony Group Inter-
     Group Interest.

           (iv) a share distribution consisting of any class or series of
     securities of the Corporation or any other Person other than Series A TCI
     Group Common Stock, Series B TCI Group Common Stock, Series A Liberty Media
     Group Common Stock, Series B Liberty Media Group Common Stock, Series A
     Telephony Group Common Stock or Series B Telephony Group Common Stock (or
     Convertible Securities convertible into or exercisable or exchangeable for
     shares of Series A TCI Group Common Stock, Series B TCI Group Common Stock,
     Series A Liberty Media Group Common Stock, Series B Liberty Media Group
     Common Stock, Series A Telephony Group Common Stock or Series B Telephony
     Group Common Stock), either on the basis of a distribution of identical
     securities, on an equal per share basis, to holders of Series A TCI Group
     Common Stock and Series B TCI Group Common Stock or on the basis of a
     distribution of one class or series of securities to holders of Series A
     TCI Group Common Stock and another class or series of securities to holders
     of Series B TCI Group Common Stock, provided that the securities so
     distributed (and, if the distribution consists of Convertible Securities,
     the securities into which such Convertible Securities are convertible or
     for which they are exercisable or exchangeable) do not differ in any
     respect other than their relative voting rights and related differences in
     designation, conversion, redemption and share distribution provisions, with
     holders of shares of Series B TCI Group Common Stock receiving the class or
     series having the higher relative voting rights (without regard to whether
     such rights differ to a greater or lesser extent than the corresponding
     differences in voting rights, designation, conversion, redemption and share
     distribution provisions between the Series A TCI Group Common Stock and the
     Series B TCI Group Common Stock), provided that if the securities so
     distributed constitute capital stock of a Subsidiary of the Corporation,
     such rights shall not differ to a greater extent than the corresponding
     differences in voting rights, designation, conversion, redemption and share
     distribution provisions between the Series A TCI Group Common Stock and the
     Series B TCI Group Common Stock, and provided in each case that such
     distribution is otherwise made on an equal per share basis.

     The Corporation shall not reclassify, subdivide or combine the Series A TCI
Group Common Stock without reclassifying, subdividing or combining the Series B
TCI Group Common Stock, on an equal per share basis, and the Corporation shall
not reclassify, subdivide or combine the Series

                                       12
<PAGE>
 
B TCI Group Common Stock without reclassifying, subdividing or combining the
Series A TCI Group Common Stock, on an equal per share basis.

     (b) Distributions on Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock. If at any time a share distribution is to be
made with respect to the Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, such share distribution may be declared and
paid only as follows (or as permitted by paragraph 5 of this Section E with
respect to the redemptions and other distributions referred to therein):

           (i) a share distribution consisting of shares of Series A Liberty
     Media Group Common Stock (or Convertible Securities convertible into or
     exercisable or exchangeable for shares of Series A Liberty Media Group
     Common Stock) to holders of Series A Liberty Media Group Common Stock and
     Series B Liberty Media Group Common Stock, on an equal per share basis; or
     consisting of shares of Series B Liberty Media Group Common Stock (or
     Convertible Securities convertible into or exercisable or exchangeable for
     shares of Series B Liberty Media Group Common Stock) to holders of Series A
     Liberty Media Group Common Stock and Series B Liberty Media Group Common
     Stock, on an equal per share basis; or consisting of shares of Series A
     Liberty Media Group Common Stock (or Convertible Securities convertible
     into or exercisable or exchangeable for shares of Series A Liberty Media
     Group Common Stock) to holders of Series A Liberty Media Group Common Stock
     and, on an equal per share basis, shares of Series B Liberty Media Group
     Common Stock (or like Convertible Securities convertible into or
     exercisable or exchangeable for shares of Series B Liberty Media Group
     Common Stock) to holders of Series B Liberty Media Group Common Stock; and

           (ii) a share distribution consisting of any class or series of
     securities of the Corporation or any other Person other than as described
     in clause (i) of this paragraph 4(b) and other than Series A TCI Group
     Common Stock, Series B TCI Group Common Stock, Series A Telephony Group
     Common Stock or Series B Telephony Group Common Stock (or Convertible
     Securities convertible into or exercisable or exchangeable for shares of
     Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
     Telephony Group Common Stock or Series B Telephony Group Common Stock)
     either on the basis of a distribution of identical securities, on an equal
     per share basis, to holders of Series A Liberty Media Group Common Stock
     and Series B Liberty Media Group Common Stock or on the basis of a
     distribution of one class or series of securities to holders of Series A
     Liberty Media Group Common Stock and another class or series of securities
     to holders of Series B Liberty Media Group Common Stock, provided that the
     securities so distributed (and, if the distribution consists of Convertible
     Securities, the securities into which such Convertible Securities are
     convertible or for which they are exercisable or exchangeable) do not
     differ in any respect other than their relative voting rights and related
     differences in designation, conversion, redemption and share distribution
     provisions, with holders of shares of Series B Liberty Media Group Common
     Stock receiving the class or series having the higher

                                       13
<PAGE>
 
     relative voting rights (without regard to whether such rights differ to a
     greater or lesser extent than the corresponding differences in voting
     rights, designation, conversion, redemption and share distribution
     provisions between the Series A Liberty Media Group Common Stock and the
     Series B Liberty Media Group Common Stock), provided that if the securities
     so distributed constitute capital stock of a Subsidiary of the Corporation,
     such rights shall not differ to a greater extent than the corresponding
     differences in voting rights, designation, conversion, redemption and share
     distribution provisions between the Series A Liberty Media Group Common
     Stock and the Series B Liberty Media Group Common Stock, and provided in
     each case that such distribution is otherwise made on an equal per share
     basis.

     The Corporation shall not reclassify, subdivide or combine the Series A
Liberty Media Group Common Stock without reclassifying, subdividing or combining
the Series B Liberty Media Group Common Stock, on an equal per share basis, and
the Corporation shall not reclassify, subdivide or combine the Series B Liberty
Media Group Common Stock without reclassifying, subdividing or combining the
Series A Liberty Media Group Common Stock, on an equal per share basis.

     (c) Distributions on Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock. If at any time a share distribution is to be made
with respect to the Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock, such share distribution may be declared and paid only as
follows (or as permitted by paragraph 6 of this Section E with respect to the
redemptions and other distributions referred to therein):

           (i) a share distribution consisting of shares of Series A Telephony
     Group Common Stock (or Convertible Securities convertible into or
     exercisable or exchangeable for shares of Series A Telephony Group Common
     Stock) to holders of Series A Telephony Group Common Stock and Series B
     Telephony Group Common Stock, on an equal per share basis; or consisting of
     shares of Series B Telephony Group Common Stock (or Convertible Securities
     convertible into or exercisable or exchangeable for shares of Series B
     Telephony Group Common Stock) to holders of Series A Telephony Group Common
     Stock and Series B Telephony Group Common Stock, on an equal per share
     basis; or consisting of shares of Series A Telephony Group Common Stock (or
     Convertible Securities convertible into or exercisable or exchangeable for
     shares of Series A Telephony Group Common Stock) to holders of Series A
     Telephony Group Common Stock and, on an equal per share basis, shares of
     Series B Telephony Group Common Stock (or like Convertible Securities
     convertible into or exercisable or exchangeable for shares of Series B
     Telephony Group Common Stock) to holders of Series B Telephony Group Common
     Stock; and

           (ii) a share distribution consisting of any class or series of
     securities of the Corporation or any other Person other than as described
     in clause (i) of this paragraph 4(c) and other than Series A TCI Group
     Common Stock, Series B TCI Group Common Stock, Series A Liberty Media Group
     Common Stock or Series B Liberty Media Group Common Stock (or Convertible
     Securities convertible into or exercisable or exchangeable for shares of
     Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A

                                       14
<PAGE>
 
     Liberty Media Group Common Stock or Series B Liberty Media Group Common
     Stock) either on the basis of a distribution of identical securities, on an
     equal per share basis, to holders of Series A Telephony Group Common Stock
     and Series B Telephony Group Common Stock, or on the basis of a
     distribution of one class or series of securities to holders of Series A
     Telephony Group Common Stock and another class or series of securities to
     holders of Series B Telephony Group Common Stock, provided that the
     securities so distributed (and, if the distribution consists of Convertible
     Securities, the securities into which such Convertible Securities are
     convertible or for which they are exercisable or exchangeable) do not
     differ in any respect other than their relative voting rights and related
     differences in designation, conversion, redemption and share distribution
     provisions, with holders of shares of Series B Telephony Group Common Stock
     receiving the class or series having the higher relative voting rights
     (without regard to whether such rights differ to a greater or lesser extent
     than the corresponding differences in voting rights, designation,
     conversion, redemption and share distribution provisions between the Series
     A Telephony Group Common Stock and the Series B Telephony Group Common
     Stock), provided that if the securities so distributed constitute capital
     stock of a Subsidiary of the Corporation, such rights shall not differ to a
     greater extent than the corresponding differences in voting rights,
     designation, conversion, redemption and share distribution provisions
     between the Series A Telephony Group Common Stock and the Series B
     Telephony Group Common Stock, and provided in each case that such
     distribution is otherwise made on an equal per share basis.

     The Corporation shall not reclassify, subdivide or combine the Series A
Telephony Group Common Stock without reclassifying, subdividing or combining the
Series B Telephony Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B Telephony
Group Common Stock without reclassifying, subdividing or combining the Series A
Telephony Group Common Stock, on an equal per share basis.

     5.  Redemption and Other Provisions Relating to the Series A Liberty Media
         ----------------------------------------------------------------------
Group Common Stock and Series B Liberty Media Group Common Stock.
- ---------------------------------------------------------------- 

     (a) Redemption in Exchange for Stock of Liberty Media Group Subsidiaries.
At any time at which all of the assets and liabilities attributed to the Liberty
Media Group have become and continue to be held directly or indirectly by any
one or more corporations all of the capital stock of which is owned by the
Corporation (the "Liberty Media Group Subsidiaries"), the Board of Directors
may, subject to the availability of assets of the Corporation legally available
therefor, redeem, on a pro rata basis, all of the outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
in exchange for an aggregate number of outstanding fully paid and nonassessable
shares of common stock of each Liberty Media Group Subsidiary equal to the
product of the Adjusted Liberty Media Group Outstanding Interest Fraction and
the number of outstanding shares of common stock of such Liberty Media Group
Subsidiary held by the Corporation. Any such redemption shall occur on a
Redemption Date set forth in a notice to holders of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock

                                       15
<PAGE>
 
and Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities) pursuant to paragraph
5(d)(vi). In effecting such a redemption, the Board of Directors may determine
either to (i) redeem shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock in exchange for shares of separate
classes or series of common stock of each Liberty Media Group Subsidiary with
relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions not greater than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, with holders of shares of Series
B Liberty Media Group Common Stock receiving the class or series having the
higher relative voting rights, or (ii) redeem shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock in exchange for
shares of a single class of common stock of each Liberty Media Group Subsidiary
without distinction between the shares distributed to the holders of the Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock. If the Corporation determines to undertake a redemption as described in
clause (i) of the preceding sentence, the outstanding shares of common stock of
each Liberty Media Group Subsidiary not distributed to holders of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
shall consist solely of the class or series having the lower relative voting
rights.

     (b) Mandatory Dividend, Redemption or Conversion in Case of Disposition of
Liberty Media Group Assets. In the event of the Disposition, in one transaction
or a series of related transactions, by the Corporation and its subsidiaries of
all or substantially all of the properties and assets of the Liberty Media Group
to one or more persons, entities or groups (other than (w) in connection with
the Disposition by the Corporation of all of the Corporation's properties and
assets in one transaction or a series of related transactions in connection with
the liquidation, dissolution or winding up of the Corporation within the meaning
of paragraph 7 of this Section E, (x) a dividend, other distribution or
redemption in accordance with any provision of paragraph 3, paragraph 4,
paragraph 5(a) or paragraph 7 of this Section E, (y) to any person, entity or
group which the Corporation, directly or indirectly, after giving effect to the
Disposition, controls or (z) in connection with a Related Business Transaction),
the Corporation shall, on or prior to the 85th Trading Day following the
consummation of such Disposition, either:

           (i) subject to paragraph 3(b) of this Section E, declare and pay a
     dividend in cash and/or in securities or other property (other than a
     dividend or distribution of Common Stock) to the holders of the outstanding
     shares of Series A Liberty Media Group Common Stock and Series B Liberty
     Media Group Common Stock equally on a share for share basis (subject to the
     last sentence of this Section 5(b)), in an aggregate amount equal to the
     product of the Liberty Media Group Outstanding Interest Fraction as of the
     record date for determining the holders entitled to receive such dividend
     and the Liberty Media Group Net Proceeds of such Disposition; or

                                       16
<PAGE>
 
           (ii) provided that there are assets of the Corporation legally
     available therefor and the Liberty Media Group Available Dividend Amount
     would have been sufficient to pay a dividend in lieu thereof pursuant to
     clause (i) of this paragraph 5(b), then:

                (A) if such Disposition involves all (not merely substantially
           all) of the properties and assets of the Liberty Media Group, redeem
           all outstanding shares of Series A Liberty Media Group Common Stock
           and Series B Liberty Media Group Common Stock in exchange for cash
           and/or securities or other property (other than Common Stock) in an
           aggregate amount equal to the product of the Adjusted Liberty Media
           Group Outstanding Interest Fraction as of the date of such redemption
           and the Liberty Media Group Net Proceeds, such aggregate amount to be
           allocated (subject to the last sentence of this paragraph 5(b)) to
           shares of Series A Liberty Media Group Common Stock and Series B
           Liberty Media Group Common Stock in the ratio of the number of shares
           of each such series outstanding (so that the amount of consideration
           paid for the redemption of each share of Series A Liberty Media Group
           Common Stock and each share of Series B Liberty Media Group Common
           Stock is the same); or

                (B) if such Disposition involves substantially all (but not all)
           of the properties and assets of the Liberty Media Group, apply an
           aggregate amount of cash and/or securities or other property (other
           than Common Stock) equal to the product of the Liberty Media Group
           Outstanding Interest Fraction as of the date shares are selected for
           redemption and the Liberty Media Group Net Proceeds to the redemption
           of outstanding shares of Series A Liberty Media Group Common Stock
           and Series B Liberty Media Group Common Stock, such aggregate amount
           to be allocated (subject to the last sentence of this paragraph 5(b))
           to shares of Series A Liberty Media Group Common Stock and Series B
           Liberty Media Group Common Stock in the ratio of the number of shares
           of each such series outstanding, and the number of shares of each
           such series to be redeemed to equal the lesser of (x) the whole
           number nearest the number determined by dividing the aggregate amount
           so allocated to the redemption of such series by the average Market
           Value of one share of Series A Liberty Media Group Common Stock
           during the ten-Trading Day period beginning on the 16th Trading Day
           following the consummation of such Disposition and (y) the number of
           shares of such series outstanding (so that the amount of
           consideration paid for the redemption of each share of Series A
           Liberty Media Group Common Stock and each share of Series B Liberty
           Media Group Common Stock is the same);

     such redemption to be effected in accordance with the applicable provisions
     of paragraph 5(d) of this Section E; or

           (iii) convert (A) each outstanding share of Series A Liberty Media
     Group Common Stock into a number (or fraction) of fully paid and
     nonassessable shares of Series A TCI Group Common Stock and (B) each
     outstanding share of Series B Liberty Media

                                       17
<PAGE>
 
     Group Common Stock into a number (or fraction) of fully paid and
     nonassessable shares of Series B TCI Group Common Stock, in each case equal
     to 110% of the average daily ratio (calculated to the nearest five decimal
     places) of the Market Value of one share of Series A Liberty Media Group
     Common Stock to the Market Value of one share of Series A TCI Group Common
     Stock during the ten-Trading Day period referred to in clause (ii)(B) of
     this paragraph 5(b).

     For purposes of this paragraph 5(b):

           (x) as of any date, "substantially all of the properties and assets
     of the Liberty Media Group" shall mean a portion of such properties and
     assets that represents at least 80% of the then-current market value (as
     determined by the Board of Directors) of the properties and assets of the
     Liberty Media Group as of such date;

           (y) in the case of a Disposition of properties and assets in a series
     of related transactions, such Disposition shall not be deemed to have been
     consummated until the consummation of the last of such transactions; and

           (z) the Corporation may pay the dividend or redemption price referred
     to in clause (i) or (ii) of this subparagraph 5(b) either in the same form
     as the proceeds of the Disposition were received or in any other
     combination of cash or securities or other property (other than Common
     Stock) that the Board of Directors determines will have an aggregate market
     value on a fully distributed basis, of not less than the amount of the
     Liberty Media Group Net Proceeds. If the dividend or redemption price is
     paid in the form of securities of an issuer other than the Corporation, the
     Board of Directors may determine either to (1) pay the dividend or
     redemption price in the form of separate classes or series of securities,
     with one class or series of such securities to holders of Series A Liberty
     Media Group Common Stock and another class or series of securities to
     holders of Series B Liberty Media Group Common Stock, provided that such
     securities (and, if such securities are convertible into or exercisable or
     exchangeable for shares of another class or series of securities, the
     securities so issuable upon such conversion, exercise or exchange) do not
     differ in any respect other than their relative voting rights and related
     differences in designation, conversion, redemption and share distribution
     provisions, with holders of shares of Series B Liberty Media Group Common
     Stock receiving the class or series having the higher relative voting
     rights (without regard to whether such rights differ to a greater or lesser
     extent than the corresponding differences in voting rights, designation,
     conversion, redemption and share distribution provisions between the Series
     A Liberty Media Group Common Stock and the Series B Liberty Media Group
     Common Stock), provided that if such securities constitute capital stock of
     a Subsidiary of the Corporation, such rights shall not differ to a greater
     extent than the corresponding differences in voting rights, designation,
     conversion, redemption and share distribution provisions between the Series
     A Liberty Media Group Common Stock and Series B Liberty Media Group Common
     Stock, and otherwise such securities shall be distributed on an equal per
     share basis, or (2) pay the dividend or redemption price in the

                                       18
<PAGE>
 
     form of a single class of securities without distinction between the shares
     received by the holders of Series A Liberty Media Group Common Stock and
     Series B Liberty Media Group Common Stock.

     (c) Certain Provisions Respecting Convertible Securities. Unless the
provisions of any class or series of Pre-Distribution Convertible Securities or
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares provide specifically to the contrary, after any
Conversion Date or Redemption Date on which all outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
were converted or redeemed, any share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that is issued on conversion,
exercise or exchange of any Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares shall, immediately upon issuance pursuant to
such conversion, exercise or exchange and without any notice or any other action
on the part of the Corporation or its Board of Directors or the holder of such
share of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, be converted into (in case all such outstanding shares were
converted) or redeemed in exchange for (in case all such outstanding shares were
redeemed) the kind and amount of shares of capital stock, cash and/or other
securities or property that a holder of such Pre-Distribution Convertible
Securities or any Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares would have been
entitled to receive pursuant to the terms of such securities had such terms
provided that the conversion, exercise or exchange privilege in effect
immediately prior to any such conversion or redemption of all outstanding shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock would be adjusted so that the holder of any such Pre-Distribution
Convertible Securities or any Convertible Securities which are convertible into
or exercisable or exchangeable for Committed Acquisition Shares thereafter
surrendered for conversion, exercise or exchange would be entitled to receive
the kind and amount of shares of capital stock, cash and/or other securities or
property such holder would have received as a result of such action had such
securities been converted, exercised or exchanged immediately prior thereto.
With respect to any Convertible Securities which are created, established or
otherwise first authorized for issuance subsequent to the record date for the
Liberty Distribution (other than Pre-Distribution Convertible Securities and
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares), the terms and provisions of which do not
provide for adjustments specifying the kind and amount of capital stock, cash
and/or securities or other property that such holder would be entitled to
receive upon the conversion, exercise or exchange of such Convertible Securities
following any Conversion Date or Redemption Date on which all outstanding shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock were converted or redeemed, then upon such conversion, exercise or
exchange of such Convertible Securities, any share of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock that is issued
on conversion, exercise or exchange of any such Convertible Securities shall,
immediately upon issuance pursuant to such conversion, exercise or exchange and
without any notice or any other action on the part of the Corporation or its
Board of Directors or the holder of such share of Series A Liberty Media

                                       19
<PAGE>
 
Group Common Stock or Series B Liberty Media Group Common Stock, be redeemed in
exchange for, to the extent assets of the Corporation are legally available
therefor, the amount of $.01 per share in cash.

     (d)  General.

     (i) Not later than the 10th Trading Day following the consummation of a
Disposition referred to in subparagraph 5(b) of this Section E, the Corporation
shall announce publicly by press release (A) the Liberty Media Group Net
Proceeds of such Disposition, (B) the number of outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
(C) the number of shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock into or for which Convertible Securities are
then convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable, (D) the Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice and (E) the Adjusted Liberty Media
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice. Not earlier than the 26th Trading Day and not later than the 30th
Trading Day following the consummation of such Disposition, the Corporation
shall announce publicly by press release which of the actions specified in
clauses (i), (ii) or (iii) of paragraph 5(b) of this Section E it has
irrevocably determined to take.

     (ii) If the Corporation determines to pay a dividend pursuant to clause (i)
of subparagraph 5(b) of this Section E, the Corporation shall, not later than
the 30th Trading Day following the consummation of such Disposition, cause to be
given to each holder of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) the record date for determining holders entitled to receive such dividend,
which shall be not earlier than the 40th Trading Day and not later than the 50th
Trading Day following the consummation of such Disposition, (B) the anticipated
payment date of such dividend (which shall not be more than 85 Trading Days
following the consummation of such Disposition), (C) the kind of shares of
capital stock, cash and/or other securities or property to be distributed in
respect of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock, (D) the Liberty Media Group Net Proceeds of
such Disposition, (E) the Liberty Media Group Outstanding Interest Fraction as
of a recent date preceding the date of such notice, (F) the number of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof and (G)
in the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible

                                       20
<PAGE>
 
Securities shall be entitled to receive such dividend only if they appropriately
convert, exercise or exchange such Convertible Securities prior to the record
date referred to in clause (A) of this sentence. Such notice shall be sent by
first-class mail, postage prepaid, at such holder's address as the same appears
on the transfer books of the Corporation.

     (iii) If the Corporation determines to undertake a redemption of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock following a Disposition of all (not merely substantially all) of
the properties and assets of the Liberty Media Group pursuant to clause (ii) (A)
of paragraph 5(b) of this Section E, the Corporation shall cause to be given to
each holder of outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities), a notice setting forth (A) a statement that all
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock outstanding on the Redemption Date shall be redeemed, (B) the
Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (C) the kind of shares of capital stock, cash
and/or other securities or property to be paid as a redemption price in respect
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock outstanding on the Redemption Date, (D) the Liberty
Media Group Net Proceeds of such Disposition, (E) the Adjusted Liberty Media
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice, (F) the place or places where certificates for shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property, (G) the number of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute Pre-
Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (H) in the
case of a notice to holders of Convertible Securities, a statement to the effect
that holders of such Convertible Securities shall be entitled to participate in
such redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 5(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following such
Redemption Date. Such notice shall be sent by first-class mail, postage prepaid,
not less than 35 Trading Days nor more than 45 Trading Days prior to the
Redemption Date, at such holder's address as the same appears on the transfer
books of the Corporation.

                                       21
<PAGE>
 
     (iv) If the Corporation determines to undertake a redemption of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock following a Disposition of substantially all (but not all) of the
properties and assets of the Liberty Media Group pursuant to clause (ii)(B) of
paragraph 5(b) of this Section E, the Corporation shall, not later than the 30th
Trading Day following the consummation of such Disposition, cause to be given to
each holder of record of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a date not earlier than the 40th Trading Day and not later than the 50th
Trading Day following the consummation of such Disposition which shall be the
date on which shares of the Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock then outstanding shall be selected for
redemption, (B) the anticipated Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (C) the kind of
shares of capital stock, cash and/or other securities or property to be paid as
a redemption price in respect of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock selected for redemption, (D)
the Liberty Media Group Net Proceeds of such Disposition, (E) the Liberty Media
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice, (F) the number of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock and the number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion or exercise
prices thereof, (G) in the case of a notice to holders of Convertible
Securities, a statement to the effect that holders of such Convertible
Securities shall be entitled to participate in such selection for redemption
only if such holders appropriately convert, exercise or exchange such
Convertible Securities on or prior to the date referred to in clause (A) of this
sentence and a statement as to what, if anything, such holders shall be entitled
to receive pursuant to the terms of such Convertible Securities if such holders
convert, exercise or exchange such Convertible Securities following such date
and (H) a statement that the Corporation will not be required to register a
transfer of any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock for a period of 15 Trading Days next preceding
the date referred to in clause (A) of this sentence. Promptly following the date
referred to in clause (A) of the preceding sentence, but not earlier than the
40th Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition, the Corporation shall cause to be given to
each holder of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock to be so redeemed, a notice setting forth (A)
the number of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock held by such holder to be redeemed, (B) a
statement that such shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock shall be redeemed, (C) the Redemption
Date (which shall not be more than 85 Trading Days following the consummation of
such Disposition), (D) the kind and per share amount of shares of capital stock,
cash and/or other securities or property to be received by such holder with
respect to each share of such Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock to be redeemed, including details as
to the

                                       22
<PAGE>
 
calculation thereof, and (E) the place or places where certificates for shares
of such Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for delivery of
certificates for shares of such capital stock, cash and/or other securities or
property. The notices referred to in this clause (iv) shall be sent by first-
class mail, postage prepaid, at such holder's address as the same appears on the
transfer books of the Corporation. The outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock to be
redeemed shall be redeemed by the Corporation pro rata among the holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock or by such other method as may be determined by the Board of
Directors to be equitable.

     (v) In the event of any conversion pursuant to paragraph 2(d) of this
Section E or pursuant to this paragraph 5 (other than pursuant to paragraph
5(c)), the Corporation shall cause to be given to each holder of outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock and to each holder of Convertible Securities convertible into
or exercisable or exchangeable for shares of either such series (unless
provision for such notice is otherwise made pursuant to the terms of such
Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock shall be converted, (B) the Conversion Date
(which shall not be more than 85 Trading Days following the consummation of such
Disposition in the event of a conversion pursuant to paragraph 5(b) and which
shall not be more than 120 days after the Appraisal Date in the event of a
conversion pursuant to paragraph 2(d)), (C) the per share number of shares of
Series A TCI Group Common Stock or Series B TCI Group Common Stock, as
applicable, to be received with respect to each share of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock, including
details as to the calculation thereof, (D) the place or places where
certificates for shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be surrendered,
(E) the number of outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, the number of Committed
Acquisition Shares issuable and the number of shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock into or for
which outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof and (F) in
the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such conversion only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Conversion
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 5(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following such Conversion Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Conversion Date, at such holder's address as the same appears on
the transfer books of the Corporation.

                                       23
<PAGE>
 
     (vi) If the Corporation determines to redeem shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock pursuant
to subparagraph (a) of this paragraph 5, the Corporation shall promptly cause to
be given to each holder of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such series
(unless provision for such notice is otherwise made pursuant to the terms of
such Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock shall be redeemed in exchange for shares of
common stock of the Liberty Media Group Subsidiaries, (B) the Redemption Date,
(C) the Adjusted Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (D) the place or places where
certificates for shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be surrendered for
delivery of certificates for shares of common stock of the Liberty Media Group
Subsidiaries, (E) the number of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock and the number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion, exercise
or exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable, and (F) in the case of a notice to holders of Convertible Securities,
a statement to the effect that holders of such Convertible Securities shall be
entitled to participate in such redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
Redemption Date referred to in clause (B) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, paragraph 5(c) of this
Section E if such holders convert, exercise or exchange such Convertible
Securities following the Redemption Date. Such notice shall be sent by first-
class mail, postage prepaid, not less than 35 Trading Days nor more than 45
Trading Days prior to the Redemption Date, at such holder's address as the same
appears on the transfer books of the Corporation.

     (vii) Neither the failure to mail any notice required by this paragraph
5(d) to any particular holder of Series A Liberty Media Group Common Stock,
Series B Liberty Media Group Common Stock or of Convertible Securities nor any
defect therein shall affect the sufficiency thereof with respect to any other
holder of outstanding shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock or of Convertible Securities, or the
validity of any conversion or redemption.

     (viii) The Corporation shall not be required to issue or deliver fractional
shares of any class of capital stock or any fractional securities to any holder
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock upon any conversion, redemption, dividend or other distribution
pursuant to paragraph 2(d) of this Section E or pursuant to this paragraph 5. In

                                       24
<PAGE>
 
connection with the determination of the number of shares of any class of
capital stock that shall be issuable or the amount of securities that shall be
deliverable to any holder of record upon any such conversion, redemption,
dividend or other distribution (including any fractions of shares or
securities), the Corporation may aggregate the number of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued or
delivered to any holder of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock is a fraction, the Corporation shall, if such
fraction is not issued or delivered to such holder, pay a cash adjustment in
respect of such fraction in an amount equal to the fair market value of such
fraction on the fifth Trading Day prior to the date such payment is to be made
(without interest). For purposes of the preceding sentence, "fair market value"
of any fraction shall be (A) in the case of any fraction of a share of capital
stock of the Corporation, the product of such fraction and the Market Value of
one share of such capital stock and (B) in the case of any other fractional
security, such value as is determined by the Board of Directors.

     (ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock at
the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding the
conversion or redemption of such shares or the Corporation's default in payment
of the dividend or distribution due on such date.

     (x) Before any holder of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock shall be entitled to receive
certificates representing shares of any kind of capital stock or cash and/or
securities or other property to be received by such holder with respect to
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock pursuant to paragraph 2(d) of this Section E or pursuant to
this paragraph 5, such holder shall surrender at such place as the Corporation
shall specify certificates for such shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement). The
Corporation shall as soon as practicable after such surrender of certificates
representing shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock deliver to the person for whose account shares
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock were so surrendered, or to the nominee or nominees of such person,
certificates representing the number of whole shares of the kind of capital
stock or cash and/or securities or other property to which such person shall be
entitled as aforesaid, together with any payment for fractional securities
contemplated by paragraph

                                       25
<PAGE>
 
5(d)(viii). If less than all of the shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock represented by any one
certificate are to be redeemed, the Corporation shall issue and deliver a new
certificate for the shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock not redeemed. The Corporation shall
not be required to register a transfer of (1) any shares of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock for a
period of 15 Trading Days next preceding any selection of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock to
be redeemed or (2) any shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock selected or called for redemption.
Shares selected for redemption may not thereafter be converted pursuant to
paragraph 2(b) of this Section E.

     (xi) From and after any applicable Conversion Date or Redemption Date, all
rights of a holder of shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock that were converted or redeemed shall
cease except for the right, upon surrender of the certificates representing
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, to receive certificates representing shares of the kind and
amount of capital stock or cash and/or securities or other property for which
such shares were converted or redeemed, together with any payment for fractional
securities contemplated by paragraph 5(d)(viii) of this Section E and such
holder shall have no other or further rights in respect of the shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
so converted or redeemed, including, but not limited to, any rights with respect
to any cash, securities or other properties which are reserved or otherwise
designated by the Corporation as being held for the satisfaction of the
Corporation's obligations to pay or deliver any cash, securities or other
property upon the conversion, exercise or exchange of any Convertible Securities
outstanding as of the date of such conversion or redemption or any Committed
Acquisition Shares which may then be issuable. No holder of a certificate that,
immediately prior to the applicable Conversion Date or Redemption Date for the
Series A Liberty Media Group Common Stock or Series B Liberty Media Group Common
Stock, represented shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock shall be entitled to receive any dividend or
other distribution with respect to shares of any kind of capital stock into or
in exchange for which the Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock was converted or redeemed until surrender of
such holder's certificate for a certificate or certificates representing shares
of such kind of capital stock. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
which theretofore became payable with respect to a record date after the
Conversion Date or Redemption Date, as the case may be, but that were not paid
by reason of the foregoing, with respect to the number of whole shares of the
kind of capital stock represented by the certificate or certificates issued upon
such surrender. From and after a Conversion Date or Redemption Date, as the case
may be, for any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, the Corporation shall, however, be entitled to
treat the certificates for shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock that have not yet been surrendered
for conversion or redemption as evidencing the ownership of the

                                       26
<PAGE>
 
number of whole shares of the kind or kinds of capital stock for which the
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock represented by such certificates shall have been converted or
redeemed, notwithstanding the failure to surrender such certificates.

     (xii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of any shares of capital stock and/or other securities on conversion or
redemption of shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect of
any transfer involved in the issue and delivery of any shares of capital stock
in a name other than that in which the shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount of
any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.

     6.  Redemption and Other Provisions Relating to the Series A Telephony
         ------------------------------------------------------------------
Group Common Stock and Series B Telephony Group Common Stock.
- ------------------------------------------------------------ 

     (a) Redemption in Exchange for Stock of Telephony Group Subsidiaries. At
any time at which all of the assets and liabilities attributed to the Telephony
Group have become and continue to be held directly or indirectly by any one or
more Qualifying Subsidiaries (the "Telephony Group Subsidiaries"), the Board of
Directors may, subject to the availability of assets of the Corporation legally
available therefor, redeem, on a pro rata basis, all of the outstanding shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock in exchange for an aggregate number of outstanding fully paid and
nonassessable shares of common stock of each Telephony Group Subsidiary equal to
the product of the Telephony Group Outstanding Interest Fraction and the number
of outstanding shares of common stock of such Telephony Group Subsidiary held by
the Corporation. Any such redemption shall occur on a Redemption Date set forth
in a notice to holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and Convertible Securities convertible into or
exercisable or exchangeable for shares of either such series (unless provision
for notice is otherwise made pursuant to the terms of such Convertible
Securities) pursuant to paragraph 6(d)(vi). In effecting such a redemption, the
Board of Directors may determine either to (i) redeem shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock in
exchange for shares of separate classes or series of common stock of each
Telephony Group Subsidiary with relative voting rights and related differences
in designation, conversion, redemption and share distribution provisions not
greater than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock, with
holders of shares of Series B Telephony Group Common Stock receiving the class
or series having the higher relative voting rights, or (ii) redeem shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
in exchange for shares of a single class of common stock of each Telephony Group
Subsidiary without

                                       27
<PAGE>
 
distinction between the shares distributed to the holders of the Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock.

     (b) Mandatory Dividend, Redemption or Conversion in Case of Disposition of
Telephony Group Assets. In the event of the Disposition, in one transaction or a
series of related transactions, by the Corporation and its subsidiaries of all
or substantially all of the properties and assets of the Telephony Group to one
or more persons, entities or groups (other than (w) in connection with the
Disposition by the Corporation of all of the Corporation's properties and assets
in one transaction or a series of related transactions in connection with the
liquidation, dissolution or winding up of the Corporation within the meaning of
paragraph 7 of this Section E, (x) a dividend, other distribution or redemption
in accordance with any provision of paragraph 3, paragraph 4, paragraph 6(a) or
paragraph 7 of this Section E, (y) to any person, entity or group which the
Corporation, directly or indirectly, after giving effect to the Disposition,
controls or (z) in connection with a Related Business Transaction), the
Corporation shall, on or prior to the 85th Trading Day following the
consummation of such Disposition, either:

           (i) subject to paragraph 3(c) of this Section E, declare and pay a
     dividend in cash and/or in securities or other property (other than a
     dividend or distribution of Common Stock) to the holders of the outstanding
     shares of Series A Telephony Group Common Stock and Series B Telephony
     Group Common Stock equally on a share for share basis (subject to the last
     sentence of this Section 6(b)), in an aggregate amount equal to the product
     of the Telephony Group Outstanding Interest Fraction as of the record date
     for determining the holders entitled to receive such dividend and the
     Telephony Group Net Proceeds of such Disposition; or

           (ii) provided that there are assets of the Corporation legally
     available therefor and the Telephony Group Available Dividend Amount would
     have been sufficient to pay a dividend in lieu thereof pursuant to clause
     (i) of this paragraph 6(b), then:

                (A) if such Disposition involves all (not merely substantially
           all) of the properties and assets of the Telephony Group, redeem all
           outstanding shares of Series A Telephony Group Common Stock and
           Series B Telephony Group Common Stock in exchange for cash and/or
           securities or other property (other than Common Stock) in an
           aggregate amount equal to the product of the Telephony Group
           Outstanding Interest Fraction as of the date of such redemption and
           the Telephony Group Net Proceeds, such aggregate amount to be
           allocated (subject to the last sentence of this paragraph 6(b)) to
           shares of Series A Telephony Group Common Stock and Series B
           Telephony Group Common Stock in the ratio of the number of shares of
           each such series outstanding (so that the amount of consideration
           paid for the redemption of each share of Series A Telephony Group
           Common Stock and each share of Series B Telephony Group Common Stock
           is the same); or

                                       28
<PAGE>
 
     (B) if such Disposition involves substantially all (but not all) of the
properties and assets of the Telephony Group, apply an aggregate amount of cash
and/or securities or other property (other than Common Stock) equal to the
product of the Telephony Group Outstanding Interest Fraction as of the date
shares are selected for redemption and the Telephony Group Net Proceeds to the
redemption of outstanding shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, such aggregate amount to be allocated
(subject to the last sentence of this paragraph 6(b)) to shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock in the
ratio of the number of shares of each such series outstanding, and the number of
shares of each such series to be redeemed to equal the lesser of (x) the whole
number nearest the number determined by dividing the aggregate amount so
allocated to the redemption of such series by the average Market Value of one
share of Series A Telephony Group Common Stock during the ten-Trading Day period
beginning on the 16th Trading Day following the consummation of such Disposition
and (y) the number of shares of such series outstanding (so that the amount of
consideration paid for the redemption of each share of Series A Telephony Group
Common Stock and each share of Series B Telephony Group Common Stock is the
same);

such redemption to be effected in accordance with the applicable provisions of
paragraph 6(d) of this Section E; or

     (iii)  convert (A) each outstanding share of Series A Telephony Group
Common Stock into a number (or fraction) of fully paid and nonassessable shares
of Series A TCI Group Common Stock and (B) each outstanding share of Series B
Telephony Group Common Stock into a number (or fraction) of fully paid and
nonassessable shares of Series B TCI Group Common Stock, in each case equal to
110% of the average daily ratio (calculated to the nearest five decimal places)
of the Market Value of one share of Series A Telephony Group Common Stock to the
Market Value of one share of Series A TCI Group Common Stock during the ten-
Trading Day period referred to in clause (ii)(B) of this paragraph 6(b).

     For purposes of this paragraph 6(b):

     (x) as of any date, "substantially all of the properties and assets of the
Telephony Group" shall mean a portion of such properties and assets that
represents at least 80% of the then-current market value (as determined by the
Board of Directors) of the properties and assets of the Telephony Group as of
such date;

     (y) in the case of a Disposition of properties and assets in a series of
related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions; and

                                       29
<PAGE>
 
     (z) the Corporation may pay the dividend or redemption price referred to in
clause (i) or (ii) of this subparagraph 6(b) either in the same form as the
proceeds of the Disposition were received or in any other combination of cash or
securities or other property (other than Common Stock) that the Board of
Directors determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the Telephony Group Net Proceeds.  If the
dividend or redemption price is paid in the form of securities of an issuer
other than the Corporation, the Board of Directors may determine either to (1)
pay the dividend or redemption price in the form of separate classes or series
of securities, with one class or series of such securities to holders of Series
A Telephony Group Common Stock and another class or series of securities to
holders of Series B Telephony Group Common Stock, provided that such securities
(and, if such securities are convertible into or exercisable or exchangeable for
shares of another class or series of securities, the securities so issuable upon
such conversion, exercise or exchange) do not differ in any respect other than
their relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares of Series B
Telephony Group Common Stock receiving the class or series having the higher
relative voting rights (without regard to whether such rights differ to a
greater or lesser extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions between
the Series A Telephony Group Common Stock and the Series B Telephony Group
Common Stock), provided that if such securities constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, and otherwise such
securities shall be distributed on an equal per share basis, or (2) pay the
dividend or redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock.

     (c) Certain Provisions Respecting Convertible Securities.   Unless the
provisions of any class or series of Convertible Securities which are or become
convertible into or exercisable or exchangeable for shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock provide specifically
to the contrary, after any Conversion Date or Redemption Date on which all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock were converted or redeemed, any share of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
will, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of the
Corporation or its Board of Directors or the holder of such share of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock, be
redeemed in exchange for, to the extent assets of the Corporation are legally
available therefor, the amount of $.01 per share in cash.

                                       30
<PAGE>
 
     (d)  General.

     (i) Not later than the 10th Trading Day following the consummation of a
Disposition referred to in subparagraph 6(b) of this Section E, the Corporation
shall announce publicly by press release (A) the Telephony Group Net Proceeds of
such Disposition, (B) the number of outstanding shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, (C) the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock into or for which Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof, and (D) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice.  Not earlier than the 26th
Trading Day and not later than the 30th Trading Day following the consummation
of such Disposition, the Corporation shall announce publicly by press release
which of the actions specified in clauses (i), (ii) or (iii) of paragraph 6(b)
of this Section E it has irrevocably determined to take.

     (ii) If the Corporation determines to pay a dividend pursuant to clause (i)
of subparagraph 6(b) of this Section E, the Corporation shall, not later than
the 30th Trading Day following the consummation of such Disposition, cause to be
given to each holder of outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) the record date for determining holders entitled to receive such dividend,
which shall be not earlier than the 40th Trading Day and not later than the 50th
Trading Day following the consummation of such Disposition, (B) the anticipated
payment date of such dividend (which shall not be more than 85 Trading Days
following the consummation of such Disposition), (C) the kind of shares of
capital stock, cash and/or other securities or property to be distributed in
respect of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, (D) the Telephony Group Net Proceeds of such
Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and the number of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof and (G) in the case of a notice
to holders of Convertible Securities, a statement to the effect that holders of
such Convertible Securities shall be entitled to receive such dividend only if
they appropriately convert, exercise or exchange such Convertible Securities
prior to the record date referred to in clause (A) of this sentence.  Such
notice shall be sent by first-class mail, postage prepaid, at such holder's
address as the same appears on the transfer books of the Corporation.

     (iii)  If the Corporation determines to undertake a redemption of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of all (not merely substantially all) of the properties
and assets of the Telephony Group pursuant to clause (ii) (A) of paragraph 6(b)
of this Section E, the Corporation shall cause to be given

                                       31
<PAGE>
 
to each holder of outstanding shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities), a notice setting forth (A) a statement that all
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock outstanding on the Redemption Date shall be redeemed, (B) the
Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (C) the kind of shares of capital stock, cash
and/or other securities or property to be paid as a redemption price in respect
of shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock outstanding on the Redemption Date, (D) the Telephony Group Net
Proceeds of such Disposition, (E) the Telephony Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (F) the place or
places where certificates for shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), are to be surrendered
for delivery of certificates for shares of such capital stock, cash and/or other
securities or property, (G) the number of outstanding shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock and the
number of shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof, and (H) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to participate in such redemption only
if such holders appropriately convert, exercise or exchange such Convertible
Securities on or prior to the Redemption Date referred to in clause (B) of this
sentence and a statement as to what, if anything, such holders shall be entitled
to receive pursuant to the terms of such Convertible Securities or, if
applicable, paragraph 6(c) of this Section E if such holders convert, exercise
or exchange such Convertible Securities following such Redemption Date.  Such
notice shall be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the Redemption Date, at such
holder's address as the same appears on the transfer books of the Corporation.

     (iv) If the Corporation determines to undertake a redemption of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of substantially all (but not all) of the properties and
assets of the Telephony Group pursuant to clause (ii)(B) of paragraph 6(b) of
this Section E, the Corporation shall, not later than the 30th Trading Day
following the consummation of such Disposition, cause to be given to each holder
of record of outstanding shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities), a notice setting forth (A) a date not earlier
than the 40th Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition which shall be the date on which shares of the
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
then outstanding shall be selected for redemption, (B) the anticipated
Redemption Date (which shall not be more than

                                       32
<PAGE>
 
85 Trading Days following the consummation of such Disposition), (C) the kind of
shares of capital stock, cash and/or other securities or property to be paid as
a redemption price in respect of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock selected for redemption, (D) the
Telephony Group Net Proceeds of such Disposition, (E) the Telephony Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (F) the number of outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock and the number of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
into or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion or exercise prices thereof, (G)
in the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such selection for redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
date referred to in clause (A) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities if such holders convert, exercise or exchange such
Convertible Securities following such date and (H) a statement that the
Corporation will not be required to register a transfer of any shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common Stock for a
period of 15 Trading Days next preceding the date referred to in clause (A) of
this sentence.  Promptly following the date referred to in clause (A) of the
preceding sentence, but not earlier than the 40th Trading Day and not later than
the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock to be so
redeemed, a notice setting forth (A) the number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock held by such holder
to be redeemed, (B) a statement that such shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock shall be redeemed, (C)
the Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (D) the kind and per share amount of shares
of capital stock, cash and/or other securities or property to be received by
such holder with respect to each share of such Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock to be redeemed, including
details as to the calculation thereof, and (E) the place or places where
certificates for shares of such Series A Telephony Group Common Stock or Series
B Telephony Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation waives such requirement), are to be surrendered for
delivery of certificates for shares of such capital stock, cash and/or other
securities or property.  The notices referred to in this clause (iv) shall be
sent by first-class mail, postage prepaid, at such holder's address as the same
appears on the transfer books of the Corporation.  The outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
to be redeemed shall be redeemed by the Corporation pro rata among the holders
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock or by such other method as may be determined by the Board of Directors to
be equitable.

     (v) In the event of any conversion pursuant to paragraph 2(e) of this
Section E or pursuant to this paragraph 6 (other than pursuant to paragraph
6(c)), the Corporation shall cause to

                                       33
<PAGE>
 
be given to each holder of outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock shall be converted, (B) the
Conversion Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition in the event of a conversion pursuant to
paragraph 6(b) and which shall not be more than 120 days after the Appraisal
Date in the event of a conversion pursuant to paragraph 2(e)), (C) the per share
number of shares of Series A TCI Group Common Stock or Series B TCI Group Common
Stock, as applicable, to be received with respect to each share of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock, including
details as to the calculation thereof, (D) the place or places where
certificates for shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock, properly endorsed or assigned for transfer (unless
the Corporation shall waive such requirement), are to be surrendered, (E) the
number of outstanding shares of Series A Telephony Group Common Stock and Series
B Telephony Group Common Stock and the number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof and (F) in
the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such conversion only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Conversion
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 6(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following such Conversion Date.  Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Conversion Date, at such holder's address as the same appears on
the transfer books of the Corporation.

     (vi) If the Corporation determines to redeem shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock pursuant to
subparagraph (a) of this paragraph 6, the Corporation shall promptly cause to be
given to each holder of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such series
(unless provision for such notice is otherwise made pursuant to the terms of
such Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock shall be redeemed in exchange for shares of common
stock of the Telephony Group Subsidiaries, (B) the Redemption Date, (C) the
Telephony Group Outstanding Interest Fraction as of a recent date preceding the
date of such notice, (D) the place or places where certificates for shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for shares
of common stock of the Telephony Group Subsidiaries, (E) the number of

                                       34
<PAGE>
 
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and the number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof, and (F) in
the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Redemption
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 6(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following the Redemption Date.  Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Redemption Date, at such holder's address as the same appears on
the transfer books of the Corporation.

     (vii)  Neither the failure to mail any notice required by this paragraph
6(d) to any particular holder of Series A Telephony Group Common Stock, Series B
Telephony Group Common Stock or of Convertible Securities nor any defect therein
shall affect the sufficiency thereof with respect to any other holder of
outstanding shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock or of Convertible Securities, or the validity of
any conversion or redemption.

     (viii)  The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock upon any conversion, redemption, dividend or other distribution
pursuant to paragraph 2(e) of this Section E or pursuant to this paragraph 6.
In connection with the determination of the number of shares of any class of
capital stock that shall be issuable or the amount of securities that shall be
deliverable to any holder of record upon any such conversion, redemption,
dividend or other distribution (including any fractions of shares or
securities), the Corporation may aggregate the number of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock held at
the relevant time by such holder of record.  If the number of shares of any
class of capital stock or the amount of securities remaining to be issued or
delivered to any holder of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock is a fraction, the Corporation shall, if such
fraction is not issued or delivered to such holder, pay a cash adjustment in
respect of such fraction in an amount equal to the fair market value of such
fraction on the fifth Trading Day prior to the date such payment is to be made
(without interest).  For purposes of the preceding sentence, "fair market value"
of any fraction shall be (A) in the case of any fraction of a share of capital
stock of the Corporation, the product of such fraction and the Market Value of
one share of such capital stock and (B) in the case of any other fractional
security, such value as is determined by the Board of Directors.

                                       35
<PAGE>
 
     (ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Telephony Group Common Stock
or Series B Telephony Group Common Stock; provided, however, that if the
                                          --------  -------             
Conversion Date or the Redemption Date with respect to the Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock shall be subsequent
to the record date for the payment of a dividend or other distribution thereon
or with respect thereto, the holders of shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock at the close of business
on such record date shall be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set for
payment of such dividend or other distribution, notwithstanding the conversion
or redemption of such shares or the Corporation's default in payment of the
dividend or distribution due on such date.

     (x) Before any holder of shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock shall be entitled to receive certificates
representing shares of any kind of capital stock or cash and/or securities or
other property to be received by such holder with respect to shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock pursuant
to paragraph 2(e) of this Section E or pursuant to this paragraph 6, such holder
shall surrender at such place as the Corporation shall specify certificates for
such shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement).  The Corporation shall as soon as practicable
after such surrender of certificates representing shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock deliver to the
person for whose account shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock were so surrendered, or to the nominee or
nominees of such person, certificates representing the number of whole shares of
the kind of capital stock or cash and/or securities or other property to which
such person shall be entitled as aforesaid, together with any payment for
fractional securities contemplated by paragraph 6(d)(viii).  If less than all of
the shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock represented by any one certificate are to be redeemed, the
Corporation shall issue and deliver a new certificate for the shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock not
redeemed.  The Corporation shall not be required to register a transfer of (1)
any shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock for a period of 15 Trading Days next preceding any selection of
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock to be redeemed or (2) any shares of Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock selected or called for
redemption.  Shares selected for redemption may not thereafter be converted
pursuant to paragraph 2(c) of this Section E.

     (xi) From and after any applicable Conversion Date or Redemption Date, all
rights of a holder of shares of Series A Telephony Group Common Stock or Series
B Telephony Group Common Stock that were converted or redeemed shall cease
except for the right, upon surrender of the certificates representing shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common Stock,
to receive certificates representing shares of the kind and amount

                                       36
<PAGE>
 
of capital stock or cash and/or securities or other property for which such
shares were converted or redeemed, together with any payment for fractional
securities contemplated by paragraph 6(d)(viii) of this Section E and such
holder shall have no other or further rights in respect of the shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common Stock so
converted or redeemed, including, but not limited to, any rights with respect to
any cash, securities or other properties which are reserved or otherwise
designated by the Corporation as being held for the satisfaction of the
Corporation's obligations to pay or deliver any cash, securities or other
property upon the conversion, exercise or exchange of any Convertible Securities
outstanding as of the date of such conversion or redemption.  No holder of a
certificate that, immediately prior to the applicable Conversion Date or
Redemption Date for the Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock, represented shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock shall be entitled to
receive any dividend or other distribution with respect to shares of any kind of
capital stock into or in exchange for which the Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock was converted or redeemed until
surrender of such holder's certificate for a certificate or certificates
representing shares of such kind of capital stock.  Upon such surrender, there
shall be paid to the holder the amount of any dividends or other distributions
(without interest) which theretofore became payable with respect to a record
date after the Conversion Date or Redemption Date, as the case may be, but that
were not paid by reason of the foregoing, with respect to the number of whole
shares of the kind of capital stock represented by the certificate or
certificates issued upon such surrender.  From and after a Conversion Date or
Redemption Date, as the case may be, for any shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock, the Corporation shall,
however, be entitled to treat the certificates for shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock that have not yet
been surrendered for conversion or redemption as evidencing the ownership of the
number of whole shares of the kind or kinds of capital stock for which the
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock represented by such certificates shall have been converted or
redeemed, notwithstanding the failure to surrender such certificates.

     (xii)  The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of any shares of capital stock and/or other securities on conversion or
redemption of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock pursuant to this Section E.  The Corporation shall
not, however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of any shares of capital stock in a
name other than that in which the shares of Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock so converted or redeemed were
registered and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax, or has established to the satisfaction of the Corporation that such tax has
been paid.

                                       37
<PAGE>
 
7.   Liquidation.
     ----------- 

     In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to the
prior payment in full of the preferential amounts to which any class or series
of Preferred Stock is entitled, (a) the holders of the shares of Series A TCI
Group Common Stock and the holders of the shares of Series B TCI Group Common
Stock shall share equally, on a share for share basis, in a percentage of the
funds of the Corporation remaining for distribution to its common stockholders
equal to 100% multiplied by the average daily ratio (expressed as a decimal) of
W/Z for the 20-Trading Day period ending on the Trading Day prior to the date of
the public announcement of such liquidation, dissolution or winding up, (b) the
holders of the shares of Series A Liberty Media Group Common Stock and the
holders of the shares of Series B Liberty Media Group Common Stock shall share
equally, on a share for share basis, in a percentage of the funds of the
Corporation remaining for distribution to its common stockholders equal to 100%
multiplied by the average daily ratio (expressed as a decimal) of X/Z for such
20-Trading Day period, and (c) the holders of the shares of Series A Telephony
Group Common Stock and the holders of the Series B Telephony Group Common Stock
shall share equally, on a share for share basis, in a percentage of the funds of
the Corporation remaining for distribution to its common stockholders equal to
100% multiplied by the average daily ratio (expressed as a decimal) of Y/Z for
such 20-Trading Day period, where W is the aggregate Market Capitalization of
the Series A TCI Group Common Stock and the Series B TCI Group Common Stock, X
is the aggregate Market Capitalization of the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock, Y is the
aggregate Market Capitalization of the Series A Telephony Group Common Stock and
the Series B Telephony Group Common Stock, and Z is the aggregate Market
Capitalization of the Series A TCI Group Common Stock,  the Series B TCI Group
Common Stock, the Series A Liberty Media Group Common Stock, the Series B
Liberty Media Group Common Stock, the Series A Telephony Group Common Stock and
the Series B Telephony Group Common Stock.  Neither the consolidation or merger
of the Corporation with or into any other corporation or corporations nor the
sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 7.

8.   Determinations by the Board of Directors.
     ---------------------------------------- 

     Any determinations made by the Board of Directors under any provision in
this Section E shall be final and binding on all stockholders of the
Corporation, except as may otherwise be required by law.  The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the Corporation.

                                       38
<PAGE>
 
9.   Certain Definitions.
     ------------------- 

     Unless the context otherwise requires, the terms defined in this paragraph
9 shall have, for all purposes of this Section E, the meanings herein specified:

     "Adjusted Liberty Media Group Outstanding Interest Fraction," as of any
date, shall mean a fraction the numerator of which is the aggregate number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock outstanding on such date and the denominator of which is the
sum of (a) such aggregate number of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock outstanding on such
date, (b) the Number of Shares Issuable with Respect  to the Liberty Media Group
Inter-Group Interest as of such date, (c) the aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock issuable, determined as of such date, upon conversion, exercise or
exchange of Pre-Distribution Convertible Securities and (d) the number of
Committed Acquisition Shares issuable, determined as of such date.

     "Appraisal Date," with respect to any determination of the Liberty Media
Group Private Market Value or the Telephony Group Private Market Value, shall
mean the last day of the calendar month preceding the month in which  the
Selection Date occurs.

     "Appraiser" means each of the First Appraiser, the Second Appraiser and the
Mutually Designated Appraiser.

     "Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation had, prior to the record
date for the Liberty Media Group Distribution, agreed to issue, but as of such
record date had not issued, and (b) the shares of Series A Liberty Media Group
Common Stock that are issuable upon conversion, exercise or exchange of
Convertible Securities that the Corporation had, prior to the record date for
the Liberty Media Group Distribution, agreed to issue, but as of such record
date has not issued, in each case including obligations of the Corporation to
issue shares of the Corporation's Class A Common Stock, par value $1.00 per
share, which as a result of the Liberty Media Group Distribution, constitute
obligations to issue, among other securities, Series A Liberty Media Group
Common Stock or Convertible Securities which are convertible into or exercisable
or exchangeable for Series A Liberty Media Group Common Stock; provided,
                                                               -------- 
however, that Committed Acquisition Shares shall not include any shares of
- -------                                                                   
Series A Liberty Media Group Common Stock or Series B Liberty Media Group Common
Stock issuable upon conversion, exercise or exchange of Pre-Distribution
Convertible Securities.  The type and amount of Committed Acquisition Shares
issuable shall be appropriately adjusted to reflect subdivisions and
combinations of the Series A Liberty Media Group Common Stock and dividends or
distributions of shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock to holders of Series A Liberty Media Group
Common Stock and other reclassifications of the Series A Liberty Media Group
Common Stock, in each case occurring (or the record date for which occurs) after
the Liberty Media Group Distribution.

                                       39
<PAGE>
 
     "Conversion Date" shall mean any date fixed by the Board of Directors for a
conversion of shares of (i) Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock, or (ii) Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, as the case may be, as set
forth in a notice to holders of the applicable series of Common Stock pursuant
to paragraph 5(d) or 6(d), as applicable, of this Section E.

     "Convertible Securities" shall mean any securities of the Corporation
(other than any series of Common Stock) that are convertible into, exchangeable
for or evidence the right to purchase any shares of any series of Common Stock,
whether upon conversion, exercise, exchange, pursuant to antidilution provisions
of such securities or otherwise.

     "Corporation Earnings (Loss) Attributable to the Liberty Media Group," for
any period, shall mean the net earnings or loss of the Liberty Media Group for
such period determined on a basis consistent with the determination of the net
earnings or loss of the Liberty Media Group for such period as presented in the
combined financial statements of the Liberty Media Group for such period,
including income and expenses of the Corporation attributed to the operations of
the Liberty Media Group on a substantially consistent basis, including without
limitation, corporate administrative costs, net interest and income taxes.

     "Corporation Earnings (Loss) Attributable to the TCI Group," for any
period, shall mean the net earnings or loss of the TCI Group for such period
determined on a basis consistent with the determination of the net earnings or
loss of the TCI Group for such period as presented in the combined financial
statements of the TCI Group for such period, including income and expenses of
the Corporation attributed to the operations of the TCI Group on a substantially
consistent basis, including without limitation, corporate administrative costs,
net interest and income taxes.

     "Corporation Earnings (Loss) Attributable to the Telephony Group," for any
period, shall mean the net earnings or loss of the Telephony Group for such
period determined on a basis consistent with the determination of the net
earnings or loss of the Telephony Group for such period as presented in the
combined financial statements of the Telephony Group for such period, including
income and expenses of the Corporation attributed to the operations of the
Telephony Group on a substantially consistent basis, including without
limitation, corporate administrative costs, net interest and income taxes.

     "Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock or otherwise) of properties or assets.

     "First Appraiser" means, with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market Value, an
investment banking firm of recognized national standing selected by the
Corporation to make such determination.

                                       40
<PAGE>
 
     "Higher Appraised Amount," with  respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, the higher of the respective final views of the First Appraiser and the
Second Appraiser as to such private market value.

     "Independent Committee" means a committee of the Board of Directors of the
Corporation formed in order to select the Second Appraiser, all of whose members
are "independent directors" as determined under Nasdaq National Market rules.

     "Liberty Media Group" shall mean, as of any date that any shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
have been issued and continue to be outstanding:

           (a) the interest of the Corporation or of any of its subsidiaries in
     Liberty Media Corporation or any of its subsidiaries (including any
     successor thereto by merger, consolidation or sale of all or substantially
     all of its assets, whether or not in connection with a Related Business
     Transaction) and their respective properties and assets,

           (b) all assets and liabilities of the Corporation or any of its
     subsidiaries to the extent attributed to any of the properties or assets
     referred to in clause (a) of this sentence, whether or not such assets or
     liabilities are assets and liabilities of Liberty Media Corporation or any
     of its subsidiaries (or a successor as described in clause (a) of this
     sentence),

           (c) all assets and properties contributed or otherwise transferred to
     the Liberty Media Group from the TCI Group, and

           (d) the interest of the Corporation or any of its subsidiaries in the
     businesses, assets and liabilities acquired by the Corporation or any of
     its subsidiaries for the Liberty Media Group, as determined by the Board of
     Directors;

provided that (i) from and after any dividend or other distribution with respect
to any shares of Series  A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock (other than a dividend or other distribution payable in
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, with respect to which adjustment shall be made as provided
in clause (a) of the definition of "Number of Shares Issuable with Respect to
the Liberty Media Group Inter-Group Interest," or in other securities of the
Corporation attributed to the Liberty Media Group for which provision shall be
made as set forth in the penultimate sentence of this definition), the Liberty
Media Group shall no longer include an amount of assets or properties equal to
the aggregate amount of such kind of assets or properties so paid in respect of
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock multiplied by a fraction the numerator of which is equal to
the Liberty Media Group Inter-Group Interest Fraction in effect immediately
prior to the record date for such dividend or other distribution and the
denominator of which is equal to the Liberty Media Group Outstanding Interest
Fraction in effect immediately prior to the record date for such dividend or
other distribution and (ii)

                                       41
<PAGE>
 
from and after any transfer of assets or properties from the Liberty Media Group
to the TCI Group, the Liberty Media Group shall no longer include the assets or
properties so transferred.  If the Corporation shall pay a dividend or make any
other distribution with respect to shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock payable in securities of the
Corporation attributed to the Liberty Media Group other than Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the TCI
Group shall be deemed to hold an amount of such other securities equal to the
amount so distributed multiplied by the fraction specified in clause (i) of this
definition (determined as of a time immediately prior to the record date for
such dividend or other distribution), and to the extent interest or dividends
are paid or other distributions are made on such other securities so distributed
to the holders of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock, the Liberty Media Group shall no longer include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in respect of such securities so deemed to be
held by the TCI Group.  The Corporation may also, to the extent any such other
securities constitute Convertible Securities which are at the time convertible,
exercisable or exchangeable, cause such Convertible Securities deemed to be held
by the TCI Group to be deemed to be converted, exercised or exchanged (and to
the extent the terms of such Convertible Securities require payment or delivery
of consideration in order to effect such conversion, exercise or exchange, the
Liberty Media Group shall in such case include an amount of the kind of
properties or assets required to be paid or delivered as such consideration for
the amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which case
such Convertible Securities shall no longer be deemed to be held by the TCI
Group or attributed to the Liberty Media Group.

     "Liberty Media Group Available Dividend Amount," as of any date, shall mean
the product of the Liberty Media Group Outstanding Interest Fraction and either:
(a) the excess of (i) an amount equal to the total assets of the Liberty Media
Group less the total liabilities (not including preferred stock) of the Liberty
Media Group as of such date over (ii) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of Series
A Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock
and each class or series of Preferred Stock attributed to the Liberty Media
Group or (b) in case there is no such excess, an amount equal to the Corporation
Earnings (Loss) Attributable to the Liberty Media Group (if positive) for the
fiscal year in which such date occurs and/or the preceding fiscal year.

     "Liberty Media Group Distribution" shall mean the share distribution  of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock made to the holders of record of Series A TCI Group Common
Stock and Series B TCI Group Common Stock as of the close of business on August
4, 1995.

     "Liberty Media Group Inter-Group Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest as of such date and the
denominator of which is the sum of (a) such Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest as of such date and

                                       42
<PAGE>
 
(b) the aggregate number of shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock outstanding as of such date.

     "Liberty Media Group Net Proceeds" shall mean, as of any date, with respect
to any Disposition of any of the properties and assets of the Liberty Media
Group, an amount, if any, equal to the gross proceeds of such Disposition after
any payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 5(b) of this Section E (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the Telephony
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Liberty
Media Group, including, without limitation, any indemnity or guarantee
obligations incurred in connection with the Disposition or any liabilities for
future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends and other obligations (without duplication of
amounts allocated for the satisfaction of the Corporation's obligations with
respect to Pre-Distribution Convertible Securities and Committed Acquisition
Shares issuable which are included in the determination of the Adjusted Liberty
Media Group Outstanding Interest Fraction) in respect of Preferred Stock
attributed to the Liberty Media Group.  For purposes of this definition, any
properties and assets of the Liberty Media Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as can be supported by such
properties and assets.  To the extent the proceeds of any Disposition include
any securities or other property other than cash, the Board of Directors shall
determine the value of such securities or property, including for the purpose of
determining the equivalent value thereof if the Board of Directors determines to
pay a dividend or redemption price in cash or securities or other property as
provided in clause (z) of paragraph 5(b) of this Section E.

     "Liberty Media Group Outstanding Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding on such date and the denominator of which is the sum of
(a) such aggregate number of shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock outstanding on such date and (b)
the Number of Shares Issuable with Respect to the Liberty Media Group 
Inter-Group Interest as of such date.

     "Liberty Media Group Private Market Value" shall mean an amount equal to
the private market value of the Liberty Media Group as of the  Appraisal Date.
Each of  the First Appraiser, the Second Appraiser and the Mutually Designated
Appraiser, if any, shall be instructed to determine the private market value of
the Liberty Media Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's length transaction, if it
were acquiring the Liberty Media Group, as if the Liberty Media Group were a
publicly traded non-controlled corporation and the purchaser was acquiring all
of the capital stock of such corporation, and without consideration of any
potential regulatory constraints limiting the potential purchasers of the
Liberty

                                       43
<PAGE>
 
Media Group other than that which would have existed if the Liberty Media Group
were a publicly traded non-controlled entity.

     "Lower Appraised Amount," with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market Value,
the lower of the respective final views of the First Appraiser and the Second
Appraiser as to such private market value.

     "Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (i) the Market Value of
one share of such class or series on such Trading Day and (ii) the number of
shares of such class or series outstanding on such Trading Day.

     "Market Value" of any class or series of capital stock of the Corporation
on any day shall mean the average of the high and low reported sales prices
regular way of a share of such class or series on such day (if such day is a
Trading Day, and if such day is not a Trading Day, on the Trading Day
immediately preceding such day) or in case no such reported sale takes place on
such Trading Day the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in either
case on the Nasdaq National Market, or if the shares of such class or series are
not quoted on such Nasdaq National Market on such Trading Day, the average of
the closing bid and asked prices of a share of such class or series in the over-
the-counter market on such Trading Day as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation, or if such
closing bid and asked prices are not made available by any such New York Stock
Exchange member firm on such Trading Day, the market value of a share of such
class or series as determined by the Board of Directors; provided that for
purposes of determining the ratios set forth in paragraphs 2(d), 2(e),  5(b),
6(b) and 7 of this Section E, (a) the "Market Value" of any share of any series
of Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such series of
Common Stock shall be reduced by the fair market value of the per share amount
of such dividend or distribution as determined by the Board of Directors and (b)
the "Market Value" of any share of any series of Common Stock on any day prior
to (i) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of such
series of Common Stock or (ii) the "ex" date or any similar date for any
dividend or distribution with respect to any such series of Common Stock in
shares of such series of Common Stock shall be appropriately adjusted to reflect
such subdivision, combination, dividend or distribution.

     "Mutually Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, the determination by the Mutually Designated Appraiser of such private
market value.

     "Mutually Designated Appraiser" shall mean, if required with respect to any
determination of the Liberty Media Group Private Market Value or the Telephony
Group Private Market Value, the investment banking firm of recognized national
standing jointly designated by the First Appraiser and the Second Appraiser to
make such determination.

                                       44
<PAGE>
 
     "Number of Shares Issuable with Respect to the Liberty Media Group Inter-
Group Interest" after the Liberty Media Group Distribution shall be zero and
shall from time to time thereafter, as applicable, be

           (a) adjusted as appropriate to reflect subdivisions (by stock split
     or otherwise) and combinations (by reverse stock split or otherwise) of the
     Series A Liberty Media Group Common Stock and dividends or distributions of
     shares of Series A Liberty Media Group Common Stock or Series B Liberty
     Media Group Common Stock to holders of Series A Liberty Media Group Common
     Stock and other reclassifications of Series A Liberty Media Group Common
     Stock,

           (b) decreased (but not to less than zero) by (i) the aggregate number
     of shares of Series A Liberty Media Group Common Stock issued or sold by
     the Corporation after the Liberty Media Group Distribution other than
     Committed Acquisition Shares, the proceeds of which are attributed to the
     TCI Group, (ii) the aggregate number of shares of Series A Liberty Media
     Group Common Stock issued or delivered upon conversion, exercise or
     exchange of Convertible Securities (other than Pre-Distribution Convertible
     Securities and Convertible Securities which are convertible into or
     exercisable or exchangeable for Committed Acquisition Shares), the proceeds
     of which are attributed to the TCI Group, (iii) the aggregate number of
     shares of Series A Liberty Media Group Common Stock issued or delivered by
     the Corporation as a dividend or distribution to holders of Series A TCI
     Group Common Stock and Series B TCI Group Common Stock, (iv) the aggregate
     number of shares of Series A Liberty Media Group Common Stock issued or
     delivered upon the conversion, exercise or exchange of any Convertible
     Securities (other than Pre-Distribution Convertible Securities and
     Convertible Securities which are convertible into or exercisable or
     exchangeable for Committed Acquisition Shares) issued or delivered by the
     Corporation after the Liberty Media Group Distribution as a dividend or
     distribution or by reclassification or exchange to holders of Series A TCI
     Group Common Stock and Series B TCI Group Common Stock and (v) the
     aggregate number of shares of Series A Liberty Media Group Common Stock
     (rounded, if necessary, to the nearest whole number), equal to the
     aggregate fair value (as determined by the Board of Directors) of assets or
     properties attributed to the Liberty Media Group that are transferred from
     the Liberty Media Group to the TCI Group in consideration of a reduction in
     the Number of Shares Issuable with Respect to the Liberty Media Group 
     Inter-Group Interest, divided by the Market Value of one share of Series A
     Liberty Media Group Common Stock as of the date of such transfer, and

           (c) increased by (i) the aggregate number of any shares of Series A
     Liberty Media Group Common Stock and Series B Liberty Media Group Common
     Stock which are retired or otherwise cease to be outstanding following
     their purchase with funds attributed to the TCI Group, (ii) a number
     (rounded, if necessary, to the nearest whole number), equal to the fair
     value (as determined by the Board of Directors) of assets or properties
     theretofore attributed to the TCI Group that are contributed to the Liberty
     Media Group in consideration of an increase in the Number of Shares
     Issuable with Respect to the Liberty Media Group

                                       45
<PAGE>
 
     Inter-Group Interest, divided by the Market Value of one share of Series A
     Liberty Media Group Common Stock as of the date of such contribution and
     (iii) the aggregate number of shares of Series A Liberty Media Group Common
     Stock and Series B Liberty Media Group Common Stock into or for which
     Convertible Securities are deemed to be converted, exercised or exchanged
     pursuant to the last sentence of the definition of "TCI Group" in this
     paragraph 9. The Corporation shall not issue or sell shares of Series B
     Liberty Media Group Common Stock in respect of a reduction in the Number of
     Shares Issuable with Respect to the Liberty Media Group Inter-Group
     Interest.

     Whenever a change in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.

     "Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest" shall initially be that number of shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock which represent 100% of
the common stockholders' equity value of the Corporation attributable to the
Telephony Group, as determined by the Board of Directors of the Corporation
prior to the first issuance of shares of Series A Telephony Group Common Stock
or Series B Telephony Group Common Stock, and shall from time to time
thereafter, as applicable, be

           (a) adjusted as appropriate to reflect subdivisions (by stock split
     or otherwise) and combinations (by reverse stock split or otherwise) of the
     Series A Telephony Group Common Stock and Series B Telephony Group Common
     Stock and dividends or distributions of shares of Series A Telephony Group
     Common Stock or Series B Telephony Group Common Stock to holders of Series
     A Telephony Group Common Stock and Series B Telephony Group Common Stock
     and other reclassifications of the Series A Telephony Group Common Stock
     and Series B Telephony Group Common Stock,

           (b) decreased (but not to less than zero) by (i) the aggregate number
     of shares of Series A Telephony Group Common Stock or Series B Telephony
     Group Common Stock issued or sold by the Corporation the proceeds of which
     are attributed to the TCI Group, (ii) the aggregate number of shares of
     Series A Telephony Group Common Stock or Series B Telephony Group Common
     Stock issued or delivered upon conversion, exercise or exchange of
     Convertible Securities, the proceeds of which are attributed to the TCI
     Group, (iii) the aggregate number of shares of Series A Telephony Group
     Common Stock or Series B Telephony Group Common Stock issued or delivered
     by the Corporation as a dividend or distribution to holders of Series A TCI
     Group Common Stock and Series B TCI Group Common Stock, (iv) the aggregate
     number of shares of Series A Telephony Group Common Stock or Series B
     Telephony Group Common Stock issued or delivered upon the conversion,
     exercise or exchange of any Convertible Securities issued or delivered by
     the Corporation as a dividend or distribution or by reclassification or
     exchange to holders of Series A TCI Group Common Stock and Series B TCI
     Group Common Stock and (v) the aggregate

                                       46
<PAGE>
 
     number of shares of Series A Telephony Group Common Stock and Series B
     Telephony Group Common Stock (rounded, if necessary, to the nearest whole
     number), equal to the aggregate fair value (as determined by the Board of
     Directors) of assets or properties attributed to the Telephony Group that
     are transferred from the Telephony Group to the TCI Group in consideration
     of a reduction in the Number of Shares Issuable with Respect to the
     Telephony Group Inter-Group Interest, divided by the Market Value of one
     share of Series A Telephony Group Common Stock as of the date of such
     transfer, and

           (c) increased by (i) the aggregate number of any shares of Series A
     Telephony Group Common Stock and Series B Telephony Group Common Stock
     which are retired or otherwise cease to be outstanding following their
     purchase with funds attributed to the TCI Group, (ii) a number (rounded, if
     necessary, to the nearest whole number), equal to the fair value (as
     determined by the Board of Directors) of assets or properties, theretofore
     attributed to the TCI Group that are contributed to the Telephony Group in
     consideration of an increase in the Number of Shares Issuable with Respect
     to the Telephony Group Inter-Group Interest, divided by the Market Value of
     one share of Series A Telephony Group Common Stock as of the date of such
     contribution and (iii) the aggregate number of shares of Series A Telephony
     Group Common Stock and Series B Telephony Group Common Stock into or for
     which Convertible Securities are deemed to be converted, exercised or
     exchanged pursuant to the last sentence of the definition of "TCI Group" in
     this paragraph 9.

     Whenever a change in the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest occurs, the Corporation shall prepare and
file a statement of such change with the Secretary of the Corporation.

     "Pre-Distribution Convertible Securities" shall mean Convertible Securities
that were outstanding on the record date for the Liberty Media Group
Distribution and were, prior to such date, convertible into or exercisable or
exchangeable for shares of the Class A Common Stock, par value $1.00 per share,
of the Corporation.

     "Qualifying Subsidiary" shall mean a Subsidiary of the Corporation in which
(x) the Corporation's ownership and voting interest is sufficient to satisfy the
requirements of the Internal Revenue Service for a distribution of the
Corporation's interest in such Subsidiary to the holders of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock that is tax free to
such holders or (y) the Corporation owns, directly or indirectly, all of the
issued and outstanding capital stock.

     "Redemption Date" shall mean any date fixed for a redemption or purchase of
shares of (i) Series A Liberty Media Group Common Stock and  Series B Liberty
Media Group Common Stock or (ii) Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, as the case may be, as set forth in a
notice to holders of such series pursuant to this Certificate.

                                       47
<PAGE>
 
     "Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group or the
Telephony Group, as the case may be, in which the Corporation receives as
proceeds of such Disposition primarily equity securities (including, without
limitation, capital stock, convertible securities, partnership or limited
partnership interests and other types of equity securities, without regard to
the voting power or contractual or other management or governance rights related
to such equity securities) of the purchaser or acquiror of such assets and
properties of the Liberty Media Group or the Telephony Group, as the case may
be, any entity which succeeds (by merger, formation of a joint venture
enterprise or otherwise) to such assets and properties of the Liberty Media
Group or the Telephony Group, as the case may be, or a third party issuer, which
purchaser, acquiror or other issuer is engaged or proposes to engage primarily
in one or more businesses similar or complementary to the businesses conducted
by the Liberty Media Group or the Telephony Group, as the case may be, prior to
such Disposition, as determined in good faith by the Board of Directors.

     "Second Appraiser" means, with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market Value, an
investment banking firm of recognized national standing selected by the
Independent Committee to make such determination.

     "Selection Date," with respect to any determination of the Liberty Media
Group Private Market Value or the Telephony Group Private Market Value, shall
mean the date upon which the Second Appraiser for such determination is selected
by the Independent Committee.

     "Subsidiary" shall mean, with respect to any person or entity, any
corporation or partnership 50% or more of whose outstanding voting securities or
partnership interests, as the case may be, are directly or indirectly owned by
such person or entity.

     "TCI Group" shall mean, as of any date:

           (a) the interest of the Corporation or any of its subsidiaries in all
     of the businesses in which the Corporation or any of its subsidiaries (or
     any of their predecessors or successors) is or has been engaged, directly
     or indirectly, and the respective assets and liabilities of the Corporation
     or any of its subsidiaries, other than any businesses, assets or
     liabilities of the Liberty Media Group or the Telephony Group;

           (b) a proportionate interest in the businesses, assets and
     liabilities of the Liberty Media Group equal to the Liberty Media Group
     Inter-Group Interest Fraction as of such date;

           (c) a proportionate interest in the businesses, assets and
     liabilities of the Telephony Group equal to the Telephony Group Inter-Group
     Interest Fraction as of such date;

           (d) from and after any dividend or other distribution with respect to
     shares of Series A Liberty Media Group Common Stock or Series B Liberty
     Media Group Common

                                       48
<PAGE>
 
     Stock (other than a dividend or other distribution payable in shares of
     Series A Liberty Media Group Common Stock or Series B Liberty Media Group
     Common Stock, with respect to which adjustment shall be made as provided in
     clause (a) of the definition of "Number of Shares Issuable with Respect to
     the Liberty Media Group Inter-Group Interest," or in other securities of
     the Corporation attributed to the Liberty Media Group, for which provision
     shall be made as set forth in the penultimate sentence of this definition),
     an amount of assets or properties theretofore included in the Liberty Media
     Group equal to the aggregate amount of such kind of assets or properties so
     paid in respect of such dividend or other distribution with respect to
     shares of Series A Liberty Media Group Common Stock or Series B Liberty
     Media Group Common Stock multiplied by a fraction the numerator of which is
     equal to the Liberty Media Group Inter-Group Interest Fraction in effect
     immediately prior to the record date for such dividend or other
     distribution and the denominator of which is equal to the Liberty Media
     Group Outstanding Interest Fraction in effect immediately prior to the
     record date for such dividend or other distribution; and

           (e) from and after any dividend or other distribution with respect to
     shares of Series A Telephony Group Common Stock or Series B Telephony Group
     Common Stock (other than a dividend or other distribution payable in shares
     of Series A Telephony Group Common Stock or Series B Telephony Group Common
     Stock, with respect to which adjustment shall be made as provided in clause
     (a) of the definition of "Number of Shares Issuable with Respect to the
     Telephony Group Inter-Group Interest," or in other securities of the
     Corporation attributed to the Telephony Group, for which provision shall be
     made as set forth in the penultimate sentence of this definition), an
     amount of assets or properties theretofore included in the Telephony Group
     equal to the aggregate amount of such kind of assets or properties so paid
     in respect of such dividend or other distribution with respect to shares of
     Series A Telephony Group Common Stock or Series B Telephony Group Common
     Stock multiplied by a fraction the numerator of which is equal to the
     Telephony Group Inter-Group Interest Fraction in effect immediately prior
     to the record date for such dividend or other distribution and the
     denominator of which is equal to the Telephony Group Outstanding Interest
     Fraction in effect immediately prior to the record date for such dividend
     or other distribution; and

           (f) any assets or properties transferred from the Liberty Media Group
     or the Telephony Group to the TCI Group;

provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the Telephony Group,
the TCI Group shall no longer include such assets or properties so contributed
or transferred (other than pursuant to its interest in the businesses, assets
and liabilities of the Liberty Media Group or the Telephony Group pursuant to
clauses (b) or (c), respectively, above).  If (1) the Corporation shall pay a
dividend or make any other distribution with respect to shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
payable in other securities of the Corporation attributed to the Liberty Media
Group, the TCI Group shall be deemed to hold an amount of such other securities

                                       49
<PAGE>
 
equal to the amount so distributed multiplied by the fraction specified in
clause (d) of this definition (determined as of a time immediately prior to the
record date for such dividend or other distribution), and to the extent interest
or dividends are paid or other distributions are made on such other securities
so distributed to holders of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, the TCI Group shall include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in respect of such securities so deemed to be
held by the TCI Group, or (2) the Corporation shall pay a dividend or make any
other distribution with respect to shares of Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock payable in other securities of
the Corporation attributed to the Telephony Group, the TCI Group shall be deemed
to hold an amount of such other securities equal to the amount so distributed
multiplied by the fraction specified in clause (e) of this definition
(determined as of a time immediately prior to the record date for such dividend
or other distribution), and to the extent interest or dividends are paid or
other distributions are made on such other securities so distributed to holders
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock, the TCI Group shall include a corresponding ratable amount of the kind of
assets paid as such interest or dividends or other distributions in respect of
such securities so deemed to be held by the TCI Group.  The Corporation may
also, to the extent any such other securities constitute Convertible Securities
which are at the time convertible, exercisable or exchangeable, cause such
Convertible Securities deemed to be held by the TCI Group to be deemed to be
converted, exercised or exchanged (and to the extent the terms of such
Convertible Securities require payment or delivery of consideration in order to
effect such conversion, exercise or exchange, the TCI Group shall in such case
no longer include an amount of the kind of properties or assets required to be
paid or delivered as such consideration for the amount of the Convertible
Securities deemed converted, exercised or exchanged as if such Convertible
Securities were outstanding), in which case such Convertible Securities shall no
longer be deemed to be held by the TCI Group or attributed to the Liberty Media
Group or the Telephony Group.

     "TCI Group Available Dividend Amount," as of any date, shall mean either:
(a) the excess of (i) an amount equal to the total assets of the TCI Group less
the total liabilities (not including preferred stock) of the TCI Group as of
such date over (ii) the aggregate par value of, or any greater amount determined
to be capital in respect of, all outstanding shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock and each class or series of Preferred
Stock attributed to the TCI Group or (b) in case there is no such excess, an
amount equal to the Corporation Earnings (Loss) Attributable to the TCI Group
(if positive) for the fiscal year in which such date occurs and/or the preceding
fiscal year.

     "Telephony Group" shall mean, as of any date that any shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock have been
issued and continue to be outstanding:

           (a) the interest of the Corporation or of any of its subsidiaries in
     TCI Telephony Services, Inc. ("TCI Telephony") or any of its subsidiaries
     (including any successor thereto

                                       50
<PAGE>
 
     by merger, consolidation or sale of all or substantially all of its assets,
     whether or not in connection with a Related Business Transaction) and their
     respective properties and assets,

           (b) all assets and liabilities of the Corporation or any of its
     subsidiaries to the extent attributed to any of the properties or assets
     referred to in clause (a) of this sentence, whether or not such assets or
     liabilities are assets and liabilities of TCI Telephony or any of its
     subsidiaries (or a successor as described in clause (a) of this sentence),

           (c) all assets and properties contributed or otherwise transferred to
     the Telephony Group from the TCI Group, and

           (d) the interest of the Corporation or any of its subsidiaries in the
     businesses, assets and liabilities acquired by the Corporation or any of
     its subsidiaries for the Telephony Group, as determined by the Board of
     Directors;

provided that (i) from and after any dividend or other distribution with respect
to any shares of Series  A Telephony Group Common Stock or Series B Telephony
Group Common Stock (other than a dividend or other distribution payable in
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock, with respect to which adjustment shall be made as provided in
clause (a) of the definition of "Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest," or in other securities of the Corporation
attributed to the Telephony Group for which provision shall be made as set forth
in the penultimate sentence of this definition), the Telephony Group shall no
longer include an amount of assets or properties equal to the aggregate amount
of such kind of assets or properties so paid in respect of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock multiplied
by a fraction the numerator of which is equal to the Telephony Group Inter-Group
Interest Fraction in effect immediately prior to the record date for such
dividend or other distribution and the denominator of which is equal to the
Telephony Group Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and (ii) from and after any
transfer of assets or properties from the Telephony Group to the TCI Group, the
Telephony Group shall no longer include the assets or properties so transferred.
If the Corporation shall pay a dividend or make any other distribution with
respect to shares of Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock payable in securities of the Corporation attributed to the
Telephony Group other than Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, the TCI Group shall be deemed to hold an amount of
such other securities equal to the amount so distributed multiplied by the
fraction specified in clause (i) of this definition (determined as of a time
immediately prior to the record date for such dividend or other distribution),
and to the extent interest or dividends are paid or other distributions are made
on such other securities so distributed to the holders of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, the Telephony
Group shall no longer include a corresponding ratable amount of the kind of
assets paid as such interest or dividends or other distributions in respect of
such securities so deemed to be held by the TCI Group.  The Corporation may
also, to the extent any such other securities constitute Convertible Securities
which are at the time convertible, exercisable or

                                       51
<PAGE>
 
exchangeable, cause such Convertible Securities deemed to be held by the TCI
Group to be deemed to be converted, exercised or exchanged (and to the extent
the terms of such Convertible Securities require payment or delivery of
consideration in order to effect such conversion, exercise or exchange, the
Telephony Group shall in such case include an amount of the kind of properties
or assets required to be paid or delivered as such consideration for the amount
of the Convertible Securities deemed converted, exercised or exchanged as if
such Convertible Securities were outstanding), in which case such Convertible
Securities shall no longer be deemed to be held by the TCI Group or attributed
to the Telephony Group.

     "Telephony Group Available Dividend Amount," as of any date, shall mean the
product of the Telephony Group Outstanding Interest Fraction and either: (a) the
excess of (i) an amount equal to the total assets of the Telephony Group less
the total liabilities (not including preferred stock) of the Telephony Group as
of such date over (ii) the aggregate par value of, or any greater amount
determined to be capital in respect of, all outstanding shares of Series A
Telephony Group Common Stock, Series B Telephony Group Common Stock and each
class or series of Preferred Stock attributed to the Telephony Group or (b) in
case there is no such excess, an amount equal to the Corporation Earnings (Loss)
Attributable to the Telephony Group (if positive) for the fiscal year in which
such date occurs and/or the preceding fiscal year.

     "Telephony Group Inter-Group Interest Fraction," as of any date, shall mean
a fraction the numerator of which is the Number of Shares Issuable with Respect
to the Telephony Group Inter-Group Interest as of such date and the denominator
of which is the sum of (a) such Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest as of such date and (b) the aggregate
number of shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock outstanding as of such date.

     "Telephony Group Net Proceeds" shall mean, as of any date, with respect to
any Disposition of any of the properties and assets of the Telephony Group, an
amount, if any, equal to the gross proceeds of such Disposition after any
payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 6(b) of this Section E (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the Liberty Media
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Telephony
Group, including, without limitation, any indemnity or guarantee obligations
incurred in connection with the Disposition or any liabilities for future
purchase price adjustments and any preferential amounts plus any accumulated and
unpaid dividends and other obligations in respect of Preferred Stock attributed
to the Telephony Group.  For purposes of this definition, any properties and
assets of the Telephony Group remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs and liabilities
(contingent or otherwise) as can be supported by such properties and assets.  To
the extent the proceeds of any Disposition include any securities or other
property other than cash, the Board of Directors shall determine the value of
such securities or property, including for the purpose of determining the

                                       52
<PAGE>
 
equivalent value thereof if the Board of Directors determines to pay a dividend
or redemption price in cash or securities or other property as provided in
clause (z) of paragraph 6(b) of this Section E.

     "Telephony Group Outstanding Interest Fraction," as of any date, shall mean
a fraction the numerator of which is the aggregate number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock
outstanding on such date and the denominator of which is the sum of (a) such
aggregate number of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock outstanding on such date and (b) the Number of
Shares Issuable with Respect to the Telephony Group Inter-Group Interest as of
such date.

     "Telephony Group Private Market Value" shall mean an amount equal to the
private market value of the Telephony Group as of the Appraisal Date.  Each of
the First Appraiser, the Second Appraiser and the Mutually Designated Appraiser,
if any, shall be instructed to determine the private market value of the
Telephony Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's length transaction, if it
were acquiring the Telephony Group, as if the Telephony Group were a publicly
traded non-controlled corporation and the purchaser was acquiring all of the
capital stock of such corporation, and without consideration of any potential
regulatory constraints limiting the potential purchasers of the Telephony Group
other than that which would have existed if the Telephony Group were a publicly
traded non-controlled entity.

     "Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not traded on
the Nasdaq National Market System or in the over-the-counter market.""

(iv) Section C of Article V of the Restated Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:

                                   "SECTION C

                              REMOVAL OF DIRECTORS

     Subject to the rights of the holders of any class or series of Preferred
Stock, directors may be removed from office only for cause (as hereinafter
defined) upon the affirmative vote of the holders of 66 2/3% of the total voting
power of the then outstanding shares of Series A TCI Group Common Stock, Series
B TCI Group Common Stock, Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock, Series A Telephony Group Common Stock, Series
B Telephony Group Common Stock and any class or series of Preferred Stock
entitled to vote at an election of directors, voting together as a single class.
Except as may be provided by law, "cause" for removal, for purposes of this
Section C, shall exist only if: (i) the director whose removal is proposed has
been convicted of a felony, or has been granted immunity to testify in an action
where another has been convicted of a felony, by a court of competent
jurisdiction and such

                                       53
<PAGE>
 
conviction is no longer subject to direct appeal; (ii) such director has become
mentally incompetent, whether or not so adjudicated, which mental incompetence
directly affects his ability as a director of the Corporation, as determined by
at least 66 2/3% of the members of the Board of Directors then in office (other
than such director); or (iii) such director's actions or failure to act have
been determined by at least 66 2/3% of the members of the Board of Directors
then in office (other than such director) to be in derogation of the director's
duties."

(v) Section A of Article VIII of the Restated Certificate of Incorporation of
the Corporation is hereby amended to read in its entirety as follows:

                                 "ARTICLE VIII

                            MEETINGS OF STOCKHOLDERS

                                   SECTION A

                          ANNUAL AND SPECIAL MEETINGS

     Subject to the rights of the holders of any class or series of Preferred
Stock, stockholder action may be taken only at an annual or special meeting.
Except as otherwise provided in the terms of any class or series of Preferred
Stock or unless otherwise prescribed by law or by another provision of this
Certificate, special meetings of the stockholders of the Corporation, for any
purpose or purposes, shall be called by the Secretary of the Corporation (i)
upon the written request of the holders of not less than 66 2/3% of the total
voting power of the outstanding Voting Securities (as hereinafter defined) or
(ii) at the request of at least 75% of the members of the Board of Directors
then in office.  The term "Voting Securities" shall include the Series A TCI
Group Common Stock, the Series B TCI Group Common Stock, the Series A Liberty
Media Group Common Stock, the Series B Liberty Media Group Common Stock, the
Series A Telephony Group Common Stock, the Series B Telephony Group Common Stock
and any class or series of Preferred Stock entitled to vote with the holders of
Common Stock generally upon all matters which may be submitted to a vote of
stockholders at any annual meeting or special meeting thereof.

     SECOND: That said amendments were duly adopted by the Board of Directors of
the Corporation, and pursuant to resolution of the Board of Directors of the
Corporation, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the

                                       54
<PAGE>
 
necessary number of shares as required by statute and the Restated Certificate
of Incorporation of the Corporation were voted in favor of said amendments.

     THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware."

                                       55
<PAGE>
 
     IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 7th day of April, 1997.

                                     TELE-COMMUNICATIONS, INC.


                                     By: /s/ John C. Malone
                                        -----------------------------------
                                        Name:  John C. Malone
                                        Title: Chief Executive Officer

ATTEST:


By: /s/ Stephen M. Brett
   ------------------------------
   Name:  Stephen M. Brett
   Title: Secretary

                                       56

<PAGE>
 
                           TELE-COMMUNICATIONS, INC.
                                Terrace Tower II
                                5619 DTC Parkway
                         Englewood, Colorado 80111-3000

                                                                       EXHIBIT 5
                                                                       ---------

                                 May 13, 1997

Board of Directors
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000

Dear Sirs:

     I am Executive Vice President and General Counsel of Tele-Communications,
Inc., a Delaware corporation (the "Company"), and this opinion is being
delivered in connection with the filing of the Company's Registration Statement
on Form S-3 (the "Registration Statement"), with respect to the registration
under the Securities Act of 1933, as amended (the "Act"), of shares of the
Company's Tele-Communications, Inc. Series A TCI Group Common Stock, par value
$1.00 per share, and Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share (collectively, the "Shares"), each
issuable upon the conversion of certain convertible notes (the "Notes") and each
to be offered and sold from time to time by the holders thereof named in the
Registration Statement (the "Selling Stockholders").

     In connection therewith, I have examined, among other things, the
originals, certified copies or copies otherwise identified to my satisfaction as
being copies of originals, of the Restated Certificate of Incorporation and By-
Laws of the Company, as amended; minutes of the proceedings of the Company's
Board of Directors; and such other documents, records, certificates of public
officials and questions of law as I deemed necessary or appropriate for the
purpose of this opinion. In rendering this opinion, I have relied, to the extent
I deemed such reliance appropriate, on certificates of officers of the Company
as to factual matters.  I have assumed the authenticity of all documents
submitted to me as originals and the conformity to authentic original documents
of all documents submitted to me as certified, conformed or reproduction copies.
I have further assumed that there will be no changes in applicable law between
the date of this opinion and the date the Shares proposed to be sold by the
Selling Stockholders pursuant to the Registration Statement are actually sold.

     Based upon the foregoing, I am of the opinion that each of the Shares to be
issued upon conversion of the Notes have been duly authorized and, when issued
and delivered upon conversion of the Notes will be validly issued, fully paid
and non-assessable.
<PAGE>
 
     I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to me contained therein under the
heading "Legal Matters."  In giving the foregoing consent, I do not admit that I
am in the category of persons whose consent is required under Section 7 of the
Act, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.

                                 Very truly yours,

                                 /s/ Stephen M. Brett
                                 Stephen M. Brett
                                 Executive Vice President and
                                   General Counsel

<PAGE>
 
                                 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 on 
Form S-3 of Tele-Communications, Inc. of our reports, dated March 24, 1997, 
relating to the consolidated balance sheets of Tele-Communications, Inc. and 
subsidiaries as of December 31, 1996 and 1995, and the related consolidated 
statements of operations, stockholders' equity, and cash flows for each of the 
years in the three-year period ended December 31, 1996, and all related 
financial statement schedules, which reports appear in the December 31, 1996 
Annual Report on Form 10-K of Tele-Communications, Inc. and to the reference to 
our firm under the heading "Experts" in the prospectus.


                                    /s/ KPMG Peat Marwick LLP
                                    KPMG Peat Marwick LLP
      
Denver, Colorado
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.2

                    CONSENT OF INDEPENDENT AUDITORS
                    -------------------------------

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We consent to the incorporation by reference in the registration statement on 
Form S-3 of Tele-Communications, Inc. of our report, dated March 24, 1997, 
relating to the combined balance sheets of TCI Group as of December 31, 1996 
and 1995, and the related combined statements of operations, equity, and cash 
flows for each of the years in the three-year period ended December 31, 1996, 
which report appears in the December 31, 1996 Annual Report on Form 10-K of 
Tele-Communications, Inc. and to the reference to our firm under the heading 
"Experts" in the prospectus.  Our report covering the combined financial 
statements refers to the effects of not consolidating TCI Group's interest in 
Liberty Media Group for all periods that TCI Group has an interest in Liberty 
Media Group.


                                    /s/ KPMG Peat Marwick LLP
                                    KPMG Peat Marwick LLP
      
Denver, Colorado
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.3

                    CONSENT OF INDEPENDENT AUDITORS
                    -------------------------------

The Board of Directors and Stockholders
Tele-Communications, Inc.:

We consent to the incorporation by reference in the registration statement on 
Form S-3 of Tele-Communications, Inc. of  our  report, dated March 24, 1997, 
relating to the combined balance sheets of  Liberty Media Group as  of  
December 31, 1996 and 1995, and the related combined statements of operations, 
equity, and cash flows for each of the years in the three-year period ended 
December 31, 1996, which report appears in the December 31, 1996 Annual Report 
on Form 10-K of Tele-Communications, Inc. and to the reference to our firm 
under the heading "Experts" in the prospectus.


                                    /s/ KPMG Peat Marwick LLP
                                    KPMG Peat Marwick LLP
      
Denver, Colorado
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.4

                    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 on 
Form S-3 of Tele-Communications, Inc. of our report, dated March 11, 1997, 
relating to the consolidated balance sheet of Telewest Communications plc and 
subsidiaries as of December 31, 1996 and 1995, and the related consolidated 
statements of operations and cash flows for each of the years in the three year 
period ended December 31, 1996, which report appears in the December 31, 1996 
Annual Report on Form 10-K of Tele-Communications, Inc. and to the reference to 
our firm under the heading "Experts" in the prospectus.

/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants
Registered Auditors

London, England
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.5

INDEPENDENT AUDITORS' CONSENT
- -----------------------------

We consent to the incorporation by reference in the registration statement on 
Form S-3 of Tele-Communications, Inc. of our report dated March 14, 1997 on the 
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and 
subsidiaries (which expresses an unqualified opinion and includes an 
explanatory paragraph referring to the developmental stage of Sprint Spectrum 
Holding Company, L.P. and subsidiaries) for each of the two years in the period 
ended December 31, 1996, for the period from October 24, 1994 (date of 
inception) to December 31, 1994 and for the cumulative period from October 24, 
1994 (date of inception) to December 31, 1996 appearing in the Annual Report on 
Form 10-K of Tele-Communications, Inc. for the year ended December 31, 1996, 
and to the reference to us under the heading "Experts" in the Prospectus, which 
is part of this Registration Statement.


/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Kansas City, Missouri
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.6

                  CONSENT OF INDEPENDENT ACCOUNTANTS
                  ----------------------------------

We hereby consent to the incorporation by reference in the Prospectus 
constituting part of this Registration Statement on Form S-3 of 
Tele-Communications, Inc. of our report dated March 7, 1997 on the financial 
statements of American PCS, L.P. (A Delaware Limited Partnership) as of and for 
the year ended December 31, 1996 referred to in the consolidated financial 
statements of Sprint Spectrum Holding Company, L.P. and subsidiaries, which 
appears in the Annual Report on Form 10-K of Tele-Communications, Inc. for the 
year ended December 31, 1996.  We also consent to the reference to us under the 
heading "Experts" in such Prospectus.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP

Washington, D.C.
May 7, 1997

<PAGE>
 
                                 EXHIBIT 23.7

                  CONSENT OF INDEPENDENT ACCOUNTANTS
                  ----------------------------------


We hereby consent to the incorporation by reference in the Prospectus 
constituting part of the Registration Statement on Form S-3 of 
Tele-Communications, Inc. of our report dated February 14, 1996, relating to 
the combined financial statements of VII Cable which appears in the Current 
Report on Form 8-K of Tele-Communications, Inc. dated June 19, 1996.  We also 
consent to the reference to us under the heading "Experts" in such Prospectus.



/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Jose, California
May 7, 1997

<PAGE>
 
                                                                    EXHIBIT 99.1

                              SELLING STOCKHOLDERS
                      NAMED IN SCHEDULE 1 ATTACHED HERETO





                                 May 7, 1997



Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado  80111-3000

Gentlemen:

          The persons listed on Schedule 1 hereto (the "Selling Stockholders")
are the holders of notes (the "Notes") issued by TCI UA, Inc., an indirect
wholly-owned subsidiary of Tele-Communications, Inc. (the "Company").  The Notes
are currently convertible into shares of (i) the Company's Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share ("TCOMA"), and
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share ("LBTYA") and (ii) Series A Common Stock, $1.00 par value per
share, of TCI Satellite Entertainment, Inc.  The Selling Stockholders have
requested that the Company file pursuant to the Securities Act of 1933, as
amended (the "Act"), a registration statement with respect to the number of
shares of TCOMA and LBTYA to be issued from time to time upon conversion of up
to $30 million aggregate principal amount of the Notes (the "Shares"), and the
offering and sale of the Shares from time to time by the Selling Stockholder or
Selling Stockholders to whom the Shares are issued.  The Company has prepared a
registration statement on Form S-3 (the "Registration Statement") with respect
to the Shares and the offering and sale thereof by the Selling Stockholders on a
delayed or continuous basis pursuant to Rule 415 under the Act.  On the terms
and conditions set forth in this letter agreement (this "Agreement"), the
Company has agreed to file the Registration Statement with the Securities and
Exchange Commission and to use commercially reasonable efforts to cause said
Registration Statement to become effective under the Act and to remain effective
until the earlier of (i) the termination of the offering of the Shares by the
Selling Stockholders or (ii) the first anniversary of the effective date of the
Registration Statement (or for such longer period as the Company in its sole
discretion may determine).  As used herein, the term "Registration Statement"
means the Registration Statement  (including exhibits,  financial statements and
schedules and documents incorporated by reference therein), as amended, when it
becomes effective under the Act and, in the case of references to the
Registration Statement as of a date
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 2


subsequent to the effective date, as amended or supplemented as of such date.
As used herein, the term "Prospectus" means the prospectus included in the
Registration Statement as of the date it becomes effective under the Act and, in
the case of references to the Prospectus as of a date subsequent to the
effective date of the Registration Statement, as amended or supplemented as of
such date, including all documents incorporated by reference therein, as
amended, and each prospectus supplement relating to the offering and sale of any
of the Shares.  As used herein, the term "Selling Stockholder" means each person
listed on Schedule 1 hereto and each person (a "Permitted Transferee") to whom a
person listed on Schedule 1 hereto transfers Notes after the date hereof in a
transaction permitted by that certain Stock Purchase Agreement, dated as of July
9, 1986, among the Company and certain shareholders of United Artists
Communications, Inc., provided that such Permitted Transferee becomes a party to
this Agreement as contemplated by paragraph 9.

          The Selling Stockholders hereby confirm their agreement with the
Company as follows:

          1.   All expenses in connection with the Registration Statement, any
qualification or compliance with federal or state laws required in connection
therewith, and the distribution of the Shares shall, as between the Selling
Stockholders and the Company, be borne as follows:

               (a)  The Company shall pay and be responsible for the
          registration fee payable under the Act, blue sky fees and expenses, if
          applicable (subject to the limitations set forth in paragraph 4), and
          all fees and disbursements of the Company's counsel and accountants.
          The Company will not engage the services of a printer with respect to
          the Registration Statement or the Prospectus, but will arrange for the
          photocopying thereof and bear the photocopying costs.

               (b)  The Selling Stockholders shall pay all fees and
          disbursements of their own counsel and advisers, all stock transfer
          fees or expenses, if any, and all other expenses (including
          underwriting discounts and selling commissions) related to the
          distribution of the Shares that have not expressly been assumed by the
          Company as set forth above.

          2.   Each Selling Stockholder hereby confirms to the Company that the
information contained in the sections of the Registration Statement entitled
"Shares Being Offered", "Selling Stockholders" and "Plan of Distribution", and
on the first two pages of the Prospectus included therein, in each case as it
relates to such Selling Stockholder (including, without limitation, such Selling
Stockholder's ownership of Notes and offering of Shares) is accurate and
complete and
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 3


may specifically be used in the Registration Statement.  Without limiting the
generality of the foregoing, each Selling Stockholder acknowledges and confirms
that the shares of TCOMA and LBTYA issued upon conversion of the Notes will be
included in the Shares covered by the Registration Statement on the basis of the
order in which the Notes, up to an aggregate principal amount of $30 million,
are converted.  Each Selling Stockholder further acknowledges that the
information referred to in the first sentence of this paragraph 2 is disclosed
in the Registration Statement in accordance with the requirements of Items 507
and 508 of Regulation S-K promulgated by the Commission under the Act, and each
Selling Stockholder agrees to notify promptly the Company of any change after
the date hereof in such information and of any additional information relating
to such Selling Stockholder and the distribution of the Shares (including,
without limitation, the information referred to in paragraph 4 below) that may
be required pursuant to said Items to be disclosed.  The information referred to
in this paragraph 2 and in paragraph 4 below, as amended or supplemented from
time to time, is hereinafter called the "Selling Stockholder Information".

          3.   During such time as the Selling Stockholders may be engaged in a
distribution of the Shares, each Selling Stockholder agrees to comply with
Regulation M  promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").  Pursuant to such regulation (the "Regulation"), each
Selling Stockholder will, among other things, (i) not engage in any
stabilization activity in connection with the securities of the Company in
contravention of the Regulation; (ii) distribute the Shares owned by such
Selling Stockholder solely in the manner described in the Registration
Statement; (iii) cause to be furnished to each agent, broker-dealer or
underwriter to or through whom the Shares owned by such Selling Stockholder may
be offered, or to the offeree if an offer is made directly by such Selling
Stockholder, such copies of the Prospectus (as amended or supplemented to such
date) and documents incorporated by reference therein as may be required by such
agent, broker-dealer, underwriter or offeree; and (iv) not bid for or purchase
any securities of the Company or attempt to induce any person to purchase any
securities of the Company other than as permitted under the Exchange Act.

          4.   Each Selling Stockholder agrees to notify the Company, at least
five (5) business days prior to any distribution of Shares by such Selling
Stockholder, of the dates on which the distribution will commence and terminate,
the number of Shares to be sold, the terms and manner of sale (including, to the
extent applicable, the purchase price, the public offering price, the name of
any agent, broker-dealer or underwriter to or through whom such distribution is
being made, and the amount of any selling commissions, underwriting discounts or
other items constituting compensation to such agent, broker-dealer or
underwriter), and the number of shares of TCOMA and LBTYA that will be
beneficially owned by such Selling Stockholder after giving effect to such sale.
To the extent required, the Company will (i) prepare a supplement to the
Prospectus based upon the
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 4


information so provided and file the same with the Commission pursuant to Rule
424(b) under the Act and (ii) register or qualify, if such registration or
qualification is required by law, at its expense the Shares to be sold under the
securities or blue sky laws of such reasonable number of jurisdictions in the
United States as such Selling Stockholder shall request; provided, however, that
                                                         --------  -------      
the Company shall in no event be required to qualify to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not so qualified, to
conform its capitalization or the composition of its assets at the time to the
securities or blue sky laws of any such jurisdiction, to execute or file any
general consent to service of process under the laws of any jurisdiction, to
take any action that would subject it to service of process in suits other than
those arising out of the offer and sale of the Shares, or to subject itself to
taxation in any jurisdiction where it has not theretofore done so.  Each Selling
Stockholder also agrees to inform the Company and any agents or broker-dealers
through whom sales of Shares by such Selling Stockholder may be made when each
distribution of the Shares is completed.

          5.   On notice from the Company that, in connection with an action
proposed to be taken by the Company (including, without limitation, the
distribution or repurchase of any of its securities), the Company requires the
suspension by the Selling Stockholders of the distribution of any of the Shares,
each Selling Stockholder agrees to cease distributing the Shares until such time
as the Company notifies the Selling Stockholders that distribution of the Shares
may recommence.

          6.   (a)  The Company agrees to indemnify and hold harmless each
Selling Stockholder and each person (if any) who controls such Selling
Stockholder within the meaning of either the Act or the Exchange Act
(collectively, the "Seller Indemnified Parties") from and against any losses,
claims, damages or liabilities, joint or several, to which such Seller
Indemnified Parties may become subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus, or 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, or any violation by the Company of any
federal or state securities law or rule or regulation thereunder applicable to
the Company and relating to any action required of the Company in connection
with the Registration Statement; and, subject to paragraph 6(c), the Company
will reimburse such Seller Indemnified Parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage or liability; provided, however, that the Company will
                                       --------  -------                       
not indemnify or hold harmless any Seller Indemnified Party from or against any
such loss, claim, damage, liability or expense (i) that arises out of or is
based upon any violation of any federal or state securities laws, rules or
regulations committed by any of the Seller Indemnified Parties (or any
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 5


agent, broker-dealer or underwriter engaged by them) or (ii) if the untrue
statement, omission or allegation thereof upon which such losses, claims,
damages, liabilities or expenses are based (x) was made in reliance upon and in
conformity with the Selling Stockholder Information, or (y) was made in any
Prospectus used after such time as the Company advised the Selling Stockholders
that the filing of a post-effective amendment or supplement thereto was
required, except the Prospectus as so amended or supplemented, or (z) was made
in any Prospectus used after such time as the obligation of the Company
hereunder to keep the Registration Statement effective and current has expired.

          (b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless, the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of either the Act or
the Exchange Act (the "TCI Indemnified Parties"), from and against any losses,
claims, damages or liabilities, joint or several, to which the TCI Indemnified
Parties may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus, or 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, if the statement or omission was made in
reliance upon and in conformity with the Selling Stockholder Information
relating to such Selling Stockholder, or (ii) the use of any Prospectus after
such time as the Company has advised the Selling Stockholders that the filing of
a post-effective amendment or supplement thereto is required, except the
Prospectus as so amended or supplemented, or (iii) the use of any Prospectus
after such time as the obligation of the Company hereunder to keep the
Registration Statement effective and current has expired, or (iv) any violation
by such Selling Stockholder or any person who controls such Selling Stockholder
within the meaning of either the Act or the Exchange Act (or any agent, broker-
dealer or underwriter engaged by such Selling Stockholder or any such
controlling person) of any federal or state securities law or rule or regulation
thereunder; and, subject to paragraph 6(c), such Selling Stockholder will
reimburse such TCI Indemnified Parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage or liability.

          (c) Each party entitled to indemnification under this paragraph 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and the
Indemnifying Party shall assume the defense of any such claim and any action or
proceeding resulting therefrom, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all expenses.  The
failure of any
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 6


Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of any liability that it may have to any Indemnified Party
otherwise than under this paragraph 6.  The Indemnified Party 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 Indemnified Party's expense unless (i) the Indemnifying
Party has agreed to pay such fees and expenses or (ii) the Indemnifying Party
shall have failed to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the Indemnified Party or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include an Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that there may be a conflict of
interest between such Indemnified Party and the Indemnifying Party in the
conduct of the defense of such action (in which case, if such Indemnified Party
notifies the Indemnifying Party that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not assume the
defense of such action or proceeding on such Indemnified Party's behalf, it
being understood, however, that the Indemnifying Party shall not, 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 in which an action is pending, in which case the
Indemnifying Party will pay the reasonable fees and expenses of one additional
firm of attorneys to act as local counsel in such jurisdiction, provided that
the services of such counsel are substantially limited to that of appearing as
attorneys of record) at any time for all Indemnified Parties, which firm shall
be designated in writing by the Representatives (as defined in paragraph 7
below) or the Company as the case may be).  No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.  The Indemnifying Party shall not 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 Indemnifying
Party shall indemnify and hold harmless the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment.

          7.   Each Selling Stockholder represents and warrants to the Company
that (i) such Selling Stockholder has duly authorized John M. Sherwood, Robert
A. Naify and Marshall Naify (the "Representatives") and each of them, in such
Selling Stockholder's name and on behalf of such Selling Stockholder, to execute
and deliver this Agreement and any other document necessary or desirable in
connection with the transactions contemplated hereby and to give all notices to
the
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 7


Company, and to receive all notices from the Company, that may be required or
permitted hereunder, and to take such other action as may be necessary or
desirable in connection with this Agreement and the transactions contemplated
hereby, and (ii) a power of attorney to the foregoing effect has been duly
authorized, executed and delivered by such Selling Stockholder and is a legal,
valid and binding agreement of such Selling Stockholder.  Without limiting the
generality of the foregoing, each Selling Stockholder agrees that the Company
may rely, without independent investigation, upon information contained in any
notice given by a Representative to the Company pursuant to paragraphs 2 and 4
hereof, as fully and with the same effect as if the notice had been given by
such Selling Stockholder directly.
 
          8.   All notices or other communications required or permitted
hereunder shall be given in writing, either delivered by hand, by mail or by
telex, telecopier or telegram, and any such notice shall be effective when
received at the address specified below:

          If to the Company:

          Tele-Communications, Inc.
          Terrace Tower II
          5619 DTC Parkway
          Englewood, Colorado  80111-3000
          Attention:    Stephen M. Brett
                        Executive Vice President and
                         General Counsel
          Telephone:    (303) 267-4800
          Facsimile:    (303) 488-3245
 
          If to the Representative or a Selling Stockholder:
 
          John M. Sherwood
          172 Golden Gate Avenue
          San Francisco, California  94102
          Telephone:    (415) 928-3200
          Facsimile:    (415) 673-3329

or at such other address as such party may designate from time to time by notice
duly given in accordance with the terms of this paragraph 8.
<PAGE>
 
Tele-Communications, Inc.
May 7, 1997
Page 8


          9.  This Agreement shall be binding upon and inure to the benefit of
the Company and the Selling Stockholders and their respective Permitted
Transferees; provided, however, that no Permitted Transferee shall be entitled
             --------  -------                                                
to the benefits of this Agreement unless, in connection with the transfer of
Notes to such Permitted Transferee, such Permitted Transferee signifies its
agreement to and acceptance of the terms and conditions of this Agreement by
executing and delivering a counterpart of this Agreement to the Company and a
power of attorney to the effect set forth in paragraph 7 hereof to the
Representatives.

          If the foregoing accurately sets forth our understanding, please so
signify by signing the enclosed copy of this letter agreement in the space
provided and returning it to the undersigned.

                                 Very truly yours,

                                 THE SELLING STOCKHOLDERS NAMED 
                                 IN SCHEDULE 1 ATTACHED HERETO



                                 By:  /s/ John M. Sherwood
                                     --------------------------
                                     John M. Sherwood
                                     Attorney-in-fact


TELE-COMMUNICATIONS, INC.



By:   /s/ Stephen M. Brett
     --------------------------
     Stephen M. Brett
     Executive Vice President
<PAGE>
 
                                  SCHEDULE 1
                          to Letter Dated May 7, 1997

                             Selling Stockholders
                             --------------------


Robert A. Naify  as Trustee under the Robert A. Naify Living Trust, dated
       February 8, 1991
Marshall Naify
Valerie Naify
Leslie C. Naify
Christie M. Naify
Robert J. Naify
Marshall Naify, Robert A. Naify and Georgette N. Rosekrans as Trustees under the
       Michael N. Naify testamentary trust for the benefit of Marshall Naify
John M. Sherwood as Trustee under the Christie M. Naify 1981 Trust, dated
       December 22, 1981
John M. Sherwood as Trustee under the Robert J. Naify 1981 Trust, dated December
       22, 1981
John M. Sherwood as Trustee under the Acela Cortese 1983 Trust, dated December
       21, 1983
John M. Sherwood as Trustee under the Christina E. Naify 1985 Trust, dated June
       26, 1985
John M. Sherwood as Trustee under the Drew Michael Andrade 1986 Trust, dated
       April 25, 1986
John M. Sherwood and Marsha J. Naify as Trustees under the Marsha J. Naify
       Living Trust, dated October 1, 1990
John M. Sherwood as Trustee under the Michael S. Naify 1981 Trust, dated
       December 29, 1981
John M. Sherwood as Trustee under the Christina E. Naify 1981 Trust, dated
       December 29, 1981
Christina C. Dierker as Trustee under the Christina C. Dierker 1995 Trust, dated
       October 10, 1995
Christina E. Naify
Marshall Naify as Trustee under the Michael Stephen Naify Trust, dated January
       21, 1963
Richard R. Naify
Josephine Naify
James Naify


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